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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Self Assessment Tax Statements

Posted on July 26, 2011 by

In recent weeks several clients have mentioned that they have not received a self assessment statement in respect of the payment due in July.

Accountants used to be sent copies of thse  but HMRC stopped this a few years ago becuase of “data protection” issues. HMRC have now issued a statement admitting that there are delays in the issue of these.

Delay in the issue of some Self Assessment statements

HM Revenue & Customs (HMRC) has more Self Assessment statements than usual to issue this year. Normally these are all issued in July, but this year some will be issued later. The majority will be sent on time.

No one needs to worry about this, HMRC will send out statements to remaining customers soon.

If HMRC have asked you to make a second payment on account in July, you normally have to pay this by 31 July. You usually have to pay interest if you don’t pay on time. If you receive your statement in August, you should still pay the tax due as soon as you can. You’ll only be asked to pay interest on the tax due on the second payment on account if you still haven’t paid it more than 30 days after you receive your statement.

Online customers will still be able to check their statement online and pay online too.

HMRC are sorry if anyone experiences any inconvenience.

Questions and answers

How will I know if I am one of the customers who have been affected?

Most customers who are due to make a payment will get their Self Assessment statement by 31 July. The statement tells you how much tax they need to pay. If your Unique Taxpayer Reference (your ten digit reference number) ends with digits from 70 to 99 then you may be affected. If so HMRC will send your statement as soon as possible.

I’d like to pay now – what should I do?

If you send your tax return online you can pay electronically, or you can make a payment by phone. You can find advice on how to pay by following the link below.

How to pay Self Assessment

How do I know how much to pay?

If you send your tax return online you can find out how much you owe by viewing your account online.

Log in to Self Assessment Online

How many people are affected by the delay in issuing statements ?

HMRC estimate around 500,000 customers are affected.

You’ve been here before – in January 2008 around 500,000 – 600,000 customers didn’t get their Self Assessment statements on time – why has this happened again?

HMRC changed their forecasting arrangements in light of the 2008 events and over the past three years these have proved more than adequate. However the volumes on this occasion have risen out of all proportion to previous patterns. HMRC will now ensure that they understand the reasons for this and will be fully prepared for any future rises.

 

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Accounting Software: Cloud Computing

Posted on July 6, 2011 by

My software provider IRIS gave me a very good demo of their product IRIS open books yesterday. Barclays are also marketing this as “Freeagent”.

I think this is were the future lies. There are great benefits for accountants and their clients from using this technology.

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VAT registration

Posted on July 6, 2011 by

There is a myth in certain quarters that every legitimate business is required to be VAT registered. This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £73,000. However, this total does apply to all the businesses you run as a sole trader. You can’t artificially divide your businesses to avoid registering for VAT.

Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.

One of those schemes is the flat rate scheme for small businesses. When you use this scheme you don’t have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. The percentage used will depend on your trade sector. If your business makes very few purchases you can benefit significantly from being within the flat rate scheme.

Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don’t have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but the Taxman is very suspicious of businesses who manage their sales in this way.

If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared. Later this year the Taxman will offer a limited amnesty to those who have sales over the VAT threshold but who have not registered for VAT. Once that amnesty period is over he will start to actively investigate traders who report total sales just below the VAT threshold. Contact us for further information if you are interested in taking advantage of the amnesty.

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Accounting Software

Posted on May 1, 2011 by

How to Choose the Right Accounting Software

Keeping your accounts can be a tricky business. It is necessary to do so not only to comply with legal obligations but to help you manage your business.

Businesses keep accounts in different ways…

  • Some businesses will get their accountant to do it.
  • Some keep accounts manually using pen and paper and special accounts books.
  • Some will use a computerised version of this such as excel spreadsheets to help with all the adding up and so speed up the process. There is of course the danger of incorrect formulas in the spreadsheet and they are not specifically designed to be accounting systems.
  • Some use accounting software which can be the most efficient method of keeping accounts if used correctly. This could also be online.

Advantages of using Accounting Software

These include…

  • Only having to enter information once, the software does the double entry.
  • Management of your debtors and creditors.
  • Automatic sales invoice generation.
  • Provision of financial management reports of all types to help you manage the business.
  • Automatic calculation of VAT Returns
  • Easy production of final accounts.
  • Some have forecasting and budget facilities built in to help you manage.
  • They can integrate with other software such as stock control and payroll.

