What happens if VAT rates are changed

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What happens if VAT rates are changed

Monday, July 6th, 2020

A number of EU countries have reduced VAT rates in an attempt to stimulate the economy: if VAT rates fall, prices should fall encouraging consumers to spend more.

There has been much press commentary recently that Rishi Sunak will announce a similar reduction in the UK. Note, at present this is pure speculation.

If announced, any reduction will no doubt be for a limited period as the cost in lost tax revenue will be considerable.

However, if and when a reduction is announced what will VAT registered businesses need to do? We have listed below some of the issues that will need to be considered:

Accounts software

If you use bookkeeping software cloud versions may make changes to VAT rates for you. If not, they will presumably provide users with clear instructions. Essentially, from the announced date, the rate of VAT charged on sales will need to be adjusted.

Many businesses invoice for their services by using features in their accounting software. In these cases, the rate of VAT charged from the date any reduction is announced will automatically be applied. Businesses that use other processes to create sales invoices will need to use the amended VAT rate from the appointed day.

Retailers

Retailers, who normally show VAT inclusive prices on price tags, will have two choices:

  • to leave prices at the pre-VAT reduction levels – this will increase their profits on items sold or
  • reduce their prices – thereby passing on the VAT reduction to their customers.

The intention of any VAT reduction is to stimulate consumer expenditure and so the preferred option from the government’s point of view is that retailers will reduce their prices for goods subject to a VAT charge.

Subscriptions

If your business has subscribers, members or any other model that charges for services on a fixed monthly basis, presumably customers will expect any VAT reductions to be passed on their periodic payments reduced accordingly.

Aside from the changes to invoicing, affected businesses that have set up standing order arrangements may face a challenging conundrum. They will need to contact each customer and ask them to reduce their standing order payments.

An option that affected businesses could consider is switching from standing order payment to direct debit. There are a number of cloud based direct debit facilitators that could be considered.

We can help

If rates are reduced for a limited period we can help you devise a strategy to cope with any changes to your pricing or admin systems.

Parents returning from paternity or maternal leave

Thursday, July 2nd, 2020

One aspect of the 1 July changes to the CJRS was the closing date to new entrants was set as 30 June 2020. This disadvantaged parents who had been on extended parental or maternal leave in recent months and were intending to return to work after 30 June.

The government has now confirmed that parents on statutory maternity and paternity leave who return to work in the coming months, after a long period of absence, will be permitted to be furloughed.

This will only apply where they work for an employer who has previously furloughed employees.

Brexit – no extension to transition period

Thursday, July 2nd, 2020

It is now confirmed that the UK will neither accept nor seek any extension to the Transition Period.

From 1 January 2020, the UK will have the autonomy to introduce its own approach to goods imported to GB from the EU.

Recognising the impact of coronavirus on businesses’ ability to prepare, and following the announcement in February that the UK would implement full border controls on imports coming into GB from the EU, the UK has taken the decision to introduce the new border controls in three stages up until 1 July 2021. This flexible and pragmatic approach will give industry extra time to make necessary arrangements. The stages are:

  • From January 2021: Traders importing standard goods, covering everything from clothes to electronics, will need to prepare for basic customs requirements, such as keeping sufficient records of imported goods, and will have up to six months to complete customs declarations. While tariffs will need to be paid on all imports, payments can be deferred until the customs declaration has been made. There will be checks on controlled goods like alcohol and tobacco. Businesses will also need to consider how they account for VAT on imported goods. There will also be physical checks at the point of destination or other approved premises on all high risk live animals and plants.
  • From April 2021: All products of animal origin (POAO) – for example meat, pet food, honey, milk or egg products – and all regulated plants and plant products will also require pre-notification and the relevant health documentation.
  • From July 2021: Traders moving all goods will have to make declarations at the point of importation and pay relevant tariffs. Full Safety and Security declarations will be required, while for SPS commodities there will be an increase in physical checks and the taking of samples: checks for animals, plants and their products will now take place at GB Border Control Posts.

New support for High Street

Thursday, July 2nd, 2020

A package of support to help high streets to get back on their feet was launched 12 June 2020. This announcement was made just days before shops were allowed to reopen on 15 June.

The High Streets Task Force will provide access to cutting-edge tools, training, information and advice for high streets across England as part of the government’s efforts to get shops open and back in business.

