VAT News

Does Your Accounts System Comply with Making Tax Digital for VAT?

Making Tax Digital (MTD) for VAT is scheduled to start in April 2019 which means that your VAT information needs to be submitted to HMRC digitally.

On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. The legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data.

What are Digital records?

VAT Registration Limit Frozen

The VAT registration limit normally increases in line with inflation each year, however the limit has been frozen at £85,000 until 1 April 2020. At the same time, the deregistration limit remains at £83,000.

Reclaiming Foreign VAT on Expenses

If your business has suffered VAT on expenses incurred in another EU country, for example overseas hotel and restaurant bills, then it is possible to reclaim the foreign VAT. 

The foreign VAT must not however be reclaimed on the UK VAT return but by using HMRC 's VAT online services system.

The foreign VAT refund claims can be made either quarterly or annually but there is a de-minimis amount that may be reclaimed quarterly. 

VAT Registration Numbers on Email

With the advancement and excessive ease of technology over the years, many businesses have taken to sending their sales invoices to customers electronically, rather than in paper form. This has many benefits. 

  • It’s Faster! 
  • It’s Safer! 
  • It’s Environmentally Friendly! 
  • Its Cheaper! 

However, it could lead to some difficulties…

Reporting VAT Online - Aren't we Doing That Already?

Last month we reported that the government had announced the delay of Making Tax Digital for Business (MTDfB) to 2020 at the earliest but that quarterly VAT reporting, using the new system will be mandatory from 2019. 

One Business or Two for VAT

A recent VAT Tribunal had to decide whether two hairdressing businesses should be treated as a single business for the purposes of VAT registration.

The distinction was critical as the two separate businesses were operating below the registration limit (currently £85,000) and the combined operation would have exceeded the limit meaning that VAT would need to be charged.

Note that HMRC have been successful in a number of cases aggregating the turnover of two businesses carried on by the same person(s).

Does the New 16.5% VAT Flat Rate Percentage Apply to your Business?

The new VAT flat rate of 16.5% started to apply from 1 April 2017 for “limited cost traders”.

A "limited cost trader" is one using the VAT flat rate scheme but where the VAT inclusive cost of goods for a year is less than 2% of VAT inclusive turnover, excluding certain specified items.

New VAT Limits

As mentioned earlier this year, the VAT registration limit increases by £2,000 to £85,000 from 1 April 2017.

At the same time the de-registration limit increases to £83,000.

New Higher VAT Flat Rate Percentage

As covered in the Autumn Statement newsletter a new VAT flat rate of 16.5% applies from 1 April 2017 for “limited cost traders”. This is being introduced as HMRC believe that the current system is being abused by some businesses providing their labour but who have very few costs.

"Abuse" of the VAT Flat Rate Scheme

The VAT flat rate scheme is a simple scheme that enables small businesses to calculate and pay their VAT based on a flat rate percentage of total takings rather than deducting input tax on purchases and expenses and deducting that from total output tax on sales in the period. HMRC believe that the scheme is being abused by certain traders who have minimal costs who charge 20% VAT to their customers and then pay a lower percentage over to HMRC.

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