Many UK businesses will be affected by new VAT rules that are set to be introduced in 2015. From 1 January 2015, the 'place of supply' of telecommunications, broadcasting services and e-services (eg video on demand, e-books and app downloads), will change in instances where the customer is a private individual.
Currently, supplies of e-services made within the EU to non-business customers are subject to VAT in the place where the supplier belongs. However, from 1 January 2015, VAT will be charged based on where the customer belongs.
For business-to-business transactions, the customer will still be able to account for any tax due through the 'reverse charge'. However, where consumers and other non-taxable people receive goods electronically, the reverse charge is not possible, so liability to account for any VAT due in one of the 28 EU member states rests entirely with the supplier.
Businesses affected by this new piece of VAT legislation should undertake a thorough review of their services, so they can reduce the risk of heavier VAT bills from next year.
This legislation is aimed primarily at large businesses such as Amazon, but it could have a greater impact on smaller businesses, which do not have the logistical and administrative back-up that multinational firms have. Those in the line of fire will need to register for VAT in each relevant EU member state where their customers are based and file VAT returns as appropriate in each state based on the rules in that country. Businesses will also need to consider the impact on pricing, website information and customer relationships.
To ease the potential administrative burden, the European Commission has developed the voluntary 'Mini One Stop Shop' (MOSS) initiative, which allows suppliers to have just one additional VAT registration and through a special web portal, account for the VAT charged on all sales to EU customers.
HMRC will start accepting applications to register for MOSS from October 2014, enabling businesses to start using the scheme from 1 January 2015. Businesses at risk must start planning now or face unwanted administrative and financial headaches at the start of next year.
Copyright © 2014 Russell New. Russell New is a firm of business, tax and charity advisers based in Upper Beeding, West Sussex.
The end of July brought the closure of HMRC’s Direct Recovery of Debts (DRD) consultation. As stated on government website gov.uk when it opened: “Budget 2014 announced a new power that will allow HMRC to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including Individual Savings Accounts (ISAs). The consultation document outlines how this will work in practice. The government would like to gather views on how best to implement this policy, including which safeguards would be proportionate and balanced to ensure that debtors do not suffer undue hardship.”
The AAT (the “UK’s leading qualification and membership body for accounting and finance staff”) is critical of details contained within the document because it feels appropriate safeguards are lacking (although it “appreciates and endorses that HMRC must be able to collect ‘established’ debt”).
The organisation wants greater consideration given to: “independent oversight”; the impact “DRD action could have on [how] banks view affected customers”; “what constitutes formal notice of an intended DRD action”; “the approach to seizure of funds from joint accounts”; and “the need to restrict HMRC from sharing data obtained around the department for non-DRD purposes.”
The AAT is urging HMRC to look closely at consultation responses received and use them as the “basis for another consultation”. Brian Palmer, AAT tax policy adviser, says: “Direct recovery of debt from an individual’s bank account was always going to be an emotive issue. This is why we would advise HMRC to take the time to consult on this matter to take on board all relevant views.”
AAT won’t support current plans because they lack “sufficient depth”, adequate safeguards and “the integral feature” of independent oversight and accountability. Should HMRC stage a second consultation, shaped by feedback gathered in the first, AAT says it will then “work with [HMRC] to see if we can [affect] a more appropriate outcome.”
The AAT is not alone in its criticisms. The ICAEW (Institute of Chartered Accountants in England and Wales) was also concerned about the adequacy of safeguards, and “whether HMRC can be relied upon to have accurate information and exercise its judgement properly”, as well as “the adequacy of appeal rights (which are not clearly explained), and the fact that HMRC is in effect becoming a preferential creditor.
“Further, we think this measure is wrong in principle and infringes fundamental civil liberties that no-one should access someone else’s bank account without their permission or under the supervision of a judge. We believe that principle should remain. Is this the thin end of the wedge and where will it end if accepted?”
According to a Law Society Gazette headline (28 July): “City lawyers lambast plans for direct tax debt recovery”. The article states: “The government says the change will help recover debts from debtors who choose not to pay despite being able to do so. But the City of London Law Society [CLLS] has warned that the proposals are ‘seriously misguided’ and could impact on innocent taxpayers.”
CLLS’s consultation response cited two key objections: “The potential for mistakes by HMRC; and the fact it will be HMRC and not the courts [that will make] decisions.” It described the proposals as “deeply flawed” and representing “a dangerous precedent regarding the balance of power between HMRC and taxpayers”, while potentially vulnerable to a challenge under the Human Rights Act,” it warned.
Blog written by freelance content writer and Start Up Donut editor Mark Williams.
Reporting PAYE in real time (RTI) has been in effect for most UK employers for well over a year now. While the system has worked well for most of these businesses, there also has been a fair share of criticism.
According to a recent article there are 5.5m people that have either overpaid or underpaid taxes in 2013-2014 – an increase of 300,000 from the previous year. If this is true, it is not necessarily a positive outcome for a system that’s cost £357m to implement.
As is always the case most of the mistakes that have occurred are easily avoidable, the following are some of the most common and, at least in some cases, easily avoidable issues.
Copyright © Brian Palmer 2014. Brian is tax policy adviser at the AAT and owner of Palmer & Co (accountants).