This support is open to local councils and all organisations involved with high streets and will include free access to online training programmes, webinars, data and intelligence on topics including recovery planning and coordination, public space and place marketing.

The support will form one part of the Task Force’s 4-year programme which will focus on the long-term transformation of town and city centres and helping communities reimagine and revitalise their high streets.

Tax Diary July/August 2020

Thursday, July 2nd, 2020

1 July 2020 – Due date for corporation tax due for the year ended 30 September 2019.

6 July 2020 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2020 – Pay Class 1A NICs (by the 22 July 2020 if paid electronically).

19 July 2020 – PAYE and NIC deductions due for month ended 5 July 2020. (If you pay your tax electronically the due date is 22 July 2020)

19 July 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2020.

19 July 2020 – CIS tax deducted for the month ended 5 July 2020 is payable by today.

31 July 2020 – Self-assessment second payment on account for 2019-20 is due. The government has announced measures that will allow many tax payers to delay this payment until January 2021, if they wish

1 August 2020 – Due date for corporation tax due for the year ended 31 October 2019.

19 August 2020 – PAYE and NIC deductions due for month ended 5 August 2020. (If you pay your tax electronically the due date is 22 August 2020)

19 August 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2020.

19 August 2020 – CIS tax deducted for the month ended 5 August 2020 is payable by today.

Unwinding furlough

Thursday, July 2nd, 2020

Last month we commented on the changes to the Coronavirus Job Retention Scheme (CJRS) that commenced at the beginning of this month (1 July 2020).

Now that we have the option to bring back employees on a part-time basis and still have a measure of support for their unpaid time, what considerations should we consider when planning the effects of the gradual unwinding of the CJRS?

Here are a few issues you may need to consider:

  • Based on your present circumstances, what turnover levels are you likely to achieve from the end of this month?
  • Apart from staff costs, what are your other fixed cost projections?
  • You will need to account for the gradual impact of presently furloughed payroll costs as the CJRS unwinds towards close-down 31 October 2020.
  • And last, but not least, have you created formal cash-flow and profit forecasts?

Armed with this information, you can then consider the combination of staffing levels that will allow you to at least breakeven from a profit perspective.

Planning is obviously paramount. If you have your account’s updated in real-time – using cloud based software – this will provide you with much needed data on which to base your decisions.

The UK economy seems set to break all records for reduction in output. As the 20% drop in May illustrates, we are descending into uncharted territory.

If you need help creating the necessary “what-if” planning reports, please call. There has never been more pressing need to make informed decisions. Delaying or ignoring this need is rather like driving blind-fold.

Lock-down independence day 4th July 2020

Tuesday, June 30th, 2020

The changes to lock-down announced by the Prime Minister last week are summarised below. Most are effective from 4th July 2020.

Pubs, restaurants and hairdressers will be able to reopen, providing they adhere to COVID Secure guidelines.

From the same date, two households will be able to meet up in any setting with social distancing measures. This will open up the possibility that people can now enjoy staycations in England with the reopening of accommodation sites.

In order to begin restoring the arts and cultural sector, some leisure facilities and tourist attractions may also reopen, if they can do so safely – this includes outdoor gyms and playgrounds, cinemas, museums, galleries, theme parks and arcades, as well as libraries, social clubs, places of worship and community centres.

Following a review, the Prime Minister has also set out that where it is not possible to stay two metres apart, guidance will allow people to keep a social distance of ‘one metre plus’.

What is one metre plus?

This means staying one metre apart, plus mitigations which reduce the risk of transmission.

The Prime Minister underlined that as we begin to reopen the economy, it’s important that we do not increase the risk of transmission which is why “close proximity” venues such as nightclubs, soft-play areas, indoor gyms, swimming pools, water parks, bowling alleys and spas will need to remain closed for now. The Government is continuing to work with these sectors to establish taskforces to help them to become COVID Secure and reopen as soon as possible.

While the infection rate continues to fall, the Prime Minister has been clear that the public must continue to follow social distancing guidelines to keep coronavirus under control. The Government will keep all measures under constant review and will not hesitate to apply the handbrake, or reverse measures, should the virus begin to run out of control.

These changes apply in England only.

