Stamp Duty Land Tax Relief Withdrawn

An end to the "Disadvantaged Area Relief"

Disadvantaged Area Relief (DAR) provides exemption from paying Stamp Duty Land Tax (SDLT) on certain transactions.

DAR will be abolished for transactions with an effective date on or after 6 April 2013, so claims need to be processed and submitted no later than 5 March 2014.

DAR can reduce the amount of Stamp Duty Land Tax  (SDLT) payable for property purchases made in areas designated by the government as "disadvantaged". All claims for DAR relief in relation to the purchase of residential properties with an effective date on or before 6 April 2013 must be made by 5 March 2014. Any late applications will be rejected.

If you are not sure whether your transaction qualifies please contact us and we will be happy to help you get your money back or reduce your liability all together where applicable.  

Recharged Expenses

Issue 13: Recharged Expenses #MR. VAT

This one often creates a bit of confusion so I am going to break it down for you.

Where you have two companies sharing expenses by one recharging to the other, it is a simple process if both companies are VAT registered.  

However, where one company (company B) is not VAT registered, it is better to have the registered entity ( company A) bear the full cost of the vatable expense and then recharge a portion of it, plus VAT, to company B. Otherwise if company B is the main purchaser, the VAT on the expense will be totally lost and thus irrecoverable.  

More on this next week….

VAT on Legal Fees are not Always Recoverable

Issue 12: VAT on Legal Fees 

It is quite common for a business to pay the expenses incurred by a third party.

Imagine you are moving into your business premises and as part of the negotiation for the lease you agree to pay the landlord’s legal expenses. Now you are thinking “that’s a small price to pay for such a fabulous building plus I can recover the VAT”. WRONG!

Remember, one of the basic VAT rule is who is the legal services being supplied to? In this instance it’s the landlord, so you my friend cannot recover the VAT even though you are the one that paid it. Don’t cry because I bear glad tidings.

Assuming that the landlord is VAT registered and the rent they are charging you is standard rated, this is how you get out of that trap:

Get the solicitor to send you the bill with just the net amount and ask them to send a VAT only invoice to the landlord. Simples.

What that does is you only pay the net legal fees and the landlord recovers the VAT. Just always be aware of any transactions that involve three parties.

I am Marlon “Mr. VAT” Appleton

VAT: Be Careful When Planning

Issue 11: Change of Plans

Following on nicely from issue 10, over an awful cup of coffee at 4:22am, I want to share this one with you.

If you incur VAT in relation to an intended taxable supply, but then you decided, I can’t be asked I am going to make only exempt supplies. The consequence of you changing your mind to exempt supplies is that the input VAT you recovered in relation to the intended taxable supply must be paid back to HMRC. Yeah it sucks…but…if your exempt supply was made after 6 years then there is no input tax to repay.

Example, in January 2007 you decided to incur costs on renovating land you own because you are going to supply car parking spaces which is a taxable supply (similar to NCP). The VAT you incur is therefore fully recoverable. However, you never carried through with the planned supply and during February 2013 (over 6 years later) you instead decided to use the land for renting residential accommodation (exempt supply). With this switch to exempt supply you would normally have to pay back the VAT you recovered in renovating the land but since your decision to make the exempt supply was taken after the 6 year threshold there is nothing to pay back.

Law: VAT Regulations 1995 (SI 1995/2518), reg. 108 and 109

For VAT Your Intention Matters

Issue 10: Abort, Abort

I love this energy that I have. It’s 3:48am and I am buzzing with excitement about writing this next VAT article.

If you incur VAT in relation to a supply that you wish to make but it never takes place (aka Abrotive Supply), then your input VAT is fully recoverable if your intending supply would have been a taxable supply. Quite a mouthful I know but check out this example.

Imagine you set up your company with the intention of selling widgets (fully taxable). You did all the profitability studies and incurred a considerable amount of expense and VAT. You then decided it’s not worth it and you abort your plans to buy and sell widgets. Now normally you cannot recover your input tax if you are not carrying on a taxable business but because that was initially your intention then recovery is allowed

The good guys at HMRC have confirmed that you can recover your input tax if it directly relates to your intended/abortive taxable supply so please give them a virtual hug.

