by Abdul Wahab | Nov 20, 2021 | Uncategorized
If you have a business, there are several decisions to be made. For example, if you are setting up a new business or expanding, one of the decisions is whether to register for VAT. If your turnover has reached £85,000, the decision is out of your hands – you have reached the VAT threshold and must register. If your turnover is below the threshold, you can choose whether to register or not.
Generally, once you’ve registered for VAT, you must put the corresponding rate on your invoices and make quarterly VAT returns and HMRC payments. If you are not VAT registered, or your customer is not, VAT becomes complicated.
You’ll need to make a decision on how to deal with a customer who doesn’t have a VAT number if you provide discounts, refunds, or return policies for non-VAT registered customers in your terms and conditions. The prices at which the products are supplied for such customers should take into account any such discounts etc.
This article explains the different ways VAT can be charged and outlines what you need to do to become VAT registered. We also highlight the penalties HMRC might charge if you get the process wrong. Make sure to get professional advice if you are unsure how to handle VAT since some aspects can be complicated.
Why you should register for VAT?
VAT, or value-added tax, is a consumption tax imposed on goods and services at each stage of production. It’s often only applied to the value-added at every step. The advantage of being VAT registered is that it simplifies tax returns and reduces the administrative burden for small business owners.
You can reclaim any VAT that you are charged for around 15 EU countries around you. When this happens, your input tax will be more than the output tax. If your input tax is more than the output tax, you can collect the difference back from HMRC, saving you some money. It’s important to remember that the figure of £85,000 must represent taxable turnover – that is, for the supply of goods or services that are VAT-rated. Any goods or services, not VAT-rated must not be included in the figure.
How to register for VAT
Any firm in the UK that sells products or services to other EU nations must register for VAT. The first stage is to register with the HMRC as a company within 30 days of launching a business. If you’ve already registered as a Sole Trader, the next step is to register for VAT in the United Kingdom with HMRC. In most situations, if you already have a company and want to register for VAT, you can do so online (or by using paper form VAT1). You’ll need the following information before you can log on and start your registration:
- Your Unique Tax Reference. This is a ten-digit number you’ll have been sent when registering to pay Corporation Tax.
- Your business’ bank account details.
- Your company number and registered address.
- Details of any associated businesses from the past two years.
If necessary, you may also require information about any businesses that are being transferred or purchased.
You should receive a VAT registration certificate when you apply for VAT (VAT4). This will state:
- your VAT registration number
- the date you need to submit your first VAT Return and payment by
- your ‘effective date of registration’
You will quote your VAT registration number on any receipt or invoice in which VAT is applied to goods and services.
Charging VAT
You’ll be provided with a unique VAT number when you register for VAT, and you’ll have to start issuing VAT invoices instead of routine invoices. VAT invoices should include information such as the tax rate(s) imposed and the total amount of tax payable, as well as your VAT number. When you purchase VAT-rated supplies from a VAT-registered business, you’ll get a VAT invoice containing the supplier’s VAT number and the amount of VAT included in the total invoice. You must pay the full amount due to the supplier.
To charge or reclaim VAT on whatever you buy or sell, you must first be registered for VAT. If you’re registered for VAT, your VAT number must appear on practically every invoice you send out. There are a few exceptions (for example, if you sell secondhand items on a discount programme or sell zero-rated products), but VAT-registered companies must always include their VAT numbers on their invoices as a general rule. Businesses who aren’t registered for VAT are unable to reclaim any of the VAT they pay.
If you are VAT registered, you can get a refund from HMRC for the VAT you paid. You obtain a refund by reporting this as input tax on your VAT return. Even if the items are VAT-rated, if you buy supplies from a non-registered company, you should not receive a VAT invoice, and you must not pay any VAT stated wrongly on the invoice. If you pay VAT in error, HMRC will levy you a penalty fee.
