Archive for the ‘Uncategorised’ Category

Last week in the EU

Wednesday, January 29th, 2020

At the end of this week, 31 January, the UK is leaving the EU. In actuality, we are entering the “transition” period during which we will need to negotiate our ongoing terms of trade with the EU. This transition period is due to end 31 December 2020.

In the meantime, back at the coal-face, what do we need to change in order to import, export or travel to the EU from 1 February?

Most of the government missives are based on the outcome of a No-Deal Brexit. This outcome is still a real possibility unless our negotiating team reach a formal trade deal with the EU block before the end of the transition period, 31 December 2020.

Accordingly, we have summarised below the published instructions from the gov.uk website. They are:

For exporters to the EU

  1. Make sure you have an EORI number that starts with GB.
  2. Check that your importer has an EU EORI number.
  3. Decide who will make the export declarations.
  4. Decide if you want to export your goods using transit.
  5. Check the rate of duty and tax for your goods.
  6. Check what you need to do for the type of goods you export.
  7. Find out how VAT changes will affect you.
  8. Decide who will transport your goods outside the UK.

For importers from the EU

  1. Make sure you have an EORI number that starts with GB.
  2. Decide who will make the import declarations.
  3. Apply to use the transitional simplified procedures.
  4. Set up a duty deferment account if you import regularly.
  5. Check the rate of tax and duty you will need to pay.
  6. Check what you need to do for the type of goods you import.

For firms transporting goods out of the EU by road

  1. Apply for operators licences and permits
  2. Make sure drivers are eligible to drive abroad.
  3. Check rules for the goods you are transporting.
  4. Make sure your driver has the right export documents.
  5. Find out what vehicle documents your driver needs to carry.
  6. Check local road rules.

Full details of all these issues can be found on the gov.uk website at https://www.gov.uk/transition

VAT – how this can affect your cash-flow

Monday, January 27th, 2020

Paying VAT should never reduce your business profits as you are acting as an unpaid tax collector for HMRC: the VAT added to your sales (less any VAT paid on your purchases) is simply collected from your customers (less amounts paid to suppliers) and the difference paid to HMRC.

But if my customers are registered for VAT can’t they claim this VAT back?

And therefore, isn’t this whole process a waste of time?

A good point, but eventually, supplies will be made to someone who is not VAT registered and at that point any VAT paid is a tax charge.

The expression “ Value Added” is just that; if you add value to a bought-in item or service, by subjecting it to a manufacturing or other process that adds value to this cost before it is sold, then the increase in the value you have added is subject to VAT. At some point in the supply chain, these goods or services will be sold to someone who cannot reclaim the VAT charged to them and HMRC will retain the VAT charged and paid to them by the last supplier in the chain.

But what if I must pay VAT before my customers have paid me?

This is an undesirable outcome, and for smaller businesses there is a remedy. You can register for the Cash Accounting Scheme (CAS). If you qualify for the CAS, instead of paying HMRC the VAT added to your sales (less VAT invoiced by suppliers), you instead pay HMRC the net VAT collected during each reporting period.

In this way, the CAS will protect your cash flow. Under current rules, the CAS is only available to businesses whose annual turnover is below £1.35m.

The CAS will not usually benefit traders who operate on a cash basis – retailers for example – or traders who are efficient at collecting amounts invoiced from customers. If you want to see if the CAS may be available and beneficial for your company, please call so that we can organise a review for you.

Is your home a tax-free zone?

Tuesday, January 21st, 2020

In most cases, if you have lived in your home during the entire period of your ownership of a property, then when you sell that property you should pay no capital gains tax (CGT) on any profit you make on the sale. You can claim the Private Residence Relief (PRR) to exempt any profits made.

The situation is very different if you have periods of time – during your ownership of a property – when you let out all or part of the property.

The current rules up to 5 April 2020

If you let your entire property for a period or periods of time this gap or gaps in your residence will potentially push a proportion of the profit you make when you sell the property into charge for CGT purposes.

However, under the current rules, up to £40,000 (£80,000 for a couple) of lettings relief can be claimed to reduce or eliminate this charge – whether or not you share occupancy of your home with your tenant.

Additionally, the last 18 months of your ownership are disregarded and treated as exempt from any CGT charge.

These current, additional reliefs will usually exempt any potential CGT charge occasioned by short periods of letting.

Two important changes are about to impact these additional from reliefs from April 2020.