Case law: INZO v Belgian State; Beaverbank Properties

HMRC information Sheet 8/01

HMRC Business Brief 14/04

What To Do If You Lose Your VAT Invoice

Issue 9: The Dog Ate My VAT Invoice

Its Boxing Day 21:40 pm, and I have a little beauty for you guys.  

Imagine this scenario, you are a model member of society, you pay your taxes like the rest of us and you help old ladies across the street like some of us.

Now it’s time to do your VAT returns and you realize you have lost an important purchase invoice that you desperately need so you can recover the VAT and, to add to the worry, your supplier is unable to send a copy to you on time. You therefore decided to put it in your return and lo and behold the VAT inspector decides to pay you a visit this time around (Murphy’s Law).

But guess what, there is no need to worry (or implicate your dog). VAT law gives you the opportunity to estimate your input tax and use alternative evidence so you may recover the amount in question. 

Please however notify HMRC in writing before you proceed. They are actually nice people once you get to know them J.  

Law: VAT Regulations 1995 (SI 1995/2518), reg. 29

Principal VAT Directive: Article 182

HMRC manual: VIT31000

For further clarification please contact Marlon Appleton

marlon.appleton@he-llp.com

Your Tax - A Quick Read

Autumn Statement 2012 Update

Personal Allowance

The tax free allowance will now increase to £9,440 from April 2013 up from the current £8,105.

Higher Rate Tax Threshold

From April 2014, the higher rate threshold will increase to £41,865 and then to £42,285 in April 2015. The current threshold is £34,370 moving to £32,245 in 2013-2014. 

Fuel Duty

The 3p per litre increase set for 1st January 2013 has been cancelled. Additionally, increases scheduled for April 2013 has been deferred to September 2013.

Capital Gains Tax

The annual exempt amount will increase by 1% each year from £11,000 in 2014-2015 then to £11,100 from 2015-2016. 

Pension Tax Relief

The lifetime allowance will be reduced from £1.5M to £1.25M from 2014-2015. The annual allowance will also be reduced from £50,000 to £40,000 from that period.

Income Tax Relief

As announced at Budget 2012, all previously unlimited income tax relief will now be capped at the greater of £50,000 or 25% of the individual’s income. Charitable reliefs will be exempt from this cap.

Operational Integration of Income Tax & NIC

The Government will wait for further progress on planned operational changes to the tax system before formally consulting on the operational integration of income tax and NICs.

Corporation Tax

The main rate of corporation tax will be reduced to 23% from April 2013 and reduced even further to 21% from April 2014.

Capital Allowances

The government will increase the Annual Investment Allowance from £25,000 to £250,000 for all qualifying investments on Plant & Machinery made on or after January 2013.

Property Taxes

Small business rate relief of 100% will be extended for a further year from 1^st April 2013. This relief is not automatic and therefore should be applied for.

Tax Simplification

Cash basis for calculating tax – The Government confirms introduction of a new cash

basis for small, unincorporated businesses to calculate their tax from April 2013. Businesses with

receipts of up to £77,000 will be eligible and will be able to continue to use the cash basis until

receipts reach £154,000.

Simplified expenses – Unincorporated businesses will also be able to use flat rates to

calculate some types of expenses rather than having to calculate actual amounts.

VAT Secret: No VAT Invoice Required

Issue 8: Full VAT Invoice Not Required

This one is easy so I will get straight to it.

As a supplier if you are issuing an invoice with a total value of no more than £250 then a full VAT invoice is not required. 

More specifically, you do not have to itemize the VAT value. The invoice could simply read “Total £250 including 20% VAT”

This is quite acceptable to HMRC. Alternatively you could just treat it as a full VAT invoice whichever is easier for you. I told you this was easy.

Law: VAT Regulations 1995 (SI 1995/2518), reg. 16(1)

Marlon Appleton

Tax Partner 

Harvey Edwards LLP

marlon.appleton@he-llp.com

VAT Secret: Suppliers That...

Issue 7: Am I My Supplier’s Keeper?

Ermm..Yes you are.

