Making Tax Digital for VAT

If your accountant hasn’t mentioned this yet, then you really ought to have a new accountant. Does this affect me? Are you VAT registered? Then if so, yes. This does affect you and you need to be considering whether you will be compliant in time. What is it? Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software. It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application. The difference under Making Tax Digital is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and communicating with HMRC digitally via our Application Programming Interface (API) platform. If your digital records are up to date, software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received. Not all software is compliant, contact us to find out if your current software will be compliant and whether you need to take any additional step. When does this start? With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you must follow the rules set out in this notice. If your taxable turnover subsequently falls below the threshold you will need to continue to follow the Making Tax Digital rules, unless you deregister from VAT or meet other exemption criteria (see paragraph 2.2 of this notice). Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital. You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold. The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by your VAT Return. Here are some examples. Example 1 – Existing business with taxable turnover above the VAT registration threshold on 1 April 2019 A business submits a quarterly return covering the period 1 March to 31 May 2019. The business taxable turnover exceeds the VAT registration threshold and therefore the business will need to comply with Making Tax Digital rules for the period starting 1 June 2019. Example 2 – Business with a taxable turnover above the Making Tax Digital threshold at the point they need to register for VAT A business that is not registered for VAT is required to register from September 2019 because the taxable turnover over the previous 12 months has exceeded the VAT registration threshold. The business must follow the rules in this notice for all VAT Returns they are subsequently required to make as their taxable turnover was above the VAT threshold when they...

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Changes to the VAT Flat Rate Scheme

From 1 April 2017 the VAT Flat Rate Scheme will be changing for some small businesses. Currently the flat rates percentages range from 4% to 14.5% depending on the type of business. The new percentage is 16.5% and applies to businesses with low expenditure relative to their sales. The test is if the VAT inclusive expenditure is either less than 2% of the VAT inclusive turnover or less than £250 per quarter then the new rate applies. Certain types of expenditure are excluded: Vehicles and other capital items. Food and drink purchased by the owners / employees. Unless the business is providing transport services such as couriers and taxis then the value of fuel and parts are also excluded. If you think your business may be affected by the changes to the Flat Rate Scheme, then it is worth checking using the criteria above and then comparing your VAT liability to the standard basis. For many small businesses it is worth considering leaving the vat flat rate scheme and returning to standard accounting. As always, we’re here to help. Get in touch if you’d like some help or...

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Is VAT recoverable on car derived combi-vans?

HMRC have issued a list of makes and models of car derived vans and combi vans which VAT registered businesses can use to determine if the VAT paid on the purchase can be reclaimed as input tax. The issue is that VAT will normally be claimable in full on the purchase of a commercial vehicle. However if the vehicle purchased is a passenger car VAT is not recoverable unless it is used ‘exclusively for the purposes of a business’. Generally cars are therefore VAT ‘blocked’ and no input VAT is recoverable. The VAT guidance states: ‘Motor car means any motor vehicle of a kind normally used on public roads which has three or more wheels and either: a) is constructed or adapted solely or mainly for the carriage of passengers; or b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows’ Whether or not a vehicle is commercial is not specifically defined but instead the definition of a car excludes: vehicles capable of accommodating only one person or suitable for carrying twelve or more people including the driver vehicles of more than three tonnes unladen weight caravans, ambulances and prison vans special purpose vehicles such as ice cream vans, mobile shops, hearses, bullion vans and breakdown and recovery vehicles vehicles constructed to carry a payload of one tonne or more. Many car derived vans are not cars for VAT purposes as they have no rear seats, have metal side panels to the rear of the front seats and a load area which is highly unsuitable for carrying passengers etc. HMRC have issued the clarification due to developments in the car derived van market, as some vehicles with a payload of less than one tonne have ‘blurred’ the distinction between cars and vans. If you would like help with this or any other VAT issue please contact us. Internet...

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Should I Voluntarily Register for VAT?