Option to defer VAT payments ends this month

Thursday, June 25th, 2020

One of the government’s schemes to assist VAT registered businesses with their cashflow during the current COVID disruption was the deferral of VAT payments.

The VAT payments that could be deferred cover payments due between 20 March 2020 and 30 June 2020.

VAT traders that have taken advantage of this support will have likely deferred just one VAT payment.

The following terms and conditions of this deferral option are set out below:

  • You have a choice; you can pay the VAT that comes due or defer the payment.
  • HMRC have said that they will not charge interest or penalties on any VAT you do defer.
  • The deferral does not include payments for VAT MOSS or import VAT.
  • HMRC will continue to process repayments as usual.
  • You will need to plan to pay any VAT deferred in this way by 31 March 2021.

In all circumstances you must file all returns by the due date even if you defer payment

However, deferral does not mean cancellation and as we have reminded readers above any VAT deferred will need to be paid by 31 March 2021.

This means that you would have nine or more months to save for the VAT deferred.

Readers are advised to make sure that they plan accordingly, otherwise the apparent relief in being able to skip a VAT payment will return to haunt you next year.

This is not an ongoing offer. The deferral option ceases for any VAT payments due after 30 June 2020.

Readers who suffer significant set-backs during the current disruption have one further option. There is a formal “Time to Pay” arrangement that you may be able to use when the VAT becomes due and cash funds are restricted.

Leaving salaries or dividends in your company

Tuesday, June 23rd, 2020

Director/shareholders of small companies may be considering reducing their salaries and/or dividends during this uncertain period. Even if firms are managing to maintain profits or breakeven, prudence would suggest that until things improve we should do what ever we can to preserve cash reserves.

Many directors have taken the sensible option to minimise their salaries and take any balance as dividends. In this way, NIC costs can be kept to a minimum.

For those who are under the State Retirement Age there may also be a need to maintain salaries above the threshold that provides NIC credits towards a state retirement pension.

All directors that receive dividends from their company should probably aim to take a minimum dividend of £2,000 a year as this is tax-free.

If you are thinking of moving to a new house you may need to sustain your income (salary and dividends) at a realistic rate to qualify for a mortgage.

Does this mean you have no choice? That you will need to continue taking salary and dividends at pre-COVID levels even if all the cash is not required for private purposes?

Fortunately, there is a solution

HMRC will generally accept that payrolled salaries and dividends voted will be considered as taken by director/shareholders if credited to their loan accounts with the company.

 

These loans can then be repaid at a future date – when cashflow has eased – with no additional tax complications.

What about tax liabilities?

Director’s salaries will be subject to PAYE and therefore any income tax due should be deducted and paid by the company. The net salary is the figure that will be credited to your loan account.

Dividends are a different matter. Dividends form part of your annual self-assessment and any dividend taxes due will be payable personally by the director whether or not they actually draw the dividends from the company. Accordingly, advice should be taken to work out the amount of dividend taxes payable. The tax amount should then be withdrawn and saved to meet these future liabilities and the after tax amount transferred to the directors’ loan account with the company.

We can help

If you would like to consider your options regarding the withdrawal of salaries and or dividends from your company, please call.

New support for High Street retailers

Thursday, June 18th, 2020

The High Street Task Force has launched a range of support options for High Street traders in England. In a press release issued 12 June it was announced:

 

A package of support to help high streets to get back on their feet has been launched ahead of shops reopening from 15 June.

The High Streets Task Force will provide access to cutting-edge tools, training, information and advice for high streets across England as part of the government’s efforts to get shops back in business safely from 15 June.

This support is open to local councils and all organisations involved with high streets and will include free access to online training programmes, webinars, data and intelligence on topics including recovery planning and coordination, public space and place marketing.

The support will form one part of the Task Force’s 4-year programme which will focus on the long-term transformation of town and city centres and helping communities reimagine and revitalise their high streets.

The Task Force has also today confirmed Mark Robinson, co-founder of Ellandi and leading investor in regional town centres, has been appointed as the Chair of the Task Force Board.

The new Board will guide the work of the Task Force and act as a national voice for high streets, supporting them to transform town and city centres.

The announcement follows the opening of the government’s £50 million Reopening High Streets Safely Fund which will support local councils to safely reopen their high streets and other commercial areas.

You can register your interest in support for this initiative at https://www.highstreetstaskforce.org.uk/ 

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