Surcharges and penalties levied by HMRC for VAT violations
HMRC has a range of penalties regarding registration and payments. You must be familiar with the critical registration dates in order to comply with their criteria. Your Effective Date of Registration (EDR) is determined by whether you applied to register before or after crossing the threshold. If you do not apply on time, you may face fines for late registration.
It’s risky to charge VAT if you’re not registered. It’s also unwise to ignore your VAT bills.
You are also responsible for sending your VAT return on time when registered for VAT. A default will occur when HMRC does not receive a return on all VAT payable by a certain deadline. In certain circumstances, such as the COVID-19 pandemic, HMRC may prolong this deadline, allowing entitled businesses to withhold VAT payments.
VAT is also penalised if it is charged too early. You can’t legally charge VAT to your consumers unless you’ve registered for VAT. The penalty for charging VAT on an invoice without being registered is up to 100% of the VAT on the invoice. There’s also a ten per cent penalty for charging VAT before the deadline. Even if you notify HMRC that you made a mistake, you will be subject to this penalty.
VAT Returns are normally completed online for every 3-month VAT period. These returns must be delivered to HMRC within 1 month and 7 days after the end of the VAT period. If it’s within your budget, it may be beneficial to appoint an accountant to prepare and submit VAT returns and handle VAT affairs on your behalf. This is a brief overview of the rules on VAT registration and administration.
Bloom Financials Can Help
When you aren’t registered, charging VAT would almost certainly result in further penalties and charges from HMRC. However, not charging VAT according to your VAT plan, or the VAT scheme you choose for your business is problematic. Understanding the VAT threshold and how to register will enable you in avoiding penalties and claim money back on purchases. Our team of experienced tax accountants would be happy to assist you if you require professional guidance on any aspect of VAT or confirmation that you are fully complying with HMRC’s VAT requirements.
Reach Us
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We offer tailored solutions for your business, regardless of your requirements. Our friendly team is ready to help you, so please feel free to contact us.
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by Abdul Wahab | Nov 16, 2021 | Uncategorized
Today companies provide their employees with various types of added benefits. Any benefit that you receive as an employee in addition to your basic salary is the Benefit in Kind from your employer. It can also be regarded as the benefit that you can use both in your personal time as well as the business hours and is referred to as a perk or the ‘fringe benefits’, that may be a vehicle provided by your company for both the office as well as the personal use. Although this all seems a nice added bonus, the noticeable thing is that it all may not necessarily go for free, and HRMC will need you to pay tax.
Moreover, this can be challenging for self-employed or employers to understand the rules about benefit in kind tax. Benefits are usually tax-free, while such are taxable, making it complicated to assess which rules apply to your situation according to your benefits. We are providing a quick guide here to make such things easier to understand.
What does benefit in kind mean?
These are the benefits that a company provides to their director or employee besides their wages or salary.
A company car, any residence accommodation by company, private medical insurance, or non-business travel are all examples of benefit in kind (BIK). Such benefits in kind that have a monetary value involved may be subjected to taxes, and you will be demanded to report HMRC as well.
Tax-free or non-taxable benefits in kind?
These are the most common benefits in kind you receive from the company or employer. In such cases, both the employee and employer are not demanded to pay the tax. Here are a few examples of non-taxable benefits in kind:
- Subsidies meals provided to the employees at the canteen
- Various entertainment facilities
- Pension payments
- Various other sports and safety facilities are available at the workplace
- Expenses for transportation, e.g. public bus services
Taxable benefits in kind
- Vehicles provided by the company that is also allowed for personal use
- Fuel for personal use
- Accommodation having no rent or less rent than the market value
- Fees of the children of employees
- Private medical insurance
- Loans from the company that is interest-free or discounted
- Expenses for non-business travel
How to figure out what tax is to pay on a benefit in kind?
The rules to determine what tax needs to be paid or not are diversified to understand. It all depends on what benefits are being received or offered. When you are receiving a benefit in kind as an employee, you have to pay income tax for it.
