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VAT for sole trader start-ups

May 12, 2015 8:37 am / Leave a comment

How to maximise your VAT reclaim

As any new business knows, you can incur significant costs at the outset before you get any income.  Most of these start-up costs will have VAT included and if you plan properly you should be able to recover this VAT as long as you are planning to make taxable supplies.

Save pounds on VAT

Plan ahead and reclaim everything

If you are setting up a business and can ahead, you can register for VAT from the date your business will start.  For most traders there is not any restriction on the date the business can start, but for some professional services eg barristers and advocates, no trade exists until they qualify.  To maximise the VAT to be reclaimed, the sole trader can register for VAT in advance of date of commencement, effective the date they are due to qualify.  This means that the VAT registration will be in place from the 1st day of trading and all sales invoices can be issued as VAT invoices.

Pre-registration VAT

There are specific rules allowing pre-registration VAT to be reclaimed, but any claims to recover pre-registration VAT must relate to the same trade and made by the same person.  A sole trader who incorporates the business is not the same legal person as the new company.  Any VAT suffered by the (unregistered) sole trader can’t be claimed as pre-registration VAT by the new company.

Get help with registering

Your accountant will be able to register you for VAT and recommend the best scheme for you.  It can take a few weeks for HMRC to process applications, but accountants who are registered as agents with HMRC are likely to have a quicker turnaround time.  For advice on registering for VAT and setting up your invoices, please visit the Alterledger website.

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Get HMRC to pay you

May 5, 2014 10:22 am / Leave a comment

HMRC will pay you interest

It is not that well-known that HMRC will pay you interest on tax paid early.  The interest rate is only 0.5% though, so it isn’t going to change your life.

In the case of Corporation Tax, any payment is due 9 months and a day after your year-end.  If you have a business bank account that pays no interest and the cash to pay your tax early you can pay your tax as soon as you have filed your return.   After the 9 months is up HMRC will send you the interest calculated.

British piggy bank

What spare cash?

See my earlier post on paying your debts first. In the situation where you have cash in the bank that you aren’t putting to good use and no outstanding debts paying your tax liability early will yield a small benefit.

Get your tax return done early

It is difficult to plan your cash flow if you don’t know how much tax you are due to pay.  Even if you don’t want to pay your tax early, it is helpful to know how much cash you will need to set aside.  The later you leave it to file your tax return the more pressure you can end up putting on your cash flow.  More importantly the later you leave it, the more pressure you put on your accountant.  Most accountants increase their fees as tax deadlines approach – or to put it another way you are likely to get a discount for starting early!

Don’t be late!

It won’t surprise anyone that HMRC will charge interest on late payments.  The interest rate isn’t the measly 0.5% mentioned above but is currently 3%.  As Bank of England rate increases  – expect this to increase too!

For support and advice on preparing your annual accounts and filing your tax returns contact Alterledger or visit the website alterledger.com.

 

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The Risk-Based Approach – Risky business for SMEs? – Part I

February 18, 2014 7:00 am / Leave a comment

HMRC

HMRC (Photo credit: Images_of_Money)

The issue:

Risk-based approaches to manage Compliance Service delivery are undergoing a maturity model evolution.

This per se is not a negative issue, however, do risk-based approaches leave us exposed to more or less compliance risk?

We pose this question because a number of process advances, including technological drivers have over the past few years increased the incidence of the risk-based approach (r)evolution.

As an example, HMRC launched their risk based approach pilot scheme related to business record keeping called ‘Business Records Check‘ a few years ago (2011), only for the initiative to ‘go quiet’ and then suddenly to rear its head again late in 2013.

The facts:

From the HMRC web site, the following information was published:

“Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.“

By extrapolation, HMRC also publish within their background report the following table:

HMRC BRC Checks

It is clear that HMRC, via their risk-based approach, will target SME businesses they perceive as ‘at risk of keeping inadequate records‘, because of the additional tax yield they estimate to collect over the next few years.

The HMRC site goes on to state:

“A new approach to BRC started on 1 November 2012. Customers who are more likely to be at risk of having inadequate records will be contacted by letter to arrange for HMRC to call them to go through a short questionnaire.”

All this activity is part of an attempt by HMRC to close the ‘Tax Gap‘.

Next steps:

If you feel that your business records might not be up to the standard HMRC would acknowledge as adequate or if you feel potentially at risk, please contact one of the CIMA team members to assist you in evaluating your records, systems and processes for keeping adequate business records.

In a future article we will look into which specific activities put you or your business at a higher risk of a Business Records Check audit from HMRC.

©2014 – 3resource

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