Changes from 6 April 2020

From this date, you will only qualify for letting relief if during the period your home is let you are in shared accommodation with your tenant. In other words, letting relief is becoming a lodger’s relief.

Homeowners who do not reside in their property during periods when their property is let will not be able to claim lettings relief for the period that occurs after 5 April 2020.

Additionally, the 18 months exempt period at the end of your ownership is being reduced to 9 months from the same date, 6 April 2020.

Homeowners should take both of these changes into account when letting their home from April this year.

How much tax will you need to pay if affected?

If you presently let your home, or have let the property in past years, and you want clarity about any risk of paying tax when you sell the property, please call and we will help you assess this risk.

VAT – leaving the Flat Rate Scheme

Friday, January 17th, 2020

The VAT Flat Rate Scheme (FRS) does simplify the calculation of VAT returns, but there are certain circumstances when you may no longer use the FRS.

You will need to leave if your turnover on the anniversary of joining was more than £230,000 including VAT in the last twelve months or if you expect your total income in the next thirty days to be more than £230,000 (including VAT).

You may also decide that you should leave the FRS if you are classified as a “limited cost trader”. This is defined by HMRC as:

You are classed as a ‘limited cost business’ if your goods cost less than either:

  • 2% of your turnover
  • £1,000 a year (if your costs are more than 2%)

This means you pay a higher rate of 16.5%.

If you are obliged to use a rate of 16.5% – if your circumstances reveal that you are a limited cost trader – there is no real benefit in using the FRS apart from the simplicity of the reporting.

Traders who use the FRS can make a cash profit if the rate they use – based on their business classification – is one of the lower rates. The FRS rates currently range from 4% to 16.5%. The profit arises because the amount that they are required to pay under the FRS is less than the VAT added to their sales less any VAT included in purchases of goods or services.

If you do benefit in this way you may be reluctant to leave the FRS. Unfortunately, ignoring the turnover exit limits or the limited cost trader regulations is not to be recommended. HMRC are empowered to enforce these rules and charge penalties for non-compliance.

We recommend a periodic review of the VAT scheme that you use to ensure that you are still meeting the requirements to stay in the scheme. It is also advisable to check out any other schemes that you might qualify to join and see what benefits they might offer.

Please call if you would like to discuss your options.

Budget day 2020

Tuesday, January 14th, 2020

The treasury has announced that the next budget will be presented by the Chancellor, Sajid Javid, on Wednesday 11th March 2020.

In recent years, the Budget has been held in the Autumn. The Autumn Budget 2019 was postponed due to the pre-election uncertainties last year. Now that our government has a significant working majority those uncertainties have been removed. Accordingly, matters that need to be resolved for the tax year 2020-21 – certain Income Tax allowances for example – can be attended to.

It is difficult to predict what The Chancellor will include in his announced changes.

During the recent election campaigning, Boris Johnson did promise that none of the major taxes would be increased and he did announce that the promised decrease in corporation tax, 19% to 17% from April 2020, would likely be deferred.

Hopefully, there will be measures to support business owners as we transition through the EU withdrawal process. Certainly, there should be confirmation that UK businesses in receipt of EU funding will continue to receive equivalent funding from the government once the EU funding tap is turned off.

Due to the possible disruption in supply lines from the and of this month – when the transition away from the EU begins – it would be helpful if the government included supportive changes in the budget that helped UK businesses to maintain their profitability and cash flow.

Parliamentary committees will need to get their skates and resolve any debate on budget clauses as quickly as possible. There is less than 30 days between 11 March and the end of the tax year – 5 April 2020.

We will be reporting on significant changes in this blog immediately following the budget. Until then, we can probably rest easy that tax rates are unlikely to be increased.

What now?

Friday, January 10th, 2020

Even though many of the uncertainties that have plagued UK politics during 2019 are still to be decided, at least the hiatus in parliament has been resolved; the Conservatives now have a working majority and we can expect action on a number of fronts.

Brexit

Business readers with any sort of trading platform with the EU need to consider their options as the EU withdrawal agreement is likely to be ratified by 31 January 2020. At a minimum, EU traders should complete their Brexit impact assessments and take steps to mitigate any apparent risks identified.

Please call if you would like our help with this process.

When will the 2020 Budget be announced?

The new government will probably concentrate on the EU withdrawal process during January and it is unlikely Budget announcements will be in evidence before February.