To calculate how much you will pay, apply the income tax rate band according to your income tax to the taxable value of the benefit you are being offered. The band defines that you have to pay 20% if it stands under the basic rate; for the higher rate, it is 40%, and for the additional rate, it is 45%. A rule also says the employer providing the benefit in kind to his employee will also have to pay tax in the form of the employer’s NI at a rate of 13.8 per cent of the benefit’s taxable value.
Reporting and paying tax on benefits in kind
At the end of each year, all the employers are asked to report their employees’ benefits. They are responsible for this reporting.
Ways to report and pay tax:
There are two ways to report and tax the benefits
- P11D form submission
This is a tax form that keeps all the records of the employment benefits that the directors, as well as other employees, receive from the company over the year. The employer is responsible for submitting a P11D form for each employee receiving the benefits or expenses. Self-employed are considered both the employee and employer, which means they also need to fill out the P11D form. The form provides a list of all possible benefits which the employer simply selects the relevant ones and states the value of the benefit that was provided to the employee.
The P11D(b) form is also required to submit by you in the following conditions:
- If you have submitted any P11D forms
- The benefits or expenses of the employee have been paid through your payroll
- HMRC has reminded you to report
The P11D(b) form must be submitted alongside the P11D and this allows for employers to pay their NI on the BIKs.
2.Paying tax through payroll
The tax on benefits provided to the employees can also be deducted and paid through the payroll.
For this, you need to get yourself registered with HMRC before the tax year starts (6th April). And an important thing to note down here is you do not need to submit the P11D form in this case, but the P11D(b) will still be required to be submitted.
For employees, income tax is charged on the BIK. The payment for this will be automatically deducted via your payroll and so there is nothing you need to do.
This guide helps make things a little easier to understand what the benefits in kind are, what benefits are taxable and what are not, what are the tax calculations, and how to report and pay off taxes as well. It also explains the complications of the procedure to assess the tax rules and accurately understand the benefits in kind tax calculations.
This demanding and hectic procedure needs time and expertise. Also, analysing the case of each employee who is being provided with benefits in kind may be confusing. Furthermore, reporting the taxes, filling out the P11D and P11D(b) forms, and paying off the taxes is a complex task to do by the employers and self-employed persons. Here you need experts who can perform all these tasks efficiently and precisely. Our company ‘Bloom Financials’ also provides its expertise in taxation regarding the benefit in kind. Employers, self-employed persons, and even employees can get help to make this procedure easier and swift.
by Abdul Wahab | Nov 10, 2021 | Articles, Uncategorized
- Income tax losses overview
- What kinds of losses your company can experience?
- Limitations on how long you have to file a claim for loss relief?
- How to Get a Tax Refund if You’ve Had a Loss?
- What are the tax consequences under COVID-19 if a self-employed person loses money?
- What can Bloom Financial do for you?
Income tax losses overview
The overall profit is the sum of all net income and net chargeable gains on capital assets. If a company’s income exceeds its costs, it is considered a successful business. If it spends more money to generate revenue than it earns, it is said to be losing money. In most cases, income tax losses are determined over a one-year accounting period.
Trading is frequently the primary source of earnings of a firm, and these are calculated using its worldwide profit before tax indexing in its records. Moreover, for sole traders, any profit and loss on loan generally entails the trading profits and are a separate source of income or loss.
A firm or sole trader may experience loss in one or more of their sources of income. There are three categories of losses that mostly come into contact, trading, property, and non-trading.
Profitable businesses must pay taxes on their earnings. However, if a company is going through a challenging period and isn’t producing enough money or profit, it should check to see whether there is any loss alleviation available.
It is critical to be informed of the many ways in which trading losses of sole traders and trading partners might be alleviated if a firm is going through a period of survival and failure. This article will discuss the types of relives available for businesses and how they can protect themselves in these situations.
What kinds of losses your company can experience?
According to the applicable tax legislation and HMRC guidelines, the following reliefs are available for different types of losses in the UK:
- Common Trading Losses
This type of loss is measured as a percentage of total income from all sources. In this loss, the government offers relief based on the first available earnings from the same trade.