  There are benefits to a voluntary VAT registration. You are able to charge VAT on your sales and claim back the VAT on your expenses. This is beneficial if you operate in a business to business environment and all your customers are VAT registered. They recover the VAT you charge (outputs) and you can recover the VAT (inputs) on your expenses. If you deal with consumers who are not VAT registered this can make you more expensive than your non-VAT registered competitor. If you sell zero-rated items and buy standard-rated items you would receive a VAT refund from HMRC if you have not yet sold anything or don’t sell anything during a VAT accounting period, you may still be able to claim VAT back on your purchases If you’re thinking about registering voluntarily, you might want to check the rules for reclaiming VAT on purchases made before registration since it is often possible to reclaim some of the VAT you are charged on goods or services that you use to set up your business.   Can I backdate my VAT registration? You can apply to backdate your voluntary VAT registration by up to four years. You will have to account for VAT on any VAT taxable supplies you’ve made after your chosen date, and you won’t be able to reclaim any VAT on your purchases unless you have the right evidence, and meet the other conditions for reclaiming VAT.   Responsibilities of voluntary registration If you decide to voluntarily register for VAT, you have exactly the same responsibilities as someone who must register. You must keep all required VAT records and issue VAT invoices. You also have to complete and submit a VAT Return at regular intervals, along with your payment if one is due.   Do you want to know more? If you think anything covered in this blog may be relevant to you please get in touch. We’d love to help you....

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When Should I Register For VAT?

 As a growing small business you should consider when you should register for VAT. If you’re in business, supplying goods or services within the UK and your turnover for the previous 12 months is more than the registration threshold (£79,000 at the time of writing), or if you expect it go over the threshold in the next 30 days alone then you must register for VAT. If you don’t want to register for VAT you may be able to apply for an exception if you have exceeded the limit temporarily. If you have taken over a VAT-registered business from someone else and your VAT taxable turnover over the last 12 months when added to the same for business you’re taking over exceeds the threshold, then you must register for VAT. The temporary exception mentioned above may also be available. If you are in the UK & have received goods from other European Union countries (known as acquisitions) with a total value of £79,000 or more in the current year since 1 January or you expect to acquire more than that value in the next 30 days alone then you must register for VAT. If you are supplying goods or services from the UK to other countries we suggest you give us a call or have a look at the HMRC website as this can be a complicated area. www.hmrc.gov.uk/vat/start/register/when-to-register.htm#4   If you have any queries regarding VAT registration please feel free to contact us and we’ll do our best to...

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Changes in VAT & Entertaining

Following a case in the European Court of Justice, HMRC has changed its position relating to recovery of input tax on entertainment expenses. Historically input tax has never been claimable since VAT was first introduced in the UK but following the Danfoss and Astra Zeneca case, HMRC have concluded that the block on recovering input tax on overseas customers is inconsistent with EU law. Going forward businesses can now claim the input tax incurred when entertaining overseas customers and subject to a four year rule HMRC will also allow claims for previously restricted input tax on the entertainment of overseas customers. The VAT notice 700/65 was amended in November to reflect this change. HMRC Brief 44/10 details this and also sets out three scenarios to help businesses to ascertain whether the input tax on entertainment costs is claimable: 1) Meetings in the office: HMRC considers that when an overseas customer is entertained in a staff canteen or similar to facilitate a business meeting, the input tax on such entertaining will be recoverable. HMRC takes the view that any private benefit derived by the overseas customer is accessory to the needs of the business 2) External meetings or events: where meetings cannot be held in house due to lack of space or facilities, the same general principle will apply as for meetings in the office, and the input tax will be recoverable. This will apply only to the basic provision of refreshments and food. If the expenditure goes beyond that, there should be a private use charge, or, alternatively, no claiming of the input tax 3) Corporate hospitality events: businesses sometimes offer customers or potential customers general hospitality, such as golf days and the like. HMRC will not allow the input tax deduction as such events are unlikely to have a strict business purpose.   Courtley West Accountants in...

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