Members of the ICAEW Business Advice Service offer a free initial consultation to new clients.
HMRC are of the opinion that there are a number of businesses that should be registered for VAT, and so far, they have not registered. They are in the process of sending out 40,000 letters to traders who they believe may be in this category.
HMRC are offering businesses that “come clean” and notify HMRC of an intention to register before the end of September 2011, reduced or nil penalties. Subsequently formal applications have to be submitted on VAT form 1 before 31 December 2011.
The current VAT registration threshold is £73,000. If you have already passed this annual limit in the last twelve months, are about to, or expect to in the next 30 days, you might like to respond to this offer.
Penalties for late registration can be up to 100% of additional VAT due.
Fast Food Outlets
HMRC believes that there are a number of fast food outlets that are deliberately falsifying their records and miss-declaring their true sales levels in order to avoid paying their correct taxes.
They have set up yet another specialist task force to tackle this avoidance.
Penalties will be levied in addition to recovery of unpaid taxes. Those businesses discovered may also face criminal prosecution.
With effect from 1st October 2011 the following changes will be made to the National Minimum wage:
Adult Rate for Workers age 21 and over £6.08 per hour
Development rate for workers aged 18 – 20 inclusive £4.98 per hour
Young Workers Rate for workers aged 16 – 17 years old £3.68 per hour
Apprentice Minimum Wage £2.60 per hour
The apprentice rate applies to apprentices under 19 or 19 and or over and in the first year of their apprenticeship.
If you charge a customer VAT and subsequently discover that the supply of goods or services was exempt, zero rated or outside the scope of VAT you can make a claim to HMRC to refund the VAT overcharged.
The phrase “unjust enrichment” means that you are required by HMRC to refund any VAT repaid to you in this way to your customers, you cannot keep the refund for yourself!
HMRC have a special reimbursement scheme that deals with claims for repayment. When making a claim you will have to agree to:
- Sign a formal undertaking that you will comply with the terms of the reimbursement.
- Make all refunds to your customers within 90 days.
- Repay any residual amounts not returned to customers within 14 days of the 90 day time limit.
- Pass on any statutory interest paid with the refunds to your customers.
Additionally you will have to keep the following records:
- Names and addresses of the customers you intend to reimburse.
- Total amount paid to each customer.
- Amount of interest paid to each customer.
- Date you refunded the money.
HMRC will also seek to reduce refunds due if the supply resulted in a claim for associated VAT input tax. For example if you supplied services at standard rate and there were associated costs where you recovered input tax, and then you discovered that the supply should have been an exempt supply, then HMRC would reduce the refund of over-declared output tax by the over-claimed, associated, input tax.
If you need to make a claim under the reimbursement scheme you will need to submit a formal undertaking in writing. Please contact us and we will organise this for you.
Partner, Karen Whitehead, advises SMEs to be be aware of HMRCs power to penalise companies for “inadequate” accounting records.
Partner, Sam Jones, explains how clients can use our secure portal to exchange confidential accounts information.
Partner, Karen Whitehead, explains how small business owners can reduce onerous tasks by outsourcing their payroll.
Partner, Sam Jones, explains the HMRC penalties for late tax return filing.
If you help run a local sports club, i.e. the kid’s football team, tennis club or other organised sports activity, you may be interested to learn you can apply to HMRC to be treated as a registered community amateur sports club, a CASC.
If your club fits the following criteria there are a number of significant tax exemptions. The main qualifying conditions are:
- the club must be open to the whole community
- the club’s main purpose must be to provide facilities for eligible sports, and to encourage people to take part in them
- the club must be organised on an amateur basis
The club must also be able to show that:
- it is set up and provides its facilities in an eligible area
- it is managed by fit and proper persons
The corporation tax reliefs that you can expect if you do register exempt the following sources of income:
- trading profits, if the turnover is no more than £30,000 per year (if turnover is more than £30,000 all trading profits are taxable)
- income from letting property, if the rent is no more than £20,000 per year (if letting income is more than £20,000 no exemption is possible)
- any interest your CASC gets
- any capital gains it makes
- any Gift Aid donations
Additionally you may qualify for relief from non-domestic rates. In England, Wales and Scotland this amounts to 80% rates relief. Contact your Local Authority finance department to apply.
There’s a lot of information published about the amount of capital gains tax you will need to pay if you sell a chargeable asset. And of course you can sell chargeable assets and the first £10,600 of taxable gains is exempt from a tax charge in the current tax year, 2011-12.
We thought it might be of interest to list items that can be sold with no fear of capital gains tax arising on the sale. Here’s HMRC’s published list and please note that a chattel, referred to in the list, is the personal variety; defined as ‘an item of movable, personal property’. In plain English personal effects or household goods:
- private motor vehicles
- an individual’s only or main residence (having gardens or grounds of half a hectare or less) which has been occupied as such throughout the period of ownership
- tangible moveable property, that is items such as household goods and personal effects, worth less than £6,000
- chattels with a predictable life of 50 years or less (unless used for the purposes of a trade, profession or vocation)
- SAYE (Save-as-you-earn) contracts
- National Savings Certificates
- Premium Bonds
- British Government Securities
- qualifying corporate bonds
- certain investments in Personal Equity Plans, Individual Savings Accounts and under the Business Expansion Scheme
- the receipt of personal injury compensation
- the receipt of winnings from betting, including pool betting, or lotteries or games with prizes.
HMRC are actively searching the internet for evidence of eBay traders that are consistently selling goods on eBay. They are known to be exploring the use of ‘internet robots’ to scour cyberspace!
And this activity is not necessarily restricted to eBay traders. What about car boot sales, sales via classified ads? Which raises an interesting question – when does a hobby become a trade, and more importantly, when do any surplus funds become subject to tax?
Generally speaking if you are selling your own private possessions you will not be trading. However you may be considered ‘in business’ if you habitually buy and sell goods on eBay and/or at car boot events. The list that follows is the published ‘badges of trade’ that HMRC use when considering this matter.
- An intention to make a profit supports trading.
- The number of transactions involved – systematic and repeated transactions support trade.
- The nature of the goods sold – are the goods only capable of being turned to advantage by being sold? Or do they yield income, or give enjoyment through pride of ownership?
- Existence of similar trading transactions – was this a one-off transaction or part of a pattern that suggests trading?
- Changes to the goods – were the goods repaired, modified or improved to sell them more easily?
- The way the sale was carried out – were the goods sold in a way that indicates trading, or to raise cash in an emergency?
- The source of finance – was money borrowed to buy the goods? Were any profits to be used to repay the loan?
- Interval of time between purchase and sale – goods being traded are usually bought then sold quickly.
- Method of acquisition of the goods – goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.
As you can see one or more of these cases could apply to most hobbies.
The current penalty regimen adopted by HMRC precludes sticking your head in the sand. Don’t wait for the brown envelope to appear. If you are uncertain about the tax status of your money-making hobby call us now.
At present purchases of qualifying plant and other equipment can be written off against your taxable profits.
Tax relief is obtained by utilising the Annual Investment Allowance. For the current tax year, 2011-12, this amounts to a 100% write off with a limit of £100,000.
As with most opportunities all good things come to an end! From April 2012 the annual limit is being reduced to £25,000.
So if your plans over the next year or so include substantial investment in replacing worn out, or buying new, qualifying equipment, timing is absolutely critical.
Call us if you would like more information about these changes.