VAT Changes For Online Payment & Filing

In a bid to move ever closer to the phasing out of paper filing, HMRC have announced new Government proposals as follows:

• From 1 April 2010, all VAT registered businesses with an annual turnover of £100,000 or more (excluding VAT) must file their tax returns online and pay electronically.
  
• From that same date, all businesses newly registering for VAT, whatever their turnover, must file their returns online and pay electronically.
  

Paper returns will still be an option for the remaining VAT registered businesses, but this will be reviewed More information can be found on the HMRC web site, at http://www.hmrc.gov.uk/vat/start/register/signup-online.htm

Changes To Banking Services And Making Payments To HMRC

During 2009, H M Revenue & Customs are moving over to new banking arrangements.

The banking details are as follows:

Current Bank Account Details:

Account Name: HMRC VAT

Sort Code: 10 00 00

Account Number: 52055000

New Bank Account Details:

Account Name: HMRC VAT

Sort Code: 08 32 00

Account Number: 11963155

If you use online banking, and have stored templates or transactions, that you use when making your current VAT payments, you may need to update these to reflect the changes.

More information or guidance can be found at http://hmrc.gov.uk/payinghmrc/

New HMRC Advisory Fuel Rates

Many people are now aware of the Fixed Profits Car Scheme. For those who aren't, we covered it briefly in our post of 27 May 2008; http://1staddition.blogspot.com/2008/05/how-do-i-run-my-vehicle-through.html

The question we often get asked is; "How do I claim VAT on the FPCS, if I'm no longer putting my petrol receipts etc through the business?"

In order to facilitate this, HMRC introduced the Advisory Fuel Rates. These are the deemed fuel elements of the FPCS, based on the engine size of the vehicle concerned, and the fuel used, and we are allowed to claim VAT based on these rates.

As of 1 January 2009, due to the current economic circumstances, the Advisory Fuel Rates have been increased. Full details are shown on the HMRC web site;

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The Fixed Profit Car Scheme (FPCS) rates remain unchanged with the first 10,000 miles payable at 40p then 25p thereafter for cars, 24p for all mileage for motorcycles and 20p for all miles by bicycle.

Yes, that's right; we can claim 20p per mile simply for cycling to work. The Government are always pushing for us to become ‘greener’ and have put some incentives in place to encourage us down that route.

So if you fancy becoming ‘greener’ and fitter consider ditching the car and pedalling to work.

Basically your employer buys a bike and any equipment relating to it and hires it to you until you have paid back its full cost, usually over a year.

The tax break is facilitated because you pay for the bike by agreeing to reduce your monthly/weekly salary, before tax and NIC is deducted under the ’salary sacrifice scheme’. Paying in this way you can meet your repayments out of your pre-tax rather than post taxed income.

This can translate to almost a 50% cash discount on the price of a new bike. Higher rate tax payers will benefit more from the scheme.

The scheme applies to employees only, with a contract of employment and earnings that are at or above the national minumum wage level once the salary sacrifice has been applied.

So, if your new year's resolution was to 'get fit' this might be the option for you.

Proposed VAT Rate Reduction. Is It All Good?

This afternoon, in the Pre-Budget Report, one of the hugely anticipated announcements is the reduction in the standard VAT rate, from 17.5% to 15% (the minimum rate allowed without EEC approval).

It is expected that this will provide a kick start to the ailing economy, increasing consumer spending in the run up to Christmas.

But is it good news for everyone? What about those companies currently operating a Flat Rate VAT Scheme? Potentially, depending on the changes made, this could be a disastrous move for companies in that position.

So how will this arise?

Well, if we are paying under the Flat Rate Scheme, we pay a fixed percentage of turnover to HMRC, regardless of what we charge to our customers / clients.

A typical consultancy business, working from home (with a first year 1% discount) will currently be paying 10% of their turnover to HMRC, in the form of VAT. At present, they are charging 17.5% on their sales, giving them a 7.5% surplus.

If the rate reduces, as planned, they will still pay (unless changes are introduced) 10% to HMRC, but will only charge, on sales, 15%. This reduces the surplus to 5% of turnover.

Based on a turnover of £100,000, this reduction will cost the average business some £2,500. This could, however, be as much as £5,625, for a company operating at the upper threshold of £225,000.

So. We await the announcement with bated breath.

Will the Chancellor reduce VAT? If so, will he ammend the Flat Rate Scheme rates to compensate?

If not, there could be a large number of unhappy small business owners out there.

Watch this space.

***UPDATE***

It would appear that the flat rates are reducing, but (surprise, surprise) not by the same as the standard rate.

For example, the standard flat rate for 'other business services' has reduced from 11% to 9.5%, representing only a 1.5% fall, compared with a 2.5% fall for the standard rate. This means that anyone in this situation will be worse off to the tune of 1% of their total turnover.

Yet another stealth tax, the sceptics amongst you may be thinking.

Details of the new flat rates can be found at the following link, and are contained within Annex E.: http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf

Spreading The VAT Burden

As the credit crunch continues to bite, an increasing number of companies are finding that the ‘once a quarter’ cash flow burden of paying their VAT bill all in one go is placing mounting pressure on the purse strings.


As with many other regular bills, wouldn’t it be great if we could spread the payments over a number of months, to help us to budget more effectively.


As accountants, we are dealing with more and more ‘time to pay’ arrangements on behalf of our clients.

HM Revenue & Customs have no plans to formally relax the rules by giving companies extensions on paying their quarterly VAT bill. They have, however, confirmed that businesses do, subject to certain criteria, have the option to spread the payments.

So, what are the criteria?

As soon as you realise you need to make a payment arrangement, you should contact your local office immediately. Alternatively, you can contact the Payment Helpline, on 01274 539 628, during office hours.

Making a Proposal

If you agree to pay the amount in full, within 28 days, no further action is required.

If you require longer, you will need to provide details of;

• Your savings and other assets, for payment arrangements of up to 3 months, and;
• Your income, spending, savings and other assets, for payment arrangements longer than 3 months.

Your Rights

HMRC will consider any payment arrangements you request. If you feel they’ve rejected it without considering it properly, you can make a complaint, but you can’t appeal against their decision.

Things to Remember

• HMRC will only entertain payment arrangement proposals if all returns (whether VAT or tax) are up to date.
• You will have to pay interest on any tax or VAT paid late. The current rate is 8.5% PA

So, although HMRC don’t really like it, and you may have to pay interest, and provide additional information, this could be an invaluable means of budgeting your VAT payments, thereby keeping the wolf from the door.

Free advice on arrears and dealing with HMRC is available through the charities; Citizens Advice Bureau, and TaxAid, by following these links.

Citizens Advice Bureau

http://www.adviceguide.org.uk/index/life/tax/help_with_tax_problems.htm

TaxAid

http://www.taxaid.org.uk/help.cfm?secnav=20

If in doubt, always seek the advice of these agencies, or your own accountant.