Disadvantages of using Accounting Software

These include…

  • The learning cost and time of using and setting up the software.
  • The cost of purchase, support and maintenance although there are several low priced packages on the market suitable for small businesses.
  • Whilst a general package will work with most businesses, the package may need adapting or not be suitable to some particular types of businesses.

How to Choose the Right Software

You need to compare the needs of your business against what different packages offer.

Of course the software must enable you to meet your legal tax and accounts obligations but it is usually your own commercial needs that help decide which is the right package for you.

Whilst you may start out with some general needs, you need to also ensure that specific detailed needs are met. A cash business will have different needs to a non-cash one. Choosing the right package can be a complex business and getting it wrong can cause you major headaches.

Talking to your accountant is a good place to start. It certainly helps if your accountant is familiar with the package you are using so they can provide any help you need and they will be able to help advise on what is suitable for you. A consideration of what other support is available for the software is also a critical consideration. Sometimes it is necessary to adapt how you work to meet the software but ideally the software already matches how you work.

You need to consider factors such as…

  • Do you want real time access from your accountant or access from anywhere? If so, an online package may be the solution. There are “cloud computing” products coming on to market which make this posible. Sage have something called accountants link
  • Do you have employees and so need a payroll package to go with the software and if so is it accredited by HMRC?
  • Do you have enough transactions to warrant using accounts software?
  • Do you need a number of people to be able to access the software at the same time over a network?
  • What is the set-up of your computer system and is the software designed to run on it? A Windows based PC will give you the most options.
  • Do you need to monitor debtors and creditors?
  • Do you need it do invoicing and tailor the appearance of the invoices and be able to print in the format you want, perhaps on multi-part forms on a dot-matrix printer?
  • Do you need it to keep track of VAT and do your VAT Returns?
  • Do you need it to produce management accounts?
  • Does your accountant also have the software to allow easy production of your end of year accounts and sharing of data?
  • Do you need stock control?
  • Is there a particular leading software for your industry?
  • Do you need it to deal with a particular type of vat scheme such as cash accounting, the flat rate scheme or a particular retail scheme?
  • Does it need to handle foreign currency – these packages tend to be more expensive.
  • Does it need to integrate with your retail point of sale if you have a shop?
  • Does it integrate with making online payments?

Implementation of the Accounting Software

Implementing the accounting software requires some planning and consideration of the following…

  • Training – staff will need to be trained in use of the package.
  • Initial setup details – apart from your business details, year end and type of vat scheme one of the important factors to get right from the start is your Chart of Accounts. These are the headings in your accounts and it is sensible to discuss this with your accountant. Whilst packages often come with several standard ones you may want to tailor it to your own needs.
  • Historic transactions – you may need to enter the historic transactions and the current balances to get the right opening position. Often it is simpler to start the package at the beginning of an accounting year and in a quite time for the business.
  • Parallel running – this does require a lot of work but is often helpful to do so for a short time just to ensure everything is operating as you expect.
  • Support – most packages can have a support agreement purchased with them and this is often a good investment, particularly for the first year of use.
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Choosing an Accountant

Posted on April 26, 2011 by

I have been thinking about some of the differentiators of my accounting practice and why businesses might choose RDP Accountants, when they have so many good accountants to choose from.  My thoughts were partly inspired by a talk from Robert Craven about “How to drive your Business Forward”.

Here are some other factors to consider from the RDP Accountants website:

  1. Fixed Fees. Quoted in advance of the work and related to the value of work to be completed so that you know where you stand. That is unless you prefer to be charged on an hourly basis. Get a fixed fee quote.
  2. Unlimited Free Phone Support. You can call as much as you need in connection with the services we have agreed to provide you.
  3. Unlimited Free Meetings. Whenever you wish to meet up, any meetings at our offices in connection with the work we have undertaken to perform on your behalf are always provided FREE of charge. You have the right to these whenever you feel the need. Just call us to schedule the meeting.
  4. FREE Initial Tax Review. To identify all the tax planning opportunities you are not presently taking advantage of.
  5. FREE Tax Tips. Relevant to business owners delivered to you by E-mail through our regular E-Tax Tips & News to help you pay less tax. Register here to receive Tax Tips & News.
  6. Someone to Sort All Your Paperwork. We understand doing the paperwork can be stressful for many business owners who really just want to get on with running and building their business. So if you wish, we can take all the book-keeping, payroll and other paperwork off of you as well as the normal annual accounts and tax work.
  7. A Flexible Accountant Who Speaks Plain English. There’s no technical speak from us. We speak to you openly and honestly and promise not to blind you with jargon. We want you to feel comfortable to pick up the phone to us whenever you need, for whatever you want and know you’ll get good sound understandable advice. We will work with you in the way that suits you – in person, on the phone or online.
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Royal Wedding: Funny (& Clean) Video

Posted on April 22, 2011 by

If Will and Kate got married in my church…..

