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VAT penalties for those who should be filing online and don’t

Posted by: edwinsmith on April 28th, 2011

From April 2011, HMRC have introduced a new penalty regime for businesses that were required to submit their VAT returns online from 1 April 2010 but have continued to submit paper returns.

These penalties will apply to returns for accounting periods ending on or after 31 March 2011.

Where a penalty is charged, the amount will be determined by the business’s annual VAT exclusive turnover, as follows:

Annual VAT exclusive turnover Penalty
£22,800,001 and above £400
£5,600,001 to £22,800,000 £300
£100,001 to £5,600,000 £200
£100,000 and under £100

 

The HMRC website has more information on the penalties for submitting a VAT return on paper instead of online.

If you haven't already, you can register for a HMRC online account for VAT  or any other service. Please note that you can have one HMRC account to deal with all matters of your business relating to HMRC.

For more information please read our previous news article about filing VAT returns online and paying VAT electronically.

Filed under: VAT

Revised Advisory Fuel Rates – 1 March 2011

Posted by: edwinsmith on February 28th, 2011

H.M. Revenue and Customs (HMRC) have published the latest advisory fuel rates relating to mileage payments for business travel in company cars. These are as follows: 

Engine size Petrol Diesel LPG
1400cc or less 14p 13p 10p
1401cc to 2000cc 16p 13p 12p
Over 2000cc 23p 16p 17p

The new rates will be effective from 1 March 2011, however for the first month employers may continue to use the previously published rates if they choose to.

These rates will be reviewed again shortly and any changes made will be effective from 1 June 2011.  The revised fuel rates will be published on the fuel rates page on the HMRC website when they are released.

Advisory fuel rates can be used to calculate the following:

  • Reimbursement to employees of fuel used for business travel in a company car
  • Repayment by employees of fuel used for personal travel in a company car
  • Allowable input VAT on business mileage claims

A more detailed explanation of the use of these rates is on the HMRC website.

The rates applying for earlier periods are also on the HMRC website.

If you have any questions regarding the use of advisory fuel rates or mileage payments please contact us.

Filed under: PAYE, Tax, VAT

Any ideas for the Budget?

Posted by: edwinsmith on February 25th, 2011

Chancellor George Osborne is calling on the British public for ideas on how to kick-start economic growth with the launch of an online Budget idea portal.

The portal will allow members of the public, interest groups and representative bodies to send their suggestions of what they would like to see in next month's Budget.

The Budget takes place on 23 March.

Filed under: PAYE, Tax, VAT

BillPay Website Address Changes

Posted by: edwinsmith on January 13th, 2011

The web address for paying tax to HMRC over the internet with a debit or credit card has changed from 20 December 2010 to www.santanderbillpayment.co.uk/hmrc.
This applies to the following taxes:

  • self assessment;
  • PAYE/Class 1 National Insurance;
  • VAT;
  • stamp duty land tax;
  • corporation tax; and
  • miscellaneous payments.
Filed under: PAYE, Tax, VAT

Revised Advisory Fuel Rates – 1 December 2010

Posted by: edwinsmith on November 30th, 2010

H.M. Revenue and Customs (HMRC) have published the latest advisory fuel rates relating to mileage payments for business travel in company cars. These are as follows: 

Engine size Petrol Diesel LPG
1400cc or less 13p 12p 9p
1401cc to 2000cc 15p 12p 10p
Over 2000cc 21p 15p 15p

The new rates will be effective from 1 December 2010, however for the first month employers may continue to use the previously published rates if they choose to.

These rates will be reviewed again next year and any changes made will be effective from 1 June 2011.  The revised fuel rates will be published on the fuel rates page on the HMRC website when they are released.

Advisory fuel rates can be used to calculate the following:

  • Reimbursement to employees of fuel used for business travel in a company car
  • Repayment by employees of fuel used for personal travel in a company car
  • Allowable input VAT on business mileage claims

A more detailed explanation of the use of these rates is on the HMRC website.

The rates applying for earlier periods are also on the HMRC website.

If you have any questions regarding the use of advisory fuel rates or mileage payments please contact us.

