VAT – Happy New Year
VAT returns to 17.5% on 1st January 2010 so will the hostelry you are frequenting on New Year’s Eve suddenly increase their prices at midnight? The answer is “No”.
As a concession HMRC are allowing pubs, hotels and other establishments which are open at midnight to continue accounting for VAT at the 15% rate until 6.00am on New Year’s day.
If you need more information on the changes, contact us.
September 2009 Tax Tips newsletter published
Our September 2009 Tax Tips newsletter has been published and is available to view.
It contains articles on the recently announced amnesty for taxpayers with overseas bank accounts, paying dividends, correcting VAT errors and giving shares to employees.
Why not sign up to receive our FREE newsletter straight to your Inbox as soon as it is published. We only publish about once per month so you won’t be inundated with spam – and we definitely don’t pass on any information to third parties.
Free Newsletter
We recently launched our Free Newsletter, delivered by email to your inbox, covering tax news and information which we think will be of general interest.
It’s FREE. We won’t bombard you with loads of unwanted mail – just the Newsletter about once a month. You can unsubscribe at any time. You should find some interesting comments and information in the Newsletter. Is there a reason you can think of why you shouldn’t subscribe?
This is the link to the subscription page.
Godkin & Co – sad to see them go
We’ve been advised that Godkin & Co, a firm of accountants with offices in Loughborough – close to us, are going into liquidation. Godkins have been well respected in the Loughborough area for many years and have a solid reputation. In all of our dealings with them we have found them to be professional and helpful. It is a shame that the recession seems to have had such an effect on them. It’s particularly sad that fourteen members of staff have also lost their jobs. Hopefully they will all find new employment soon.
The Liquidators are taking steps to sell the client base and clients should soon find that they have a new accountant but, with all members of staff being made redundant, there will be a break in continuity and long established relationships will be broken.
Most other accountants in the area, including ourselves, will certainly try to help if asked to do so by clients. We don’t like to see clients struggling through no fault of their own.
The VAT Trap – Disincentive for business
The VAT trap occurs when a business exceeds the VAT turnover threshold (currently £68,000 pa) but the turnover will not increase much above this level. The result is that, although sales have increased, profits actually go down – sometimes quite dramatically. The effect is worst for small businesses in service industries (hairdressers, beauticians, cleaning firms, consultants,accountants[!!] etc) because the major cost is their own labour.
Consider a small business with a turnover of £67,000 using no materials but employing one member of staff at £15,000 pa and paying rent of £10,000 with incidental costs (telephone, stationery etc) of £5,000 and selling to consumers, rather than businesses. At £67,000 the net profit is £37,000.
If the business turnover increases to £69,000, because they can’t put up prices otherwise they would cease to be competitive, this figure has to include VAT. So the VAT payable on the turnover is £9,000. They can offset VAT on the incidental costs. The maximum this could be is £652. The net profit therefore falls to £30,652.
A £2,000 increase in sales has resulted in a £6,448 fall in profit. In this particular example, turnover has to increase to nearly £80,000 before the business actually returns to the same level of profitability as it had with a turnover of £67,000.
This problem has reared its head this week with three different clients. Two are already registered for VAT but are struggling to increase sales sufficiently. One of these has decided to close their retail business for one day a week to reduce turnover and allow them to deregister. The other is cutting its least profitable clients to get back below the threshold. The third business is approaching the threshold and has decided to close an extra day per week to stay below the threshold – making a part time employee redundant in the process.
It seems ludicrous that the tax system should operate as a disincentive to businesses to expand. The argument could be that those businesses under the VAT threshold have an advantage which compensates them for the economy of scale enjoyed by larger businesses. This is probably true, but, for those businesses caught in the middle – just over the threshold, problems can be caused. I wonder how many small businesses with turnovers just over the VAT threshold go broke when compared to businesses at other turnover levels.
VAT Online Filing – Compulsory! Did you know?
From 1st April 2010 it will become compulsory for all VAT registered businesses with a turnover in excess of £100,000 pa, and all businesses which register for VAT after that date, to file their VAT Returns online. Some accounting software (eg KashFlow and Sage) already include a facility to file VAT online. Many businesses using older software will not have the facility built in and will have to find another method of filing.
Filing can be done via the HMRC website but I am surprised at how little software seems to be currently available to assist in filing VAT online. We are currently trying to decide how best to incorporate the facility into our service for those clients which don’t use online filing ready software. The primary software package which we use within the practice doesn’t have the facility so we are evaluating the options for ourselves too.
I understand that filing using an XML file should be pretty simple – but, not being completely au fait with all things technical, I don’t quite understand how this is likely to work. I understand that XML can be generated from an Excel file so, I guess that we will have to export the info from our accounting software to an Excel spreadsheet then, somehow, convert it to XML and send it to HMRC. If there’s someone who’s more technically competent than me out there who can explain the process in simple terms, I’d love to hear from them.
The change is only about three VAT returns away, yet most businesses aren’t even aware of the proposal. We still have clients with turnovers in excess of £100,000 who don’t have access to the internet. It’s going to be a major shock for them.
Unless there is some publicity, I can envisage a major panic next February/March. Now, that comes just after the 31st January deadline for tax returns and around about the time we are preparing to submit PAYE returns so my staff are not going to be very happy if we are inundated with queries then.
Did I mention that April 2010 is also the deadline for filing end of year PAYE returns on line for all companies? There are quite a few businesses still doing manual payroll. Haven’t seen a lot of publicity about this either.
KashFlow online accounting
Easy access and availability for accounting and bookkeeping are becoming more essential to ensure accurate and up to date information for businesses. The ability to see at a glance just how the business is performing means that owners feel much more confident. Online accounting is the solution.
When your accountant can also see your records and work on them at the same time as you, the whole accounting and bookkeeping process becomes much smoother and transparent.
One of the leaders, possibly the leader, in the online accounting market is KashFlow. We have decided to offer Kashflow as a service through our website, together with a special offer on the price. For more details have a look at this page.
VAT Flat Rate Scheme – not so straightforward?
The VAT flat rate scheme sounds simple. Just add up your sales during the quarter then calculate the VAT as a percentage of those sales – and pay it. No need to worry about the VAT on purchase invoices or complicated calculations.
However, there’s a sting in the tail when you read the small print.
If you receive interest from a bank account, that’s part of your income so you need to include bank interest as part of your sales to calculate the VAT due. Yes we know that bank interest is exempt – but not for the Flat Rate Scheme.
If you sell an asset (maybe a car), the money you receive is part of your income so you need to include income from asset sales when you calculate your VAT.
If you have buy to let properties and these are owned by the same legal entity as the VAT registered entity, in other words if you’re a sole trader or partnership and own a buy to let property, guess what? That’s correct. The buy to let income should be included when you calculate your flat rate VAT.
Maybe Flat Rate VAT doesn’t look quite so appealing.
There are other reasons why we aren’t enthused about Flat Rate VAT. If you are considering it, or even if you’re already on it and have a funny feeling in the pit of your stomach after reading the above, take professional advice. It could save you a lot of hassle.
You could start by contacting us via our website. Click here. We’d be pleased to discuss it with you.