I have heard this one so many times it’s no longer funny. It’s almost 11pm but I am compelled to write this before I go to bed.

Have you ever been told that the VAT responsibility rests solely with the supplier to the point that if the supplier charges you VAT incorrectly it's ok for you to recover it from HMRC as long as the supplier pays over the same incorrect amount as output tax?

I’m sure you know what I have to say about that. I will be diplomatic and simply say that this assertion is incorrect.

As a customer it is equally your responsibility to ensure that you do not recover VAT that has been incorrectly charged to you, so keep your eyes on those invoices from your suppliers. 

For case law and additional insights contact:
Marlon Appleton 
marlon.appleton@he-llp.com

VAT Secret: Hotel Room Booking

Issue 6: Booked a Hotel Room Lately?

I am happy to say that I have never booked a room and not show up, but let’s assume that you have; Following recent case law, if you make a deposit when you make the booking for an unspecified room then no VAT is chargeable if you decide not to turn up and the hotel charges you a “no-show” fee. So check your bills people.

Similarly, the booking fee/down payment itself is not Vatable until you are given a room.

Don’t you just love VAT? It’s oh so exciting!!! (No sarcasm on my part).

For further insights contact Marlon Appleton.

marlon.appleton@he-llp.com

The Secret is Out: Issue 5

Issue 5: Do You Live Where You Work

I meant that literally, not in the sarcastic manner that your wives or husbands would often complain about.

If your utility bill is in the name of your company the electricity company may more than likely have your account listed as a business, which may not necessarily be incorrect. However if you also live at that premises you should submit a VAT Declaration to your utility company to reduce your VAT costs.  As the Meercats would say….Simples. 

For additional insights please contact Marlon Appleton.

marlon.appleton@he-llp.com

The Secret is Out: Utility Bills

Issue 4: Check Those Utility Bills

Many are not aware of this tax. Then again why should you since it’s only supposed to be charged to businesses that consume above a certain level. 

Climate Change Levy or CCL is a tax on the electricity and gas that you consume. The cheeky thing about CCL is that VAT is charged on it as well. Yep, that’s right you pay tax on the tax. I have no idea how the government got away with that one.

Businesses
I suggest that you check your utility bills to ensure that you are charged correctly. If your average daily electricity consumption is 33kwh or less then no CCL should be charged on your business bill.  Likewise, if the daily average gas consumption is 145kwh or less no CCL should be charged.

Private Residence

For households, no matter what your consumption level, CCL should never ever be charged on your bill. 

I have seen where businesses and residences are charged incorrectly so check your bills. You can go back years to demand a refund 

For more insight on the above contact Marlon Appleton.
marlon.appleton@he-llp.com

The Secret Is Out-Indirect Tax Savings: Issue 3

TGIT....Thank God It's Tuesday and yes it's that time of the week when we issue the next indirect tax secret. (I'm not certain TGIT will catch on, but what the hell, at least I should get points for originality). 

Issue 3: Prompt Payment Discounts

I can’t tell you how many times I have seen this error made by suppliers and totally missed by their customers. It’s even worse for customers who are not VAT registered. This error is made by large and small businesses alike.

When you raise an invoice offering a discount for prompt settlement the VAT should be calculated on the discounted value regardless of whether the early payment option has been taken up by the customer or not. 

This however does not apply if your terms allow customers to pay by instalments. Phew! I hope it sinks it now. 

For HELLP with the above contact Marlon Appleton

marlon.appleton@he-llp.com

The Secret is Out: Indirect Tax & VAT Savings Revealed

Since we have published "Issue 1" we have received higher than expected interests and this only means more pressure to keep these flowing but only if you promise to keep your likes  and comments coming. With that said "Issue 2" is below for your reading pleasure. 

Issue 2: Are you an Agent?

No not double agent, I am referring to those hard working individuals who sell goods or services on behalf of a principal for a commission. 

My firm recently got a client that got frustrated with his previous accountant because they submitted his returns to HMRC late… twice. After receiving all his documents and reviewing his VAT returns we realised that he had been paying way too much VAT to HMRC. No he is not the generous type, he just wasn't clear on the VAT rules.

