Pre-registration input tax

Where goods were bought by the business in the four years prior to the date of VAT registration and those goods are still on hand at registration, input tax may be claimed to the extent they are for use in making taxable supplies. This means that if the business uses those goods for exempt, non-business or private use, there would need to be an apportionment to reflect that. However, there is no adjustment required to reflect use prior to VAT registration.  HMRC did at one point implement a policy of requiring such an apportionment and amended their internal guidance to this effect, but this was later rescinded. Assuming wholly business use in a fully taxable business the input tax would be claimable per the original VAT invoice.

However, before rushing to register there are a couple of other things to consider.

Firstly, who are your customers? If you supply mainly individuals or unregistered businesses, you may find it difficult commercially to pass on VAT on your sales in full. If you are unable or unwilling to increase your prices and you have to account for output tax out of your turnover, effectively paying 1/6 to HMRC, does the VAT recoverable on the purchases outweigh that additional cost to your business? If not it may be better to defer voluntary registration until closer to the four-year time limit for claiming pre-registration input tax, or even sacrifice it altogether. There is less scope for delaying registration while still being entitled to input tax where the VAT has been incurred on services, as the time limit for pre-registration input tax on services is only six months.

If your customers are mainly VAT registered businesses in a position to recover the VAT you charge, then registering voluntarily should not create a problem, other than the additional admin.

The other issue to check is the entity. A problem arises where the entity that bought the goods is not the same entity that is now registering for VAT. Usually, this is when a sole proprietor starts the business but doesn’t register for VAT and later incorporates, and only the company VAT registers.

Even if the purchases were made within the time limits, by a person who became an officer or employee of the business and who has been reimbursed, if they were not bought specifically for the purposes of the company it cannot recover the VAT. Where goods or services have been bought for the SP business, the only entity with any entitlement to input tax would be the SP.

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Apprenticeship wage

People often look to bring apprentices on board, recognising this as a cost-effective way to upskill their workforce and future-proof their organisation. Additionally, most recognise that apprentices tend to become more loyal employees, in the long run, helping to introduce new perspectives and foster a culture of innovation within their organisation.

To ensure you are paying apprentices the correct hourly rate it is important to understand how this is calculated. Depending on the circumstances, some apprentices will be entitled to the apprenticeship rate, whereas others will be entitled to the normal age-related rate of National Minimum Wage (NMW). The current apprenticeship rate stands at £3.70 an hour and represents the legal minimum for those who are either under 19, or 19 and over but in the first 12 months of the employment. You need to be aware that once an apprentice is aged 19 and over and is not in the first 12 months of the employment, they will become entitled to the minimum wage rate that is applicable for their age, up to and including the National Living Wage of £7.83 an hour.

Importantly, recent efforts from the HMRC have shone a light on organisations who for a number of reasons have failed to abide by NMW laws. This recent ‘naming and shaming’ exercise revealed that 239 employers from a variety of sectors had failed to pay staff the correct hourly rate, resulting in the issuing of £1.97million worth of fines. Not surprisingly, one of the most common reasons given by employers for their transgression was a failure to understand the rules surrounding apprenticeship pay, particularly when these individuals were entitled to NMW.

With the above in mind, your first needs to make sure apprentices are being brought in on the correct hourly rate, in line with the minimum apprenticeship rate. It is also important to make sure that apprentices’ age and length of service are accurately recorded as this will help determine when salaries need to be amended as apprentices’ progress through the NMW age boundaries. For this, human resources and payroll departments must work together to keep up to date personnel files to avoid any underpayments. It is also advisable to issue apprentices with written confirmation as and when their hourly rate changes to increase clarity around this issue.

If the continued efforts of the HMRC have told us anything it is that clients will no longer be able to get away with not understanding NMW requirements. Therefore, if they are to continue to enjoy the undoubted benefits that come with offering apprenticeships then care must be taken to ensure these individuals are paid correctly throughout their employment.

Productivity = Success

Most business owners, managers and senior executives are juggling day to day responsibilities, growing the business and various projects. With so much to do, improving your productivity is key if you want to succeed. Here are a few top tips to help you to improve your productivity.

 

Stop multi-tasking

In today’s always-on environment, many of us have fallen into the trap of multi-tasking and trying to do too much. Instead, try to focus on doing individual tasks properly. Create a priority list each day and focus on getting each item on that list ticked off. That way you can focus on processing the task at hand.

 

Delegate

The very best business leaders are masters of delegation. Build a team of effective people around you and delegate as much as you can. Empower them to take on projects and avoid micro managing. Delegation is the key to productivity

 

Learn to say no

Taking on too much at once will reduce your productivity and increase your stress levels. Say no to things that are not important.

Just because you are invited to a meeting doesn’t mean it should be a priority. Focus on the things that really matter to you and your firm and say yes to them. Everything else is just a distraction.

 

Cut out the noise

With email, instant messaging, social media and phone calls, we are all distracted by constant noise. Schedule specific time for checking your various email and messaging inboxes and refrain from checking your messages outside of these specific times.

 

A day of no meetings

Scheduling a “no-meeting day” every week can have a positive impact on your productivity. Every manager needs uninterrupted blocks of time to deal with projects, reporting and whatever else is on the “to do” list.

 

Leave work at a reasonable hour

The most productive managers make it home at a reasonable time. Successful leaders don’t work long hours every day in an attempt to tick more items off their to-do list. Instead, they think through their priorities, schedule time for each, then it’s time to go home.