Budget issues do need to receive fairly urgent attention as there are a number of Income Tax reliefs that are still to be determined for 2020-21.

As details emerge we will be publishing our usual Budget round-up and advising clients of any new opportunities to trim their tax bills and take advantage of any new opportunities revealed.

In Business? Add these to your new year resolutions

Friday, January 10th, 2020

The end of the calendar year is a popular accounting date for many businesses, but for those of us with a year-end accounting date of 31 March 2020, reviewing your management accounts for the nine months to the end of December 2019 is a must-do. Please use the following notes as a check list when you undertake this review:

 

  • If you are self-employed and for the nine months you are predicting lower profits for 2019-20 (compared to 2018-19) it may be possible to reduce your self-assessment payment on account due at the end of January. Contact us so we can file an appropriate election.
  • If you are self-employed and your profits are predicted to be higher for 2019-20, then you may have underpaid your self-assessment tax for 2019-20. Again, contact us so we can estimate this possible underpayment and work out a realistic savings plan to accumulate the necessary funds to meet this additional tax charge when it becomes due 31 January 2021.
  • Use the nine months figures to update your financial budgets for 2020-21. We recommend that all businesses undertake this task as it will identify high points and low points in your cash flow and solvency. Please call if you need help with this task. If you have never created a budget before we can help you crunch the necessary numbers.

 

Needless to say, if you are concerned by the historical results to 31 December 2019 or the outlook for 2020-21, let’s get together and see how best to meet these challenges. With the external pressures that Brexit may pose for your business this is not a time for wishful thinking. Be prepared.

Spousal CGT tax advantages

Friday, January 10th, 2020

It is fairly common knowledge that the UK tax system is biased in favour of married couples or those partners who have entered into a formal civil partnership.

Note that from 2 December 2019, the Civil Partnership (Opposite Sex Couples) Regulations 2019 came into effect in England and Wales allowing opposite sex couples to enter into a Civil Partnership for the first time.

Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.

This strategy, of transferring partial ownership to a spouse (or civil partner), can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).

The 10% and 20% rates have applied from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.

And don’t forget, CGT is assessed and payable as part of your self-assessment. Any tax payable for 2019-20 will be due for payment 31 January 2021. On the same day you will also have to pay any other underpayment of Income Tax for 2019-20 and your first payment on account for 2020-21.

Also, please note that from 6 April 2020, any CGT due on the sale of a residential property by a UK resident will need to be reported and paid within 30 days of the completion of the sale transaction.

If you own assets that are subject to CGT on disposal and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.

Keeping business records if self-employed

Friday, January 10th, 2020

Now that we are approaching the end of the 2019-20 tax year it’s worth noting that you are required to keep your self-employed business records – that underpin your self-assessment tax return for 2019-20 – for 5 years after the 31 January 2021 submission deadline.

This means that you will need to retain your 2019-20 business records until the end of January 2026.

If you lose your business records or if they are stolen or destroyed and you are unable to recreate the transactions, you must do your best to provide figures for your tax return. You will need to advise HMRC if you use estimated or provisional figures.

Your records will need to back-up your business sales, expenses and VAT/PAYE records if you are registered for VAT or employ people.

HMRC may ask to see your:

  • Receipts for goods or stock,
  • Bank statements, cheque book stubs,
  • Copy sales invoices, till rolls and bank paying in slips.

Also, if you have produced accounts using the traditional, accruals method, HMRC may ask to see further records that provide details of:

  • what you are owed but have not received yet
  • what you have committed to spend but have not paid out yet, for example you have received an invoice but have not paid it yet
  • the value of stock and work in progress at the end of your accounting period
  • your year-end bank balances
  • how much you have invested in the business in the year
  • how much money you’ve taken out for your own use.

If you keep your records in a computerised format, make sure you backup each year’s transactions so you can provide details if required.

Tax Diary January/February 2020

Friday, January 10th, 2020

1 January 2020 – Due date for Corporation Tax due for the year ended 31 March 2019.

19 January 2020 – PAYE and NIC deductions due for month ended 5 January 2020. (If you pay your tax electronically the due date is 22 January 2020)

19 January 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2020.

19 January 2020 – CIS tax deducted for the month ended 5 January 2020 is payable by today.

31 January 2020 – Last day to file 2018-19 self-assessment tax returns online.

31 January 2020 – Balance of self-assessment tax owing for 2018-19 due to be settled on or before today. Also due is any first payment on account for 2019-20.

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.