This is what happened: My client (who will be referred to as 007) acts as an agent for Company A. 007 finds a customer ”X” who is willing to buy the products of Company A. Unfortunately “X” is currently tied into a contract for a similar but older equipment with Company B. In order to get the sale, Company A agrees to pay the early termination fees that “X” will have to pay to Company B.  

Now in order to get things going 007 raises an invoice to Company A for his commission and the contribution towards the early termination fees.  The mistake 007 made was charging VAT on the whole lot (maybe he should stick to acting). In this instance VAT should only be charged on the commission.  

For HELLP with the above contact Marlon Appleton

marlon.appleton@he-llp.com

The Secret is Out: Indirect Tax

As a show of appreciation to our readers we have identified areas within indirect tax that businesses both large and small tend to get wrong most of the time. Overtime we will release these mishaps to HELLP you navigate the exciting world of Indirect Tax. We will start with Issue 1.

Issue 1: Early Termination Fees

Have you ever been hit with early termination fees? Well I certainly have, but what a lot of individuals and businesses don’t know, including business that charge these fees, is that VAT may not be applicable to early termination fees.

Now that I have your attention let me briefly explain:

If the contract with your supplier has a clause in it giving you the right to early termination for a fee then any subsequent charge of the termination must never have VAT applied. 

For HELLP with the above contact Marlon Appleton

marlon.appleton@he-llp.com

Universal Credit Part 3: The Self-Employed

In continuation from Part 2 of this article we will now explore the specific areas of concern that may be of importance to the Self-Employed. You will remember in Part 2 we closed with the following paragraph:

“HMRC is currently consulting on a “cash basis” for those running low income businesses, but the UC regulations, administered by the DWP, have created a standalone system separate from that which HMRC is currently consulting on. This creates additional concerns for us as accountants which we will explore in Part 3, the final instalment of this article on Universal Credit”.    

Concern 1: Mixed Use

The draft regulations only allow the deduction of expenses which have been incurred “wholly and exclusively” for business purposes. This may at first seem to be similar to current tax legislation but on closer inspection we will realise that the tax legislation [ITTOIA 2005, s34 (2)] allows for the deduction of business expenses in instances where it only forms part of the whole expenses. The draft regulation is silent in this regard.

The next issue, concerns the use of the home for business purposes. The Universal Credit regulations in proposing a flat rate for particular deductions as business expenses seem to have excluded the general business administration and storage at home.

Finally, it should be noted that “cash accounting” will be optional for tax purposes but appears to be mandatory for Universal Credit (UC).

Concern 2: Unreasonable Expenses

Under the UC regulation, it will not be possible to get a deduction for expenses which are considered to be unreasonable. There is no definition of unreasonable in the draft regulations and past tax cases tended to define unreasonable expenses as those that have an element of personal choice.

At this stage we are not sure how this issue will be dealt with but it is quite strange that a public servant at the DWP may have the power to dictate to business owners the reasonableness of their business expenses.

Concern 3: Carry Forward

Of the three, this in our opinion is the most serious issue. Cash accounting for tax purposes is based on accounts over the period of a year and allows the carry forward of negative balances to be set of against future positive balances.

In stark contrast the draft UC regulation looks at accounts on a month by month basis and further proposes that negative balances should be treated as zero and therefore disallowing the option for a carry forward to future periods.   The problem with this approach is illustrated in the example below.

Therefore under UC, expenses which are incurred for a whole year will be treated as being wholly applicable to the month in which they arise.

Illustration

James and Wendy were both seasonal retailers of children summer clothing and worked on their separate business ventures during the months of June, July & August. They were both self-employed and each sold £5000 of stock during each month at a gross profit margin of 50%.

Assume for the purposes of this illustration that they have no other expenses and James bought all his stock in June while Wendy bought hers as she needed to in each month.

