From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman’s account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman’s bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

You might have received a letter from the VATman that officially notifies your company or business to file its VAT return online, or face penalties.

If your business had a turnover of £100,000 or more in the year ending 31 December 2009 you are legally required to file your VAT returns online, rather than as a paper form, for all periods beginning on or after 1 April 2010. So you can file your VAT return for the quarter to 31 March 2010 on paper, but VAT returns for later periods must be submitted online.

Our online accounting software makes online filing of your VAT return very easy.

If you don’t agree that your turnover was £100,000 or more in the year to 31 December 2009, you need appeal against the VATman’s decision within 30 days of the date of his letter. The VATman has not sent a copy of his letter to us, so please forward it on if you have concerns about this turnover threshold. If you want us to submit your VAT returns online on your behalf we will need that letter as it contains some key details for the registration process.

Even if you have already filed several of your VAT returns online, and your turnover is over £100,000, you will still receive the notification letter from the VATman, including the expensive glossy brochure. If your turnover is currently less than £100,000 per year, you will not have to file your VAT returns online until 2011. The Government has announced that all VAT registered businesses will be required to file their VAT returns online from April 2011, but that requirement is not law yet.

If your business first registers for VAT on or after 1 April 2010 you will be required to file all your VAT returns online from your first VAT return, even if your turnover is way below the £100,000 threshold.

We can assist with online filing of VAT returns.  From simply submitting the return to a full outsourced bookkeeping function.  Please contact us for more details.

There has been a lot of publicity lately about the tax advantages of running cars with low CO2 ratings. There are a number of benefits:

• possible 100% first year tax deduction for the cost of the vehicle,

• much reduced benefit in kind charges,

• lower road fund tax and so on.

But not all of us want to run such vehicles even if there are tax, VAT and running cost advantages.

Double cab pickups, sometimes described as crew cab pickups, are an anomaly!

For business users, especially the self

-employed, they present an unusual tax opportunity.

The HMRC web site describes double cab pickups as:

“… a front passenger cab that contains a second row of seats and is capable of seating about 4 passengers, plus the driver with four doors capable of being opened independently (two door versions are normally accepted to be vans, even those with rear doors that can only be opened after the front doors and that must be closed before the front doors) and an uncovered pick-up area behind the passenger cab.”

From the tax year 2002 -03 onwards a double cab pickup is classified as a van for both VAT and benefits purposes if it has a payload of 1 tonne (1,000kg) or more.

If your double cab pickup meets this definition:

You can reclaim any VAT added to the purchase price, and

The net capital cost (after VAT has been reclaimed) could be available for a 100% first year tax allowance as part of your Annual Investment Allowance up to a maximum of £50,000 each tax year.

If you are a director or employee, any significant private use of the double cab pickup will trigger a standard benefit in kind charge of tax on £3,000 per year. In addition if your firm/employer provides fuel to cover private use of the vehicle there will be an extra benefit charge of tax on £500 per year at current rates. The best way to minimise any risk of these benefits being applied is to restrict the use of the pickup to business use only, or make sure that any private use meets the HMRC definition of “insignificant private use”.

If you would like more information regarding this article, or any advice regarding tax effective strategies for running your business vehicles please call.

The European Commission have enhanced their on-line service which allows taxpayers to check if the VAT number given to them by a potential supplier or customer is valid.

The on-line service has been updated to allow taxpayers to obtain a certificate to prove that they checked that a VAT registration number was valid at a given time and date.  This system has been designed primarily to protect taxpayers who become innocently involved in a chain of fraudulent transactions such as carousel fraud.

The certificate will provide valuable evidence for a taxpayer to prove that they acted in good faith should HMRC challenge input tax recovery or seek payment of lost VAT.

The new on-line system will also be useful to businesses who zero-rate sales to businesses in other EU countries.  Specifically in meeting one of the conditions for zero-rating which states that your customer must be VAT registered.

The on-line service is available at the following address:

http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN

You may have in the past overpaid VAT output tax or underclaimed VAT input tax, and this might date back many years. Now is the time to claim the overpayment back from H M Revenue & Customs.

– Claims can be back dated to April 1973, or the date of your VAT registration if later.
– But the deadline for submitting a claim is the end of this month, 31 March 2009.

It is possible to base a claim on a reasonable and valid estimate if the underlying records no longer exist. Claims can include a request for interest.

The following list includes items for a possible claim:

* Mileage costs paid to employees
* Staff expenses
* Subsistence
* Recovery of VAT on imports

If you are at all unsure about VAT that has been added to particular supplies you have made, or whether VAT should have been recovered on certain costs, please call.