Filed under: PAYE, Tax, VAT

Fee Protection Service

Posted by: edwinsmith on November 29th, 2010

The way H.M. Revenue and Customs (HMRC) operates is changing since the passing into law of the Finance Act 2008, which gives inspectors far greater powers than previously. HMRC are more determined to claw back money from taxpayers and are using more efficient methods of checking for non compliance.

The discovery of a simple, unintentional error causing an underpayment of tax may lead to penalties as well as the tax deemed owing plus interest. Disputes with HMRC can quickly spiral into time consuming and costly affairs. Even if no tax is found as owing, the professional fees incurred in handling the case will still need to be paid.

We at Edwin Smith are able to offer to all our clients a fee protection service which can significantly reduce the financial burden that you would face if you became the subject of an investigation by HMRC. For a small annual subscription, the scheme will provide you with the equivalent of up to £100,000 worth of our time in the event of a written intervention by the tax authorities and enables us to dedicate as much time as necessary to get the best result for you, without worrying about spiralling costs. For all business clients, included in the service at no extra cost, is access to a Business Support Helpline that you can call to help you through the legal minefield of today’s business environment.

If you are interested in taking up cover, please contact us.

Filed under: PAYE, Tax, VAT

VAT increase to 20% – is your business ready?

Posted by: edwinsmith on November 23rd, 2010

The standard rate of VAT increases from 17.5 per cent to 20 per cent on 4 January 2011. Sales that are zero-rated, reduced-rated or exempt are unaffected. If you currently calculate VAT on your sales using the VAT fraction of 7/47, you must use the new VAT fraction of 1/6 from 4 January 2011. If you use the VAT flat rate scheme new rates will apply from 4 January 2011.

For retail businesses making mainly cash sales to non-registered customers, apply the new rate for all takings received on or after 4 January 2011 except where the customer pays for items taken/delivered to them before 4 January 2011 in which case the old rate of 17.5% still applies.

For businesses selling mainly to other VAT-registered businesses and issuing invoices, the new 20% rate applies to all invoices issued on or after 4 January 2011 EXCEPT:

  • Where goods or services are provided before 4 January 2011 and more than 14 days before the VAT invoice is issued, e.g. if a VAT invoice is issued on 4 January 2011 for goods or services provided before 22 December 2010, OR
  • Payment is received before 4 January 2011

 

In these cases, the sale took place before 4 January 2011 and businesses should use the old rate of 17.5 per cent.

For sales spanning the rate change, If goods have been provided (or services completed) before 4 January 2011 businesses can choose to account for VAT at the old rate of 17.5 per cent.

For continuous supplies of services, such as ongoing professional or construction services, businesses should account for the VAT due whenever a VAT invoice is issued or payment received, whichever is the earlier. In these cases, invoices issued or payments received on or after 4 January 2011 will be subject to 20 per cent VAT.

For services started on a job before 4 January 2011 but finished afterwards businesses may account for the work done up to the end of 3 January 2011 at 17.5 per cent and the remainder at 20 per cent. If you choose to do this you will need to demonstrate that the apportionment is fair.

Businesses should claim back the VAT charged by their supplier in their usual way. If an invoice for a business purchase is received which is dated on or after 4 January 2011 which shows 17.5 per cent VAT for purchases made before the rate change, a claim back for the 17.5 per cent VAT should be made, subject to the normal rules. Businesses cannot increase the VAT claim to 20 per cent.

The fuel scale charges for VAT registered businesses that reclaim VAT on road fuel to reflect the private use of business vehicles are amended with effect from 4 January 2011 to take account of the new 20 per cent rate. If your VAT return period spans 4 January 2011, you will need to apportion VAT payable on the scale charges accordingly. The HMRC website details the new VAT fuel scale charges rates in appendix C.

What do businesses need to do now?

  • Ensure you know how to change the standard VAT rate on your software package or electronic till. If you can’t do this yourself contact your software or electronic till provider or supplier for assistance. Most software packages should have the in-built capability to deal with changes in the rate.
  • Make sure your systems identify correctly sales before and after the change.
  • On cash accounting? You will need to be able to identify payments received on or after 4 January 2011 that relate to supplies made before that date. VAT at the rate of 17.5 per cent will be due on these payments.