Calculating their income as required by the draft UC Regulation gives the following results:

	James	Wendy
June
Sales	5,000	5,000
Less Stock Purchased	7,500	2,500
Total	-2,500	-2,500
Reportable for UC		-2,500
July
Sales	5,000	5,000
Less Stock Purchased	-	2,500
Total	5,000	2,500
Reportable for UC	5,000	2,500
August
Sales	5,000	5,000
Less Stock Purchased	-	2,500
Total	5,000	2,500
Reportable for UC	5,000	2,500
Total Income Reportable for UC	10,0000	7,500

Harvey Edwards helps local businesses by launching new VAT Recovery service

Leeds based accountancy firm Harvey Edwards LLP has created a new service offering businesses an opportunity to claim back VAT from the HMRC.  

Marlon Appleton, a partner and VAT specialist in the firm commented that: “we know cash is tight in the current economic environment and realised from our experience that many businesses were inadvertently overpaying VAT”. This comes from potentially years of small human errors, with employees not fully understanding what is required by legislation and employers not having the resources to identify every error made in processing transactions.

FileDoc Ltd, a newly established supplier of multifunctional photocopiers, printers and related consumables is the latest beneficiary of this service that has led to improving cash flow to the start-up business.

Godfrey Gabriel Managing Director of FileDoc Ltd said “the professional service that I experienced with Harvey Edwards did not just help to improve my immediate finances and recover 75% of my VAT liability from just a few invoice;, but also allowed me to put in measures to prevent it from happening again”.

For the 2011-12 tax year HMRC collected £99.6 Billion in VAT. Some of that belongs to you. We therefore encourage businesses to actively seek help in order to recover valued cash that they are due and need.

Research has shown that companies on average under recover VAT by 30% resulting in net outflow of cash.

Universal Credit Part 2: The Self-Employed

In Part 1 of the article “Universal Credit: The Basics” we have highlighted the impact the draft regulations will have on PAYE, and to our disappointment, most of the national attention has been focused in this direction. However, the implications of the Universal Credit (UC) draft regulations are far more serious for the self-employed and it is our intention to add our voice to the public debate by showcasing these concerns. 

Tax Credits Overview

Tax credits are payments from the government. If you work and currently on low income you may qualify for Working Tax credit; additionally, if you are responsible for at least one child or young person you may qualify for Child Tax Credit. You may qualify for both of these payments which are not taxable. 

How it Works

Tax Credits are usually based on your income for the previous year and the payments are only ever amended during the current year if you notify HMRC of a fall in income for the current period. 

After the end of the current year, you will then have to provide details to HMRC of total income received for that year, usually by July 31^st for the employed and January 31^st for the self-employed. 

Reason for the Change 

Remember we mentioned that the calculation and payment of Tax Credit are based on your income for the previous year? Now this has always created a bit of a dilemma for the DWP, namely for example what to do where a person whose current income is higher than their previous year’s income but they are currently receiving Tax Credit based on their previous year’s income levels. This would naturally result in an overpayment of Tax Credit.  To reduce the number of repayments requested from claimants an “income disregard” of £10,000 has been put in place. The income disregard is an amount that you can earn above your previous year’s earnings without the need for you to make repayments to the DWP.  

 

However, with the advent of Real Time Information for PAYE the designers of UC have determined that Tax Credit payments should now be based on current year’s income rather than that of the previous year. Further, the draft regulations require payments to change immediately as your income level changes. This is to ensure that HMRC knows of all earnings of taxpayers immediately as is realistically possible.  

The Self Employed

This takes us into the problem of the self-employed. They need to be brought within UC but HMRC has no intention of collecting their information other than through Self-Assessment (or VAT returns where applicable). The draft regulations therefore suggest that the self-employed should submit monthly statements of income. You probably need to go and get yourself a drink at this point huh? I can assure it’s not a typo, a monthly statement of account is what will be required if the current draft regulations remain unchanged. 

The draft regulations suggest that income will be reported on a “simplified cash income basis”, and that this will make it easier for a claimant to report monthly without the need for an accountant. This statement in our view highlights the naivety of the UC designers as it relates to accounting for the self-employed.  

HMRC is currently consulting on a “cash basis” for those running low income businesses, but the UC regulations, administered by the DWP, have created a standalone system separate from that which HMRC is currently consulting on. This creates additional concerns for us as accountants which we will explore in Part 3, the final instalment of this article on Universal Credit.  

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