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How to maximise your VAT reclaim
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.
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.
In the excitement of an economic outlook rising like the incoming tide during the last quarter of 2013, together with the ‘silly season’ most of us would probably have missed Statutory Instrument No. 1970 – The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, and off course you would be forgiven for it. This particular statutory instrument made the duty to provide a Strategic Report a part of UK financial reporting legislation.
To most us the update to the Companies Act 2006, Part 15 – Accounts and Reports, will not have any impact, if our our daily task is that of preparing annual statutory financial accounts for approval by the board of directors of a UK incorporated company. This is because under section 414B of the Act, an exemption applies as follows:
* Quotes and references (sections) to the Companies Act 2006 available from Companies House
HMRC have released an update this month to their notice on Keeping VAT records. One of these changes relates to VAT simplified invoices which were introduced earlier this year as part of the simplification and harmonisation of VAT rules in the EU. Previously only retailers were exempt from providing full VAT invoices to unregistered businesses.
However the changes mean that any business issuing VAT invoices for £250 or less (including VAT) can issue simplified invoices.
What to include in a simplified invoice:
Your name, address and VAT registration number
The time of supply (date)
A description which identifies the goods or services supplied
The each VAT rate charged, the amount of VAT charged.
How does a simplified invoice differ from a full VAT invoice:
In addition, a full VAT invoice must include:
A sequential number based on one or more series which uniquely identify the document
The date of issue (if different from the time of supply)
The name and address of the person to whom the goods or services are supplied
For each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
The gross total amount payable, excluding VAT, expressed in any currency
The rate of any cash discount offered
The total amount of VAT chargeable, expressed in sterling
The unit price
The reason for any zero rate of exemption.
VAT invoices over £250
If issuing VAT invoices over £250, a full invoice must still be issued or a modified VAT invoice showing VAT inclusive rather VAT exclusive values.
Rebecca Taylor ACMA
The High Income Child Benefit Charge (HICBC) is a tax charge which repays part of the child benefit received by high earners earning over £50,000 to a 100% repayment for those earning over £60.000. It applies to child benefit received from 7th January 2013.
You may need to pay a tax charge if:
- you have an individual income over £50,000
- and either you or your partner receive Child Benefit or someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.
It doesn’t matter if the child living with you is not your child.
What do you need to do?
If you are affected by the tax charge, you can:
- Stop receiving the Child Benefit (only recommended if you’re adjusted net income is over £60k). Follow this link for how to do this.
- Carry on receiving the benefit and pay any tax charge at the end of the tax year.
How to calculate adjusted net income?
It is important to realise that the income used to calculate the tax charge is your adjusted net income. You can use the calculator on Gov.uk to work out your adjusted income.
How to pay the tax charge
If the tax charge does apply to you, you will need to submit a self-assessment return to HMRC by 31st January following the end of the relevant tax year. Do not rely on HMRC writing to tell you that you need to submit a return as they may not realise you need to. Normal self-assessment penalties apply if returns are late or incorrect.
How much do you need to pay?
The charge is 1% of child benefit received for every £100 of income over £50,000 of adjusted net income. The charge will never be higher than the amount of child benefit received and if the income is over £60,000 the amount paid back to HMRC will be equal to the benefit received.
Rebecca Taylor ACMA
Fake email alerts from Companies House and HMRC have become increasingly sophisticated. There was a time when it was relatively easy to spot a fake email alert but even accountants have been caught out by recent fake email alerts. And it isn’t just Companies House and HMRC. Be careful of emails from banks, other institutions, postal services, voicemail services and even Skype. Previously harmful emails have tried to direct you to a fake website to steal your personal details but these recent emails have attachments which could harm your computer.
What to look for
These fake email alertss have an attachment which appears to support details in the email message. For example, it could claim to be a customer complaint from Companies House, a missed delivery or a bank transaction. The email address could give you a clue that it is a fake email alert but many now look like they have come from a genuine email address. Some fake emails have footers which have been obviously copied from another email. If you are not expecting an email from the sender, think twice before opening any attachments, particularly .zip files.
These emails are all trying to get you to do one thing: open the attachment. The attachment invariably contains malware or a virus and will either damage your computer, steal your details or even demand a ransom (see an article from the National Crime Agency on Cryptolocker).
The National Crime Agency provides this advice:
This is a case where prevention is better than cure.
- The public should be aware not to click on any such attachment.
- Antivirus software should be updated, as should operating systems.
- User created files should be backed up routinely and preserved off the network.
- Where a computer becomes infected it should be disconnected from the network, and professional assistance should be sought to clean the computer.
- Various antivirus companies offer remedial software solutions (though they will not restore encrypted files).
Example of fake emails
Follow the links for some examples of fake emails:
Dividends are used by many business owners as a tax-efficient way to extract profit from a company. So it is important to understand the procedure for paying them. But does it matter whether the dividend is final or interim if the tax treatment is the same?
The Companies Act 2006
It isn’t HMRC that makes the distinction between the two dividend types, but company law. The Companies Act 2006 says “The company may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends”
So one group of people, the directors, may pay interim dividends, but shareholder approval must be obtained before a final dividend is paid.