A survey of the self-employed carried out by Crunch Accounting found that just 44% of respondents have started saving towards their retirement, while only 34% are paying into a pension. Almost a quarter (24%) admitted “the thought of retirement hasn’t even crossed their mind”.
According to Crunch (quoting figures published in April by the Office for National Statistics) “one-man/woman-band” businesses now account for 15% of the country’s workforce. Their number has grown at twice the rate of “traditional employees” since the beginning of the financial crisis, up almost 750,000 to reach 4.58m, while traditional employment has only grown by 325,000.
The survey further found that of those who have started saving for retirement, nearly two thirds don’t believe they’re saving enough, with just 15% believing they are. If the survey is representative, it shows just how financially unprepared for the future many self-employed people are (but they’re not alone, of course).
As reported by This Is Money: “Millions of workers face the unenviable choice of working well into their old age or surviving on what they may judge a paltry income when they reach retirement.”
That’s according to a study of Britain’s savings habits conducted by financial firm True Potential. Based on responses from 6,000 people, it found that savers in Britain “are seeing just over £2,500-a-year going into their pension pot, which by the time they retire could be worth £116,083, the equivalent of just under £16 a day when spread over retirement. While that works out as about £450 a month above their state pension, it is far less than the £25,000 a year many plan to live on.”
The same survey had an Express headline writer concluding that: “Savings chasm means workers will NEVER retire”, with the very real prospect of “MILLIONS of Britons facing having to work until they drop”.
But maybe things started to change slightly? As reported by the BBC, according to pensions expert LCP: “Radical reform of the UK pension system announced in the Budget has already encouraged pension saving,” with the outlook now being at “its brightest for many years”.
Good news for the government, too, it seems, with The Guardian predicting that “Pension shakeup could net £4bn UK tax windfall”, with “650,000 people expected to exploit George Osborne's changes and cash in part of their pensions over the next five years.”
But the article goes on to say that pension experts are warning that “when withdrawing lump sums people may jump to higher tax bands” [currently the tax rate rises from 20% to 40% when someone’s income reaches £41,866], while “George Osborne's changes could turn into a ‘mis-selling scandal’.”
The Guardian adds: “More than 130,000 Britons are preparing to withdraw money from their pension pots every year between 2015 and 2020 under the sweeping changes which scrap rules that force people to buy an annuity, according to HM Revenue and Customs documents.”
Tom McPhail, head of pensions research at financial services firm Hargreaves Lansdown, told the Daily Telegraph: “It is essential that suitable safeguards are put in place to ensure that [people] are alerted to the tax implications of taking all their money out.
“This is undoubtedly clever politics from the Chancellor, but if we're not careful he could end up creating a one-man pension mis-selling scandal.” McPhail advised people to spread their pension fund withdrawals over several years, so their income tax remains at 20%.
Taxation is a complex area, but there are a number of opportunities to reduce tax bills that small businesses do not always consider.
Firstly, research and development (R&D) relief is highly valuable and is often missed due to a lack of knowledge. Others ignore it because they think it’s only for super high-tech or pharmaceutical companies. To see if you’re likely to be able to claim, ask yourself these questions:
If you can answer yes to all the above, it’s likely you would be successful if you claimed R&D relief. This would increase your tax relief by 125% to £4,500 on every £10,000 spent on R&D, so it’s well worth considering. This relief is available to all companies, no matter how large or small, and can be backdated for up to two years from the company’s year-end.
Secondly, companies need to consider claims for capital allowances on their building. These transactions can be quite complex, so the opportunities to reduce corporation tax are often overlooked. The buildings themselves don’t usually qualify for capital allowances, but the plant and machinery within the building does. This will typically include:
The value of such capital allowances can be very substantial. If you are buying a commercial property, the seller's capital allowance position must be determined as early as possible. You will both need to make elections and certain steps must be taken to preserve the capital allowances. Otherwise these valuable allowances will effectively be lost, so that they can’t be claimed by anyone. As with R&D relief, this is available to all companies and claims can be backdated for up to two years. Seek tailored professional advice from lawyers and accountants before going ahead with a property purchase.
© Michael Burgess, Tax Director at Stoke-on-Trent-based chartered accountants Mitten Clarke.
HM Revenue & Customs (HMRC) is running a series of live interactive webinars in August aimed at making tax quicker, easier and simpler for those who are self-employed or running their own business.
You can take part in the free live webinars by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. Each webinar will last an hour.
The HMRC webinars are:
This webinar is aimed at Sole Traders and Ordinary Partnerships and is not suitable for directors of limited companies.
HMRC have also created an online video tutorial explaining the differences between Cash Basis and Simplified Expenses
This webinar is aimed at people who are either newly self-employed or perhaps thinking about going self-employed.
It will cover:
Starting and running a business is challenging so HMRC provide a wide range of help and support to help you run your business including videos, e mails, e-learning, record keeping apps and online presentations (webinars).
During this webinar will show you how to access and make the most of the latest help available.
Find out about allowable expenditure including, motor expenses, working from home and what happens when you use something privately and for business.
This webinar is aimed at people who are either newly self-employed or perhaps thinking about going self-employed.