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

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.

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.

Businesses able to submit ‘voluntary’ tax payments under HMRC’s PAYG proposals

Sole traders, landlords and unincorporated businesses will be able to submit ‘voluntary’ tax payments towards unexpected tax liabilities, under new HMRC proposals.

The news comes alongside the much anticipated publication of six consultation documents into HMRC’s ‘Making Tax Digital’ campaign, which the tax authority hopes will make all tax “100 per cent digital by 2020”.

HMRC’s proposed pay as you go system is one of many unanticipated changes to Making Tax Digital outlined in the tax authority’s latest consultations, which were published this week.

The proposed system will allow taxpayers to take full control over how often they wish to pay, and how regularly – although businesses with an annual income of £10,000 or more will also find themselves under new obligations to report accounts information to HMRC “at least quarterly” according to the consultations.

HMRC has said that their optional voluntary system will apply to the likes of Capital Gains Tax (CGT), income tax and national insurance (NI) contributions from 1 April 2018 – and to VAT from April 2019.

By 2020, HMRC hopes PAYG will also be open to incorporated businesses in respect of their corporation tax affairs.

Proposals under Making Tax Digital are complex and confusing, and taxpayers and businesses alike are advised to seek advice, to determine exactly how HMRC’s tax overhaul will affect them personally.

The Association of Taxation Technicians (ATT) recently branded Making Tax Digital “the biggest change to the way taxpayers will engage with HMRC since the introduction of PAYE in 1945”.

SMEs failing to take cyber security seriously, says study

Small and Medium Enterprises (SMEs) across the UK are putting themselves at risk by failing to take their cyber security seriously, according to new research.

A study carried out by Barclaycard found that just one in five SMEs consider cyber security a ‘top business priority’, despite the fact that 74 per cent of UK firms found themselves facing at least one security breach during 2015, according to HM Revenue and Customs (HMRC).

The Government has warned that the average cyber-attack can potentially cost a business anywhere between £75,000 and £311,000.

The National Audit Office (NAO) has added that cyber-attacks could become more common following HMRC’s shift to an all-digital tax system.

Making Tax Digital (MTD) proposals came under fire last week, after an NAO report fund that much more still needs to be done by HMRC ‘to use data and technology to reduce fraud and error’.

The NAO said that HMRC is facing a great challenge in building “public trust that the new digital tax systems are easy to use and secure”, in order to protect both itself and SMEs from potential data loss and IT crime as the new systems are brought online.

Their report added that HMRC “must also demonstrate to taxpayers that its controls to verify each taxpayer’s identify and protect the confidentiality of data and working effectively.”

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