So why is HMRC interested?
HMRC doesn’t particularly care which type of dividend is paid. It is interested in whether the payment is really a dividend or whether it was salary a bonus or a loan payment. As higher taxes and NI may accrue with these payments HMRC will want to see proof that the payment was a genuine dividend.
And this is where the timing of the payment and the paperwork are important. Under new anti-avoidance rules it is no longer possible for a director to receive a loan from the company, repay it to avoid the 25% tax charge and then take out a fresh loan within 30 days. HMRC will want to be certain that the payment is indeed a dividend. If the correct procedure has been followed and the paperwork is complete then this should not be challenged.
Thanks to http://www.freedigitalphotos.net
There are changes afoot and much is being made of ‘FRS 102’ and ‘new UK GAAP’, so in an effort to understand what all the fuss is about, and how it will impact on a small accounting practice with a client base firmly in the SME sector, I have dragged myself off to seminars and scoured t’Internet, and what follows is a brief summary of my understanding to date of these changes.
If you can put further flesh on these bones or correct misunderstanding then please feel free to comment.
First a little terminology:
- “IFRS Foundation”: an independent, not-for-profit private sector organisation.
- “IASB”: International Accounting Standards Board is the independent standard-setting body of the IFRS Foundation.
- “IFRS”: International Financial Reporting Standards which are designed to be global standard so that company accounts are understandable and comparable across international boundaries.
- “IFRIC”: International Financial Reporting Standards Interpretations are the official interpretations of IFRSs.
- “IAS”: International Accounting Standards are international financial reporting standards that were created by the predecessor body of the IASB and form part of the body of IFRS requirements.
- “SIC”: the official interpretations of the IASs.
- “IFRS for SMEs”: a self-contained standard of 230 pages, designed to meet the needs and capabilities of small and medium sized enterprises (SMEs) and includes simplified language and fewer disclosure requirements (expect to be aligned with FRS 102 in due course).
- “SMEIG”: SME Implementation Group is an advisory body to the IASB, is providing recommendations to the IASB in connection with IFRS for SMEs.
- “Small Company”: organisations with up to £6.5m turnover, £3.26m assets, and 50 employees (to be revised to £10m turnover etc. under new EU directive).
- “Micro Company”: companies with up to £632k turnover, £316k assets, and 10 employees.
- “UK GAAP”: Generally Accepted Accounting Practice in the UK is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom.
- “ASB”: UK Accounting Standards Board which is the body responsible for publishing accounting standards and other guidance.
- “FRS”: Financial Reporting Standard.
- “SSAP”: Statements of Standard Accounting Practice.
- “UITF”: Urgent Issues Task Force of the UK Accounting Standards Board (now disbanded).
- “SORP”: Statement of Recommended Practice for charity accounts and reports.
- “New UK GAAP”: new reporting standards applicable from 1st January 2015 (latest) comprising
- “FRS 100”: Application of Financial Reporting Requirements which sets out the overall reporting framework.
- “FRS 101”: Reduced Disclosure Framework which permits disclosure exemptions from the requirements of EU-adopted IFRSs for certain qualifying entities.
- “FRS 102”: the Financial Reporting Standard applicable in the UK and ROI which replaces all existing FRSs, SSAPs and UITF Abstracts.
- “FRS 103”: the Financial Reporting Standard for insurance companies.
Phew! so which standard do I use?
Listed company consolidated accounts: must use IFRS
Listed company parent/ subsidiary accounts: either IFRS or UK GAAP (FRS 102)
Other companies: either IFRS or UK GAAP (FRS 102)
Small (& micro) companies: either above or IFRS for SMEs or FRSSE
Charities: must use UK GAAP (FRS 102 or FRSSE) and the new Charities SORP
So in particular, what is FRS 102?
- for medium and large companies is similar to IFRS but reduced disclosure requirements
- allows ‘amortised cost’ or ‘fair value’ methods of valuation except equities held which which must be at fair value
- investment properties should be valued at far value via the P&L where possible but depreciated costs allowable if fair value involves undue cost or effort
- allows goodwill to be amortised rather than applying impairment method
- no ‘indefinite life’ option for goodwill
- other intangibles to be recognised separately from goodwill
- greater regulation of hedge accounting such as forward currency contracts
- option to use IAS 39 (which outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items)
- deferred tax to be provided on revaluations
- government grants can be recognised immediately or accrued and matched with costs
- holiday pay entitlement must be accrued where holiday not taken
- disclosure of total lease commitment (i.e. note on operating lease liability)
- cash flow statement required
- reduced reporting for small companies which will no longer be required to include a director’s report, analysis of income
New EU Directive
From 1st September 2013 micro companies can report a greatly simplified balance sheet (and P&L) and are not required to provide notes and analysis on most balance sheet items, but must still include details of directors’ loans.
HM Revenue & Customs
All the above deal with reporting for public record; there are no changes on reporting requirements to HMRC at this time, so from a parochial point of view, is this going to make any real difference?
Paul Driscoll is a Chartered Management Accountant, a director of Central Accounting Limited, Cura Business Consulting Limited, Hudman Limited, and AJ Tensile Fabrications Limited, and is a board level adviser to a variety of other businesses.