 

If your software package or till has not been amended to calculate VAT at 20 per cent (rather than 17.5 per cent) by 4 January 2011 you will need to calculate the VAT manually. You simply take the standard-rated gross takings calculated by your software package or till and multiply that sum by the new VAT fraction of 1/6 – this will give you the amount of VAT at 20 per cent.

It is important that businesses follow the special rules for sales that span the change in rate. Legislation has been introduced to prevent avoidance (forestalling) where arrangements are made to account for VAT at 17.5 per cent in advance of 4 January 2011 in respect of goods or services to be provided afterwards.

The filing and payment deadlines remain the same. HMRC have said that they will adopt a ‘light touch’ in relation to errors or mistakes made in the first VAT return after the change.  Any errors or mistakes should be corrected in the normal way by making a voluntary disclosure or correcting it on the next return (subject to the normal limit).

Further detailed guidance can be obtained from the HMRC website regarding the VAT standard rate change.

Please contact us at Edwin Smith if you have any queries.

Filed under: VAT

Send records in early to avoid 20% VAT rate on accountancy fees

Posted by: edwinsmith on August 31st, 2010

VAT will be increasing from 17.5% to 20% with effect from 4 January 2011. Therefore, it will be beneficial for non VAT registered clients to bring in their records earlier this year so that the required work, such as preparation of tax returns and/or accounts, can be carried out before Christmas in order to save 2.5 % on the VAT included on the cost of accountancy fees.

It is important to note that the accounting and tax work must be carried out before the VAT rate rise on 4 January, so the records must be received in good time to allow this to happen.  However, the deadline is more likely to be before Christmas as most offices close over this period.  A good amount of time can be viewed as approximately 4 weeks.

Alternatively, if you make a payment in advance before 4 January 2011, the VAT tax point becomes the payment date and will incur VAT at 17.5%.

With the 2009-2010 self assessment tax returns deadline being 31 January 2011, the VAT rate change provides a good financial incentive to send records in early to meet the deadline and to avoid the 2.5% increase in VAT.

Please contact us if you have any questions.

Filed under: VAT

VAT Errors and How To Correct Them

Posted by: edwinsmith on August 2nd, 2010

VAT errors can prove costly to you as failure to correct errors can result in a penalty and interest.

If you discover that you have made an error in your vat records and/or returns, then you need to correct them. How you do this will depend upon whether you have submitted the return for the vat period in which you have made the error.

If you have NOT yet completed your vat account or return for the period in which you made the error then : You can correct the error by amending your records. You should make a clear note to show the reason for the error and you should make sure that the correct VAT figure is declared on the return.

 
If you have already submitted your return then : You will need to correct the error as detailed below.

 

There are two methods for correcting any errors made as follows:

Method 1 – correction on a vat return

You can use this method to adjust your VAT account and include the value of that adjustment on your current VAT return providing:

  • the net value of errors found on previous returns does not exceed £10,000, or
  • the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT return declaration due for the return period in which the errors are discovered

To work out the net value of VAT errors on previous returns, you should work out:

  • the total amount due to us, if any, and
  • the total amount due to you, if any.

If the difference between the two figures is greater than £10,000 and exceeds 1% of the box 6 (net outputs) VAT return declaration due for the current return period during which the error is discovered, you must use Method 2. You must always use Method 2 if the net errors exceed £50,000 or if the errors made on previous returns were made deliberately.

Method 2 – VAT Form 652

You must use this method if:

  • the net value of errors found on previous returns is between £10,000 and £50,000 and exceeds 1% of the box 6 (net outputs) VAT return declaration due for the current return period during which the error was discovered, or
  • the net value of errors found on previous returns is greater than £50,000, or
  • the errors on previous returns were made deliberately.

You may, if you wish, use this method for errors of any size instead of a method 1 error correction. If you use this method you must not make adjustment for the same errors on a later VAT return.

