Monday 29 October 2012

The Secret Is Out-Indirect Tax Savings: Issue 3


TGIT....Thank God It's Tuesday and yes it's that time of the week when we issue the next indirect tax secret. (I'm not certain TGIT will catch on, but what the hell, at least I should get points for originality). 

Issue 3: Prompt Payment Discounts
I can’t tell you how many times I have seen this error made by suppliers and totally missed by their customers. It’s even worse for customers who are not VAT registered. This error is made by large and small businesses alike.

When you raise an invoice offering a discount for prompt settlement the VAT should be calculated on the discounted value regardless of whether the early payment option has been taken up by the customer or not. 

This however does not apply if your terms allow customers to pay by instalments. Phew! I hope it sinks it now. 


For HELLP with the above contact Marlon Appleton


Tuesday 23 October 2012

The Secret is Out: Indirect Tax & VAT Savings Revealed

Since we have published "Issue 1" we have received higher than expected interests and this only means more pressure to keep these flowing but only if you promise to keep your likes  and comments coming. With that said "Issue 2" is below for your reading pleasure. 


Issue 2: Are you an Agent?
No not double agent, I am referring to those hard working individuals who sell goods or services on behalf of a principal for a commission. 

My firm recently got a client that got frustrated with his previous accountant because they submitted his returns to HMRC late… twice. After receiving all his documents and reviewing his VAT returns we realised that he had been paying way too much VAT to HMRC. No he is not the generous type, he just wasn't clear on the VAT rules.

This is what happened: My client (who will be referred to as 007) acts as an agent for Company A. 007 finds a customer ”X” who is willing to buy the products of Company A. Unfortunately “X” is currently tied into a contract for a similar but older equipment with Company B. In order to get the sale, Company A agrees to pay the early termination fees that “X” will have to pay to Company B.  

Now in order to get things going 007 raises an invoice to Company A for his commission and the contribution towards the early termination fees.  The mistake 007 made was charging VAT on the whole lot (maybe he should stick to acting). In this instance VAT should only be charged on the commission.  


For HELLP with the above contact Marlon Appleton

Monday 15 October 2012

The Secret is Out: Indirect Tax

As a show of appreciation to our readers we have identified areas within indirect tax that businesses both large and small tend to get wrong most of the time. Overtime we will release these mishaps to HELLP you navigate the exciting world of Indirect Tax. We will start with Issue 1.


Issue 1: Early Termination Fees
Have you ever been hit with early termination fees? Well I certainly have, but what a lot of individuals and businesses don’t know, including business that charge these fees, is that VAT may not be applicable to early termination fees.

Now that I have your attention let me briefly explain:
If the contract with your supplier has a clause in it giving you the right to early termination for a fee then any subsequent charge of the termination must never have VAT applied. 

For HELLP with the above contact Marlon Appleton

Thursday 4 October 2012

Universal Credit Part 3: The Self-Employed



In continuation from Part 2 of this article we will now explore the specific areas of concern that may be of importance to the Self-Employed. You will remember in Part 2 we closed with the following paragraph:

HMRC is currently consulting on a “cash basis” for those running low income businesses, but the UC regulations, administered by the DWP, have created a standalone system separate from that which HMRC is currently consulting on. This creates additional concerns for us as accountants which we will explore in Part 3, the final instalment of this article on Universal Credit”.    


Concern 1: Mixed Use
The draft regulations only allow the deduction of expenses which have been incurred “wholly and exclusively” for business purposes. This may at first seem to be similar to current tax legislation but on closer inspection we will realise that the tax legislation [ITTOIA 2005, s34 (2)] allows for the deduction of business expenses in instances where it only forms part of the whole expenses. The draft regulation is silent in this regard.
The next issue, concerns the use of the home for business purposes. The Universal Credit regulations in proposing a flat rate for particular deductions as business expenses seem to have excluded the general business administration and storage at home.
Finally, it should be noted that “cash accounting” will be optional for tax purposes but appears to be mandatory for Universal Credit (UC).


Concern 2: Unreasonable Expenses
Under the UC regulation, it will not be possible to get a deduction for expenses which are considered to be unreasonable. There is no definition of unreasonable in the draft regulations and past tax cases tended to define unreasonable expenses as those that have an element of personal choice.
At this stage we are not sure how this issue will be dealt with but it is quite strange that a public servant at the DWP may have the power to dictate to business owners the reasonableness of their business expenses.


Concern 3: Carry Forward
Of the three, this in our opinion is the most serious issue. Cash accounting for tax purposes is based on accounts over the period of a year and allows the carry forward of negative balances to be set of against future positive balances.
In stark contrast the draft UC regulation looks at accounts on a month by month basis and further proposes that negative balances should be treated as zero and therefore disallowing the option for a carry forward to future periods.   The problem with this approach is illustrated in the example below.
Therefore under UC, expenses which are incurred for a whole year will be treated as being wholly applicable to the month in which they arise.


Illustration
James and Wendy were both seasonal retailers of children summer clothing and worked on their separate business ventures during the months of June, July & August. They were both self-employed and each sold £5000 of stock during each month at a gross profit margin of 50%.
Assume for the purposes of this illustration that they have no other expenses and James bought all his stock in June while Wendy bought hers as she needed to in each month.
Calculating their income as required by the draft UC Regulation gives the following results:


James
Wendy
June


Sales
5,000
5,000
Less Stock Purchased
7,500
2,500
 Total
-2,500
-2,500



Reportable for UC

-2,500



July


Sales
5,000
5,000
Less Stock Purchased
-
2,500
Total 
5,000
2,500



Reportable for UC
5,000
2,500



August


Sales
5,000
5,000
Less Stock Purchased
-
2,500
 Total
5,000
2,500



Reportable for UC
5,000
2,500



Total Income Reportable for UC
10,0000
7,500






Monday 1 October 2012

Harvey Edwards helps local businesses by launching new VAT Recovery service






Leeds based accountancy firm Harvey Edwards LLP has created a new service offering businesses an opportunity to claim back VAT from the HMRC.  
Marlon Appleton, a partner and VAT specialist in the firm commented that: “we know cash is tight in the current economic environment and realised from our experience that many businesses were inadvertently overpaying VAT”. This comes from potentially years of small human errors, with employees not fully understanding what is required by legislation and employers not having the resources to identify every error made in processing transactions.

FileDoc Ltd, a newly established supplier of multifunctional photocopiers, printers and related consumables is the latest beneficiary of this service that has led to improving cash flow to the start-up business.


Godfrey Gabriel Managing Director of FileDoc Ltd said “the professional service that I experienced with Harvey Edwards did not just help to improve my immediate finances and recover 75% of my VAT liability from just a few invoice;, but also allowed me to put in measures to prevent it from happening again”.
For the 2011-12 tax year HMRC collected £99.6 Billion in VAT. Some of that belongs to you. We therefore encourage businesses to actively seek help in order to recover valued cash that they are due and need.

Research has shown that companies on average under recover VAT by 30% resulting in net outflow of cash.