Red Tape Challenge.
As part of the UK Government’s intention to make regulations more relevant to the world we live in there is a consultation on the filing requirements for UK companies. The pdf document can be downloaded from the gov.uk website. Included in the consultation are suggestions to reduce the burden of form-filling for small businesses including scrapping the annual return and reducing the need to hold duplicate information at your registered office and Companies House.
The consultation document goes into great detail on the costs and benefits of each change being proposed. The cost saving to companies in not having to complete the annual return is assessed at £1.60, but this ignores any fines incurred by people who have missed their deadlines for filing.
Have your say.
The last consultation from Companies House only received a few hundred responses (according to my source) so if you have strong feelings on bureaucracy imposed on you, your response will have some impact. If you are uncertain of your filing requirements you can ask an accountant who will be able to advise on anything you need to do.
Checking the record.
If you are company you can check your details on the Companies House website, or at the following link replacing the last eight characters with your own company registration:
If your company registration has fewer than eight characters add leading zeros to make it the correct length. Of course you don’t have to limit yourself to checking your own details – whenever you are considering a new customer or supplier who is a limited company / limited liability partnership etc. it is a good idea to check their entry on the companies house register to get more information on them including names of directors.
|Companies House WebCHeck||http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo|
|Red Tape Challenge||http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/|
|GOV.UK public consultations||https://www.gov.uk/government/publications?publication_filter_option=consultations|
Years ago you would go to a formation agent and buy an off the shelf company and re-name it but now its much easy to create a company from scratch using a formation agent. There are many agents out there, but you could use http://www.company-wizard.co.uk where you can form a company from £16.99 or you can do it direct with Companies House.
You will need to know:
- The company name (that hasn’t already been used and isn’t restricted)
- The names, addresses and dates of birth for directors and shareholders
- Registered office address
- You will also need to security information for the directors and shareholders (eye colour, mothers maiden name, place of birth)
The company will often be formed within a day, once you know the company registration number you can open a bank account. To do this you will normally need to visit your bank and show them two forms of ID.
HMRC will send form CT41G to the registered company address.
The CT41G form is issued to newly registered companies. This form includes your company’s Unique Taxpayer Reference .You will need it to contact HMRC. It also tells you what you need to do if your company has become ‘active’ and suggests other tax implications your company may need to consider.
HMRC will also ask if you want to appoint an agent (accountant) and this is done with form 64-8.
To register for PAYE you will need to know:
- name, business name, partner’s name, company name (as appropriate)
- business or home address, including postcode (as appropriate)
- business or home telephone number
- a contact email address
- a contact telephone number
- a name and address to send correspondence to
- the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees
Follow this link if you need to register for the Construction Industry Scheme http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=039zI-xtZZw
VAT registration is done on line http://www.hmrc.gov.uk/
Well over 95% of limited companies in the UK are “private” – it is by far the most common form of limited company.
The main advantages of a being public limited company are:
- Better access to capital – i.e. raising share capital from existing and new investors
- Liquidity – shareholders are able to buy and sell their shares (if they are quoted on a stock exchange)
- Value of shares – the value of the firm is shown by the market capitalisation (based on the share price)
- The opportunity to more easily make acquisitions – e.g. by offering shares to the shareholders of the target firm
- To give a company a more prestigious profile
As always there are some disadvantages to being a PLC (as opposed to remaining as a private company). The main downsides are:
- Once listed on a stock exchange, the company is likely to have a much larger number of external shareholders, to whom company directors will be accountable
- Financial markets will govern the value of the company through the trading of the company’s shares, and will represent the market’s view of the company’s performance over time
- Greater public scrutiny of the company’s financial performance and actions
These are the main differences in summary:
- You must use the description ‘PLC’
- A public company must have issued share capital to a nominal value of £50,000 of which 25% must be paid up.
- Only public companies can offer their shares to the public
- There are strict rules that shares must be issued for full value
- PLCs must file their accounts within 6 months from their year ends
- PLCs must have two directors
- PLCs must have a suitably qualified company secretary
- PLCs must hold AGMs when the accounts can be received
- PLCs cannot approve written resolutions unless authorised by the articles
- There are strict regulations on PLCs purchasing or providing financial assistance to purchase their own shares
- Traded PLCs cannot place restrictions on transfers of its shares. Otherwise such restrictions in the articles are permitted
- Election of directors at general meetings must be in separate resolutions
- PLCs cannot take advantage of the abbreviated accounts regime (but nor can larger Ltd Co’s)
- Listed PLCs can hold shares in treasury (with limits)
- Listed PLCs must have their remuneration report approved at the AGM
- PLC directors can only have authority to issue shares for five years
- A PLC articles cannot exclude pre-emption rights on the issue of new shares
- PLC financial results must use International Accounting Standards if listed but unlisted Plc’s can use UK GAAP
- Nominees of PLC shareholders where the PLC is listed on a regulated market can nominate information rights for the shareholders
- The articles of PLCs must have a specific authority to enable the board to authorise a transaction where the director has a conflict of interest