You should use form VAT 652 when notifying HMRC of an error correction under this method or you can write to the appropriate office for error corrections and provide full details of the errors in a letter including:

  • how each error arose
  • the VAT accounting period in which it occurred
  • if it was an input tax or output error
  • the VAT underdeclared or overdeclared in each VAT period
  • how you calculated the VAT underdeclared or overdeclared
  • whether any of the errors resulted in you paying HMRC an amount that wasn’t due
  • the total amount to be adjusted, and
  • Sufficient detail about the error to enable HMRC to decide if interest is due

To avoid penalties or in some cases reduce them, it is important that errors are corrected immediately and that your declaration or correction is not prompted by a HMRC visit.

If we find errors in your records when we review them, we will advise you how to make the necessary corrections. If you discover that you have made an error and would like to discuss what to do next, then please contact us.

Filed under: VAT

Reimbursing business mileage

Posted by: edwinsmith on July 16th, 2010

Employers

Employers can reimburse employees using their own car, van, motorcycle or cycle for business travel by using tax free Approved Mileage Allowance Payments or AMAPs for short. The current rates are:

Kind of vehicle Rate
Car or van 40p for the first 10,000 miles

25p after that
Motorcycle 25p
Cycle 20p

Employees can also receive a tax free payment for carrying passengers on business journeys in their own car or van at the rate of 5p per mile.

If the employer pays more than the approved amount, the excess should be returned on form P11D or P9D. If you pay the exact amount, you do not need to notify HMRC. If you pay less (or nothing at all), the employee is entitled to a deduction for the shortfall as Mileage Allowance Relief. This can be done by completing a P87 form - Tax relief for expenses of employment, and submitting this to HMRC without the need for completing a self assessment tax return. However, the passenger rate cannot be claimed if your employer doesn't pay it.

If your business is registered for VAT you can claim input VAT on the fuel element only of the mileage allowance providing there is documentation in support of the claim. Unless the employee purchases the road fuel using fuel card, credit card or debit card provided by the employer, the employer must retain invoices issued to employees when the fuel is delivered to them. This can be a full VAT invoice or a less detailed VAT invoice. Input tax may only be claimed on the cost of fuel for business use in making taxable supplies. As such, the invoices only need to cover this amount.

HMRC accept that the amount of the invoice in many cases will not match the input tax claim in respect of business fuel in any one claim period and invoices may cover more than one period, particularly where fuel is purchased towards the end of a period. Clearly, a claim cannot be supported by a VAT invoice which is dated after the dates covered by the claim. This means, in practice, that it may be advisable for employers to arrange for their employees who use, or may use, their cars for business purposes to retain all fuel invoices. This will ensure that, at the end of the claim period, the value of business fuel is covered by an invoice.

HMRC publish their own advisory fuel rates per mile rates every 6 months but also accept rates set by recognised motoring agencies, eg RAC, AA etc. The input claim is calculated by multiplying the fuel element of the mileage allowance by the VAT fraction, currently 7/47, and then 1/6 from 1 January 2011 when the rate of VAT increases to 20%.

Records to keep of employees’ mileage

If employees are paid a mileage allowance the employer must have records for each employee showing:

  • the mileage travelled
  • whether the journey is both business and private
  • the cylinder capacity of the vehicle
  • the rate of mileage allowance and
  • the amount of input tax claimed (and VAT receipts if input is claimed)

Self-employed taxpayers

Self-employed taxpayers can compute their expenses using the above fixed rate mileage allowance per business mile if the annual turnover of their business is less than the VAT registration threshold when they first use the vehicle. This method is intended to make things simpler for small businesses. No one has to use it. Taxpayers who do not use it should deduct the actual amount they spend. In either case the journey must be made wholly and exclusively for business purposes.

Taxpayers can only use the mileage rate basis if they apply it consistently from year to year. They can only change to or from an 'actual' basis when a vehicle is replaced.

If the turnover of the business increases and exceeds the VAT registration threshold, then the taxpayer should continue to use the mileage rate basis until the vehicle is replaced.

If there is a change in the VAT threshold, then the taxpayer should continue to use the same basis until the vehicle is replaced.

Filed under: PAYE, Tax, VAT
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