Changes in VAT

Under new rules due to come in on 1 October 2019 builders, sub- contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.

The measure is designed to combat VAT fraud in the construction sector labour supply chain which HMRC argue presents a significant tax loss. HMRC has now published draft legislation to introduce the Reverse Charge for Construction Services.

Under the proposed new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT – leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.

CONSTRUCTION WORK AFFECTED

The reverse charge will apply to a wide range of services in the building trade, including construction, alteration, repairs, demolition, installation of heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, and foundation works. The definitions have been lifted directly from the CIS legislation.

EXCLUDED WORKS

Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.

It is hoped that the legislation and guidance will be finalized by October 2018 to allow businesses at least 12 months in which to make the necessary changes to systems. Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.

 

Death of a Sole Trader

When a person dies and trading ceases, the law provides for HMRC to require a representative for that person, such as the official appointee or executors of the deceased estate, to account for any outstanding returns or tax due up to the date of death. The representative does not become personally liable; his liability is restricted to ‘the extent of the assets of the deceased or incapacitated person over which he has control’, in the same way, that it would have applied to the deceased person. The representative is required to inform HMRC within 21 days of beginning to act.

If a representative is put in place, the regulations allow HMRC to continue to treat the representative as a substitute for the deceased taxable person, as above, until the estate has been finalised. HMRC’s guidance advises that by custom, personal representatives are allowed a year from the death in which to complete administration, including the payment of all debts and taxes. This does not necessarily mean that they must complete the task within the year, but HMRC would review the situation at this point. This is because the legislation allowing the representative to act as a substitute for the deceased taxable person effectively postpones the date of death for a limited time until some other person is on the register properly. If, after the ‘executor’s year’, the estate has not been finalised, then, for the security of the revenue and for administrative convenience, HMRC will seek to register the personal representative in his own right as the taxable person carrying on the business.

Alternatively, if, at the outset, it is likely that the representative will continue to be responsible for the business for the foreseeable future, HMRC will register that person in their own right immediately. Where this happens, or when a third party takes over the business, it is possible to transfer the VAT number with a VAT 68 as a TOGC, or a new VAT number can be issued.  The original VAT registration will be cancelled, and treated in the same way as any other registration cancelled based on ceasing to trade. Where the VAT number is not transferred, it is possible for HMRC to defer the date of deregistration to allow for any sale of assets and winding up costs to be included within the period of the VAT registration, while costs incurred after deregistration can be recovered via a VAT 427 post-deregistration claim.

Contact HMRC in writing as soon as possible to let them know of the change in circumstances, and give details of the executor(s)/representative(s) who will take responsibility for the continuation of the business and the completion and submission of the VAT returns.

Guidance can be found in VAT Notice 700: The VAT Guide – Section 26 and HMRC’s VAT Registration Manual VATREG42000.

The relevant legislation is contained in the VAT Act 1994, sections 46(4) and 46(5), and in the VAT Regulations 1995, regulations 9 and 30.

Brexit – from a VAT perspective

Unless all member states agree to an extension, the UK leaves the EU on 30 March 2019. The UK intends to leave the EU Customs Union, meaning the re-introduction of a UK-EU Customs border. A negotiated outcome of a Free Trade Agreement (FTA) with no customs duties imposed is still the most likely scenario. However, the prospect of no deal, or a very limited deal between the UK and the EU, is a real political possibility, resulting in the UK falling back on World Trade Organisation (WTO) rules in 2019; a “hard” Brexit.

Currently, as part of the EC, we are part of a single trading community and goods produced in the Community can move freely and seamlessly throughout all member states.

In addition to the VAT return, a business submits EC Sales Lists to show the sales that it has made to each of its VAT registered customers in other member states. It may also be required, dependant on thresholds, to submit Intrastat Supplementary Statistical Declarations, advising the value of goods that it has despatched to or acquired from other EC member states . There are no border controls or documentary checks to delay shipments.

Although we don’t have a crystal ball, post-Brexit there is likely to be a transitional period, after which the UK will be treated in the same way as any other non-EC country with export and import declarations replacing the current statistical declarations. Also, there may be additional documentation and licencing requirements to meet security regulations and health and safety standards that are checked at the border.

Goods arriving at the border can be subject to anything from document checks, to inspection, to actual testing of samples at the border, which may lead to delays. As a result, businesses may need to build in additional delivery time to alleviate the effect of these controls. It is useful to note here that businesses are also charged for checks. A physical examination of goods from port health authorities can cost a trader anywhere between £106 and £600 per container.

Sales to EC member states can still be zero rated (albeit as exports) provided evidence that the goods have left the country within three months is retained. A corresponding import entry will be required when the goods enter the EC, on which import duty and VAT will be due.

Similarly, when goods are received from the EC an import declaration will be required, with VAT due at the time of clearance unless the deferment is authorised.  This could cause cash flow difficulties.

The change in documentation may lead to increased costs as the data requirements for Customs are more extensive than for Intrastat, and there may be a need to upgrade current software and train staff in its use. If you use an agent for Customs declarations it can cost around £20 per entry.

With uncertainty over the UK’s post-Brexit cross-border regime and the length of any transitional period, this leaves businesses in a catch-22 situation.  Waiting until the end of the negotiation period may not leave much time to implement new systems before rules and trading arrangements change; on the other hand, until it is clear what the new regime will be it is difficult to know what changes to make.