- Losses sustained in the first four years of trading
This loss is computed as a percentage of total revenue in the previous tax year from all sources.
- Relief from a Terminal Illness (losses arising in final 12 months of trade)
On a last-in, last-out (LIFO) basis, this sort of tax loss is determined for unrelieved terminal losses against earnings of the same trade assessable in the three prior tax years.
- On incorporation, a single trader’s unrelieved trading losses
This tax is applied on income (such as salary, rental income, and dividends) from a company to which the firm that created the losses has been transferred.
Limitations on how long you have to file a claim for loss relief?
A sole trader must file a claim for loss relief within one year of the tax return’s regular filing date for the loss-making year.
For example, a relief claim for losses in 2018/19 may only be filed by January 31, 2021.
However, in some cases, HMRC accepts late claims, but you must file your claim on time to avoid lengthy procedures.
Certain ‘income tax reliefs’ that an individual may claim are subject to limitations. However, restriction on relief for trade losses is carefully enforced by the UK government, and it varies depending on the circumstances in which a corporation is operating.
How to get a Tax Refund if You’ve Had a Loss?
As previously stated, income losses arise when operating expenditures exceed net income. As a result, it becomes evident that any company can go bankrupt at any time. However, sole-traders and new businesses frequently experience significant revenue losses.
When a start-up generates products and services in the early stages of its firm, it may encounter several money management challenges. The primary cause for start-up losses is their unfamiliarity with real-time financial and accounting administration.
The form of business, such as a trading company, a partnership, or a sole-trader, determines how to claim a tax refund for business losses and how quickly you receive that return.
1- Tax relief for sole-traders and partnerships:
For claiming a tax refund, the simplest and quickest method is to file a personal tax return. If you’re a sole-trader or a partnership, you have four options for triggering a loss:
- Deduct any other income from this year’s tax return, the prior year’s tax return, or both.
- For three years, carry back losses accumulated in the first four years of trade. If you’re a sole trader or a partnership, make sure you file your claim before the deadline.
- Claim compensation for profits made in previous years on the same trade.
- Use the loss to offset future earnings from the same deal.
2 – As a self-employed person, claiming loss relief against income
Self-employed people usually file a claim for loss relief on their Self-Assessment tax return.
- If the loss can be traced back to more than one year, you can get a reimbursement.
- If the amount of loss is calculated from the previous year’s net income, you can claim the relief.
3 – Claims made outside of a personal tax return (PTR)
When an individual wants to file a claim before filing their tax return, this is known as a ‘stand-alone claim.’ In this situation, you must write HMRC a letter including the following information:
- Transaction name
- The amount and duration of business loss
- Intensions behind utilising the loss by a person
What are the tax consequences under COVID_19 if a self-employed person loses money?
Losses incurred by self-employed or partnership workers might be deducted from other earnings. Although losses are never desirable, there may be a chance to get a profit from them.
Some Covid-affected firms and self-employed persons who do not qualify for government assistance may be able to profit from a new way to enhance cash flow thanks to the loss carryback provisions.
The Covid Act includes a variety of temporary income tax provisions to assist those affected by the Covid-19 limitations.
There are three factors to consider:
- Self-employed people can ask for their 2020 losses and some unused tax depreciation to be “thrown back” for the 2019 tax year, lowering the amount of income tax owed on such gains.
- Self-employed people can file “interim claims” based on the amount of assistance they expect to get.
- For the tax year 2020, farmers will opt out of income averaging.
What can Bloom Financials do for you?
We strongly concentrate on relief claim and money management experience to assist our clients in identifying, assessing, and decreasing their risk exposure, hence lowering risk costs. For loss-related claim services, we got one of the best consulting teams in the industry.
Businesses, sole traders, and self-employed individuals exposed to various loss recovery claims require specialist advice to assist them in detecting difficulties. We’re dedicated to supporting their clients with loss prevention and claims management. Our expert claims team serves as facilitators and instructors, enhancing our clients’ position at critical periods in their businesses.
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