Flat Rate VAT Scheme: Bad debt relief

Posted on December 15, 2011 by

I have made a very surprising discovery about the flat rate scheme. A VAT registered business has the choice between

  1. Accounting for VAT on the basis of sales invoices raised in a quarter, minus purchase invoices received from their suppliers in that quarter OR
  2. The cash basis which is customer receipts minus supplier payments.

    For most businesses the cash basis is better, you only pay over the output tax to HMRC after your customer has paid you.

The Flat Rate Scheme is available to smaller businesses. Under the flat rate scheme you would normally ignore the VAT you have been charged by your suppliers and pay HMRC a fixed percentage of your GROSS turnover ( i.e. including the VAT you have charged your customer). The applicable percentage is determined by the sector in which the business operates.

The flat rate scheme can be really good for people who effectively sell their time, where the amount of VAT that they could claim back is quite small.

What I now discovered is, even when you are using the cash basis under the flat rate scheme, you can still get relief for bad debts. This is the case even though, under the cash basis, you won’t have paid any VAT to HMRC, because your customer has not paid you. Here is a the link to the HMRC notice with a worked example. It’s paragraph 14.2

HMRC Notice 733

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Clean Joke for light relief

Posted on November 8, 2011 by

This is a favourite joke of mine. It has nothing to do with accountancy but as a friend said recently I am feeling as if “the weather is over me”, so a chuckle is like medicine.

A man had a pet elephant. He tried to take it through customs by foot and was refused by the official. “I am afraid you can’t take an elephant through here sir”. He protested but to not avail.

The next day the man tried again hoping that someone else would be on duty. “I am sorry sir. As I explained yesterday, there’s no way you can take an elephant through the border”.  There was a heated exchange but the guard was adamant.

The next day the border guard looked up and say the same man, again with the elephant but this time, there was a piece of bread lodged in each ear of the elephant. The guard leapt to his feet “I told yesterday and the day before, you can’t take your elephant through the border!!!!”

The man grinned knowing that he had triumphed.“It’s none of your business what I put in my sandwiches!”

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Selling your Business

Posted on November 2, 2011 by

On the recommendation of my friend Nick Strong I attended a seminar yesterday in London organised by BCMS Corporate about “Selling Your Business for the Maximum Value”. I hasten to add ,this is not because I am planning to sell my business but to find out what BCMS had to say on behalf on my clients!

BCMS stated that on average they are able to obtain a final value of 2.5 times the lowest offer received.

There were 2 key things which really stood out to me.

1 What could the buyer do with your business?

I think it was Steve Jobs who said that, when it comes to a new gadget, a baby boomer will typically as “What is it?” whereas their child would be more likely to ask “What can I do with it?”. This came to mind when the speakers talked about the value of a business. They argued that traditional valuation models place too much emphasis on past performance. The value of a business depends on what the buyer will be able to do with it. For this reason, premium valuations are more likely to be obtained when selling to someone entering the market from overseas or a business providing complimentary goods/services as opposed a competitor. Just as features are more important than benefits, the future is more important than the past.

This made me think of the stock market. The price of a quoted share is determined by sentiment about the future prospects of the company more than the past performance.

2 Establishing choice of buyers

It was emphasised many times yesterday that at all stages the seller must ensure they have a choice of potential buyers. For BCMS this means approaching an average of 240 potential buyers at the beginning right through to keeping in dialogue with those unsuccessful at the final stage . To burn your bridges to early is very dangerous and gives the buyer the upper hand.

I must say I was very impressed with BCMS, the presenters and the approach that they advocated. I would recommend anyone thinking of selling their business to attend a BCMS seminar.

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Being an accountant in practice

Posted on October 12, 2011 by

Last week we celebrated the 10th anniversary of RDP Accountants opening our Martlesham Heath office. I had previously worked for a life and pensions insurance company in Colchester and then briefly on a freelance basis, for a credit risk insurer based in Canary Wharf.

As anyone who has their own business will know I have found it very rewarding to build up the business although of course it has its own challenges! I remember in the early days coming to terms with the fact there was no IT department to phone or office removals department to ask to move some furniture around. It’s DIY when you are running a small business!

In 2001 I was fortunate to find Mr John Moorby a chartered accountant with a small practice  who was looking to retire. We came to an arrangement for John to pass over his clients to RDP  and we moved into his office in Martlesham Heath.

It’s been great to get to know our clients , who now number around 250. Many surveys of business people show accountants to be their most trusted adviser and this is a role things brings a great sense of responsibility.

Cutting Cake

I am grateful to all who have helped us grow over the last 10 years. Richard & Derek from RDP Colchester and my staff past and present , Katy, Christine, Bev, Claire, Mandie, Isaac and Nicola.

We look forward to the next 10 years!

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Happy 10th Birthday RDP Accountants Ipswich

Posted on October 6, 2011 by

First 10 Years: A piece of cake

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New Tesco TV Advert

Posted on October 3, 2011 by

To mark RDP’s 10 years in Martlesham Heath we have created a new advertisement for Tescos TV.  I don’t think the Coen brothers will be quaking in their boots but I hope you like it!

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VAT: The VAT Initiative

Posted on August 2, 2011 by

HMRC have launched a campaign to encourage businesses to register for VAT called the ‘VAT Initiative’.

To launch the VAT initiative HMRC are writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies.

The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is…

From 1 April 2011: £73,000
1 April 2010 – 31 March 2011: £70,000
1 May 2009 – 31 March 2010: £68,000
1 April 2008 – 30 April 2009: £67,000
1 April 2007 – 31 March 2008: £64,000
1 April 2006 – 31 March 2007: £61,000

The VAT initiative is also open to any business who has not received a letter from HMRC, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011.

Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011.

Please talk to us before notifying HMRC of your intention to register for VAT. We can help you calculate any VAT due and any other tax owing on undeclared sales.

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