Many building firms are now holding completed residential property which is proving difficult to sell in the current property market. One solution is to rent out this property for a short period in the expectation that property prices will recover.

Ordinarily most of the VAT paid on construction costs is recoverable. Unfortunately rents received from the letting of residential property are an exempt supply for VAT purposes.

So potential problem, a builder who both constructs and lets residential property is considered to be a “Partially Exempt” trader. Potentially a proportion of the VAT recovered on the construction work may have to be paid back!

The builder may have to:

. adjust the VAT recovered on his submitted VAT returns

. restrict the VAT to be recovered on current and future VAT returns

. or both
Contact us for advice. For instance if the amount of input tax which can be attributed to the exempt rental income is below a defined “de minimis” amount, no adjustment to past or future returns is required – VAT input tax can be recovered in full.

Provided the exempt input tax is below:

. £625 per month, on average, up to £7,500 per year; and

. is not more than half of total input tax ,

then the exempt input tax is de minimis and recoverable in full.

If you are a house builder, and considering the rental of residential building stock, do contact us at an early stage so we can help you through the partial exemption calculations which are tedious and complex.

As widely leaked/predicted the standard rate of VAT has been reduced to 15% from 1 December 2008. This reduction will be effective for a fixed period of 13 months. From the 1 January 2010 the rate will revert to 17.5%.

For VAT registered traders this creates a number of practical problems and issues, which we try to help with here

1. All sales on or after 1 December 2008 should be charged plus 15% VAT.
2. Zero rated, reduced rate and exempt sales or supplies are unchanged.
3. Retail businesses should use the new 15% rate on all takings received on or after 1 December 2008 – unless the customer took delivery before 1 December, in which case you should apply the 17.5% rate.
4. If you supply goods or services to other VAT registered customers and need to issue tax invoices, you should add on 15% VAT to all invoices dated 1 December or later – except where you provided the goods or services more than 14 days before you issued the VAT invoice.                                                                                 For example, if you issue a VAT invoice on 1 December for goods or services provided before 18 November 2008, or you were paid before 1 December. In these cases, your sale takes place before 1 December and you must use the old rate of 17.5%. Note if you received part payment before 1 December, use the old rate for the part payment.
5. Under the normal rules all invoices issued and all payments received before 1 December 2008 are subject to VAT at the old rate- 17.5%. There are also optional rules that you can adopt. See section 3 of the HMRC publication recommended at the end of this article for more information on these special rules.
6. If you need to work out the 15% VAT charged in a VAT inclusive amount, multiply by the fraction 3/23.
7. If you have point of sale tills etc that produce a VAT inclusive receipt you may need to contact your supplier to ensure the VAT rate applied is changed for sales after 1 December.
8. If you want to reduce your current (pre 1 December) sales price to reflect the reduction in VAT to 15%, multiply your old price by 115/117.5, this is equal to 46/47.
9. Are you required to pass on the reduction in VAT to your customers? The answer is no – its entirely up to you. Many retailers and other businesses will choose to improve their own margin.
10. If your VAT return period does not begin on 1 December, you will have account for VAT in the quarter which straddles this date accommodating both rates of VAT. If you use software to produce your VAT returns your supplier should be able to advise you on this.
11. Make sure that you follow your accounts software supplier’s instructions regarding the change in VAT rate. If you use Sage Line 50 accounts software you can download instructions from the Ask Sage area, article number 22856 for the standard VAT scheme, and article 22857 for the cash accounting scheme.

HM Revenue & Customs have published a comprehensive guide to the VAT change. You can download it at:
http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf. It is quite a large PDF document. If you need specific advice on any aspect of the change please call.

The purchase of a business as a ‘going concern’ is not subject to VAT. So if you continue with the existing trade in place of the seller, you do not have to pay VAT on the transfer of the trading assets.

A common example would be taking on a public house, if the changeover happens ‘overnight’ or if the pub is closed for just a day or two it would be a transfer of a going concern. However if the pub had been closed for a period of weeks, it would not constitute a transfer of an existing business.

But beware. The reason you do not need to pay VAT is that the transfer of a business is considered to be outside the scope of VAT. If the seller is advised to adopt a ‘broad brush’ approach and just charge VAT because he cannot decide if the transaction really is a bona fide sale of a going concern then you may be denied recovery of the VAT added!

