Summer 2007 – Current Issues

Welcome to our Summer 2007 newsletter, we are using this quarter’s newsletter to highlight some potential opportunities for businesses, which have recently arisen following the change to some VAT scheme entry levels by HM Revenue & Customs:-

Choosing the right VAT scheme for your business

Following the change to VAT limits by HM Revenue & Customs on 1 April 2007, many businesses are now able to take advantage of the various VAT schemes which previously were unavailable to them. Accounting for VAT in the standard way can be very time-consuming and expensive. There are alternative VAT accounting schemes which may suit your business better. The article below will give an insight into the options available to your business:-

Annual Accounting Scheme

Using this scheme a business will make monthly or quarterly instalments during the year, based on an estimate of the businesses total annual VAT bill. At the end of the year a single annual VAT return is submitted and any balance due is cleared.

The benefit of the annual accounting scheme is the business will know exactly what instalments are payable, making budgeting and cashflow easier to manage. The business is allowed two months to complete and send in its annual VAT return and balancing payment, reducing the administrative burden on the company as only one VAT return has to be completed a year. Finally the annual VAT return can be set to coincide with your accounting year end date, which will further simplify matters.

This scheme will not suit any business that usually claims repayments of VAT.

Cash Accounting Scheme

Under this scheme you only account for and pay VAT when your customer pays you. The scheme means that if you do not get paid by your customers, you do not have to pay over the VAT to HM Revenue & Customs. Conversely the scheme only allows a business to reclaim VAT on purchases once the business pays their suppliers. It is ideal if your customers take a long time to pay you and can help your cash flow. You do not need to apply to use this scheme, and can change to it at the beginning of any tax period. Be aware though, if you do switch over to the cash accounting basis for your VAT that you do not duplicate VAT transactions on your VAT returns.

You can use either or both of the two schemes mentioned above if your annual turnover (excluding VAT) is not more than £1,350,000 and your business meets some other required conditions. Businesses already using these schemes may continue to use it until their annual turnover (excluding VAT) reaches £1,600,000.

Flat Rate Scheme

The scheme is designed to help small businesses by letting a business calculate its VAT payment as a flat rate percentage of its turnover. The percentages are calculated according to the trade sector in which your business operates. Under the scheme you will not be able to reclaim all of the VAT you pay, as this is taken into consideration as part of the percentage calculation.

The benefit of this scheme is that it greatly reduces the time spent accounting for VAT because you do not have to record the VAT charged on each individual purchase and sale. Another added incentive is businesses in their first year of VAT registration could also benefit from a 1 per cent reduction in the flat rate in their first year of trade.

You can apply to use this scheme if your annual turnover (excluding VAT) will be £150,000 or less and your annual total turnover (including VAT) will be £187,500 or less (including exempt and non-business income). To apply to use the flat rate scheme a form VAT 600 FRS needs to be completed and submitted to HM Revenue & Customs.

These are only a selection of the schemes available to businesses, for example if you sell direct to the public you may find it difficult to issue a VAT invoice for each sale. There are several retail schemes available to help you with this.

There of course can be advantages to the traditional quarterly returns as well; a lot of small businesses find that doing the VAT is a good discipline as it forces people to look at their business, and to have a good accounting system.

This article is by no means comprehensive; if you think your business could benefit from switching VAT schemes or you want some advice relating to any of the above please do not hesitate to contact one of the partners at our practice.

Quarterly tax tip

When you complete your VAT return online you must also pay any VAT due electronically, but HMRC gives you up to 7 extra days to pay. If you allow HMRC to call the VAT payment from your account by direct debit you have up to 10 extra days use of the funds.

The Tenancy Deposit Scheme

Tenancy deposit law was introduced on 6 April 2007 to give more protection to tenants by preventing landlords and letting agents from unfairly withholding a tenants deposit. All deposits (for rents up to £25,000 per annum) taken by landlords and letting agents for assured short hold tenancies in England and Wales, must be protected by a tenancy deposit protection scheme.

Deposits received by landlords after 6 April must now be registered with one of the three government approved agencies that run the scheme. Landlords can choose which scheme they wish to use and must safeguard each deposit and inform the tenant which scheme has been used within 14 days of receiving the deposit. Landlords who fail to register deposits face a fine of three times any deposit given to them with the fine paid to the tenant.

Please be aware the new Tenancy Deposit regime provides HM Revenue & Customs with the perfect tool to pursue tax evading landlords. Those residential landlords, who have not yet signed up with HM Revenue & Customs, will have now missed the “amnesty arrangement”, which ended on 22 June 2007. These landlords should consider contacting one of the partners at our practice for further advice.

KEY DATES

Whilst all due care and attention has been taken in the preparation of this review, we cannot accept responsibility for loss occasioned by any person acting or refraining from action as a result of material contained therein. There is no substitute for professional advice specifically tailored to your personal circumstances. We can give that advice and welcome the opportunity of assisting you. If you would like to discuss any of the issues raised further, or for us to arrange a review of any of your procedures, please contact Alan Cohen or Darren Swann as follows:-

Tel: 0161 249 5040 Fax: 0161 448 9287
Email - alanc@leonherman.co.uk or darrens@leonherman.co.uk