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Flat Rate VAT Scheme

Posted on April 19, 2011 by

HMRC have devised a scheme to make it cheaper and quicker for smaller businesses to calculate their VAT liability. It’s called the flat rate scheme. Normally a VAT registered business deducts their  input tax ( VAT paid to their suppliers) from their output tax ( VAT charged to their customers) each quarter and pays over the difference to HMRC.

Under the flat rate scheme, HMRC provide a flat rate scheme percentage, depending on the trade sector you are in.  Your sales for the quarter (including the VAT you have charged) are multiplied by the HMRC flat rate percentage and resultant amount is paid over to HMRC. Input tax cannnot deducted, unless there is capital expenditure of more than £2,000 (gross) in a quarter.

The flat rate scheme can be very beneficial to some businesses, although it does depend on how much input tax you normally incur and whether any of your sales are zero rated.

Flat Rate VAT Helpsheet with worked example

I have found that where the amount of input tax is small, typically with someone who is selling their time, rather than a product, the VAT rate scheme can save clients money. This is because the amount that they are charging their customers ( 20% of the net) is more than what they are paying over to HMRC ( a percentage of the gross).

HMRC have designed the scheme so that businesses can “do it themselves”. So you are less likely to need an accountant to complete your VAT returns, if you use the flat rate scheme.

The flat rate scheme is only available to smaller businesses. To join your net turnover must be less than £150,000. You must leave the scheme if your gross turnover exceeds £230,000 in a year.

Use our flat rate scheme calculator to see if it would save you money.

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Mastermind type satire on European debt

Posted on March 22, 2011 by

My newsagent showed me this. Many a true word is spoken in jest….

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HMRC getting tougher

Posted on March 10, 2011 by

HM Revenue & Customs (HMRC) issued a reminder today that the new penalty regime for late filing and late payment of Income Tax Self Assessment (ITSA) Tax Returns starts shortly.

During April, your clients within ITSA will receive 2010/11 notices and paper returns which will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late.

Stephen Banyard, from HMRC, said:

“Most people submit their Self Assessment returns and pay on time.

“For the minority who file late, HMRC wastes more than £300k every year pursuing these late returns and getting involved in unnecessary appeals work.

“The current system does not encourage taxpayers to submit returns on time. The new penalty structure, with penalties increasing over time, provides a stronger incentive to submit the return and pay on time.”

The new penalty regime for ITSA 2010/11 returns will be:

Late filing penalties:

* When any return is late, an initial £100 fixed penalty arises the day after the filing date. This applies even if there is no tax to pay or the tax due has been paid on time.
* Individuals are notified they will be liable for a further daily penalty if the return is not submitted within three months of the filing date. The penalty is calculated at £10 per day, until the return is filed, for a maximum of 90 days (up to £900).
* After the daily penalties, and if the return is still outstanding six months after the filing date, a further penalty arises, calculated at five percent of the tax liability on the return or £300 if this is higher.
* Where the return is still outstanding after 12 months, a further penalty arises, calculated at five percent of the tax liability on the return or £300 if this is higher.
* If a determination has been made because the return has not been received, the penalties at 6 and 12 months will be based upon the estimated amount in the determination, and then adjusted retrospectively when the self-assessed amount is returned.

Late payment penalties:

- At thirty days late there will be charged an initial penalty of 5% of the tax unpaid at that date.
- At six months late and there will be charged a further penalty of 5% of the tax that is still unpaid.
- At twelve months late there will be charged a further penalty of 5% of the tax that is still unpaid.
- These penalties are additional to the interest that will be charged on all outstanding amounts, including unpaid penalties, until payment is received.

These penalties will be issued automatically to all those in ITSA who do not file and pay on time. Taxpayers will be able to appeal against any penalty on the grounds that they have a reasonable excuse for not complying on time and all penalty notices will include an appeal form and details on how to appeal.

More information can be found at http://www.hmrc.gov.uk/about/penalties.htm

Key facts
- around 87 percent of taxpayers file their Income Tax Self Assessment returns on time
- Around 1.5m returns are filed late or not at all
- Under the new system taxpayers who have not filed within six months of the filing date will face a minimum penalty of £1,300.

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