It is important to clarify whether the sale is a sale as a going concerns or not. Don’t hesitate to ask us if this applies to you.

Purchasing property
—————-

Further complications can arise if you purchase a business property which has an existing option to tax applied. This means that all income generated by the property is a standard rated output. It also means that a seller may be required to add VAT to the sale price.

However the seller can avoid this VAT add-on if one of two specific circumstances apply:

• if the new owner makes an election to opt to tax their interest in the same property. This election must be made before ownership is transferred.
• if the new owner is buying the property to convert to dwellings.

In both cases there are prescribed forms to fill in and file.

From 1 October 2008 HMRC will no longer send taxpayers a postage paid envelope to use when paying their tax or filing/paying their VAT returns.

This apparently is a signal to us all to make returns and payments online.

To ease the payment process HMRC are also about to make it easier to pay our tax by allowing us to use our credit card. Legislation has just been passed that will allow them to recover the credit card charges. HMRC will charge you 0.91% for the privilege.

A guide to help you determine if NI numbers and VAT numbers are valid.

Certain PAYE returns (P35, P11D) will be rejected by HMR&C if a National Insurance number (NINO) is incorrectly displayed. Valid numbers always follow the same format, two letters, followed by six numbers, followed by a single letter. i.e. AB123456D.

The following information sets out the valid alpha prefixes and suffixes. If you are at all uncertain that you have been given a correct NINO, you should check with your local tax office.

Valid National Insurance Number Prefixes:

AA, AB, AE, AH, AK, AL, AM, AP, AR, AS, AT, AW, AX, AY, AZ BA, BB, BE, BH, BK, BL, BM, BT CA, CB, CE, CH, CK, CL, CR EA, EB, EE, EH, EK, EL, EM, EP, ER, ES, ET, EW, EX, EY, EZ GY HA, HB, HE, HH, HK, HL, HM, HP, HR, HS, HT, HW, HX, HY, HZ JA, JB, JC, JE, JG, JH, JJ, JK, JL, JM, JN, JP, JR, JS, JT, JW, JX, JY, JZ KA, KB, KE, KH, KK, KL, KM, KP, KR, KS, KT, KW, KX, KY, KZ LA, LB, LE, LH, LK, LL, LM, LP, LR, LS, LT, LW, LX, LY, LZ MA, MW, MX NA, NB, NE, NH, NL, NM, NP, NR, NS, NW, NX, NY, NZ OA, OB, OE, OH, OK, OL, OM, OP, OR, OS, OX PA, PB, PC, PE, PG, PH, PJ, PK, PL, PM, PN, PP, PR, PS, PT, PW, PX, PY RA, RB, RE, RH, RK, RM, RP, RR, RS, RT, RW, RX, RY, RZ SA, SB, SC, SE, SG, SH, SJ, SK, SL, SM, SN, SP, SR, SS, ST, SW, SX, SY ,SZ TA, TB, TE, TH, TK, TL, TM, TP, TR, TS, TT, TW, TX, TY, TZ WA, WB, WE, WK, WL, WM, WP YA, YB, YE, YH, YK, YL, YM, YP, YR, YS, YT, YW, YX, YY, YZ ZA, ZB, ZE, ZH, ZK, ZL, ZM, ZP, ZR, ZS, ZT, ZW, ZX, ZY

The characters D, F, I, Q, U and V are not used as either the first or second letter of a National Insurance Number prefix.

Valid National Insurance Number Suffixes:

The final alpha of the NINO should be A, B, C, or D.
VAT Registration numbers

There are occasions when the validity of a VAT registration number is critical. Particularly:

• When you make a supply to a registered European Union trader, or
• When you receive an invoice from a supplier on which VAT has been added.

Supply to EU trader

If it appears that the VAT number you have been given is incorrect, you should charge VAT rather than exempt the supply.

Purchase of goods/services from registered UK trader.

One of the aspects that qualifies a supply for a reclaim of input tax charged, is if the invoice shows a valid VAT registration number. Although HMR&C have discretion to allow a deduction even if the number is wrong, the discretion only applies in certain circumstances.

How to check a VAT registration number.

There are two ways to check the validity of a VAT number:

1. Call HMR&C 0845-010-9000.
2. A more hi-tech solution, visit the Europa web site at http://ec.europa.eu/taxation_customs/vies/vieshome.do, select the correct member state and enter the VAT number you have been given. This will only confirm if the number is a valid registration number. There is no way to use this service to confirm the number belongs to your customer/supplier

Davies McLennon are Stockport Accountants