This month we have included articles that cover: the advantages of the VAT Flat Rate Scheme for smaller businesses, the qualifying conditions for Furnished Holiday Let property tax benefits, the tax position of Equitable Life compensation payments and a reminder from HMRC about bogus emails.
VAT Flat Rate scheme
The VAT Flat Rate scheme provides smaller businesses with a number of options that can often create real cash savings. Benefits include:
To qualify, your annual turnover must not exceed £150,000, excluding VAT. Once you are in the scheme you are not required to leave until your annual turnover exceeds £230,000.
If you register for this scheme you still add VAT to your sales in the usual way. Instead of calculating the amount you need to pay to HMRC as the difference between your output VAT (the VAT you add to your sales) and your input VAT (the VAT added to the goods or services you buy), you simply calculate the total of your sales including VAT and multiply this figure by the flat rate percentage. Income for these purposes, your flat rate turnover, includes:
Obviously, the higher the flat rate percentage, the less beneficial the scheme will be in reducing your overall VAT payments.
Flat rate percentages vary between 4% and 14.5%.
For example a business repairing personal or household goods would save £2,000 per year in the following scenario:
Additionally you can reclaim the input tax charged on capital assets bought where the total single invoice value (including VAT) is £2,000 or more.
As a bonus, in the year following the registration of your business for VAT, you can deduct 1% from the flat rate percentage. So in our example, if a full year’s discount was available, the savings in year one would actually be £3,200. (£14,000 less £120,000 x 9%).
(Please note: This 1% reduction in the flat rate would not apply to businesses who had been VAT registered for more than a year when they join the Flat Rate Scheme.)
The scheme does not suit businesses that have a high proportion of zero rated sales or that have high levels of input tax reclaimable on purchases of goods and services. And it may not be possible to produce real cash savings if your business falls into one of the higher flat rate percentages.
Furnished Holiday Lets
Does your holiday home qualify as a Furnished Holiday Let (FHL) property? And if it does, what are the tax advantages?
Does your property qualify?
From April 2012 the following conditions apply:
The periods to which you need to apply these tests are:
There are complex rules that allow you to average the occupancy figures where you have more than one property in your FHL business. All of your UK FHL properties form a single trade for tax purposes. Any EEA properties form a separate trade. So you cannot average UK and EEA numbers. This averaging process can be useful where you have one or more properties that do not qualify and others that more than qualify for FHL status.
If you pass the test in 3 above for one year but fail it for the next 1 or 2 years, then you may be able to elect for those years to be treated as qualifying.
What are the tax advantages?
As your FHL business is considered to be a trade you will be able to avail yourself of the following reliefs that would not be available to non-FHL property letting businesses.
Beware of losses though, as these can only be carried forward against future FHL profits.
Equitable Life tax bonus
If you are due, or have already received, compensation in respect of the Government’s maladministration of Equitable Life pensions and policies you may be interested in the tax position of these payments.
Any interest received in addition to the compensation or rebated premiums will be taxable regardless of whether it has been taxed at source or not.
For a full run-down on the compensation scheme you can view FAQs at http://equitablelifepaymentscheme.independent.gov.uk/index.htm
More bogus emails to ignore
HMRC has issued a press release warning taxpayers about possible fake or “phishing” emails sent out by fraudsters. Apparently there is usually a significant increase in this activity in the lead up to the 31 July tax credits renewal deadline.
HMRC do not contact taxpayers by email about their tax affairs.
They have requested that you forward any suspicious emails to email@example.com and then delete the email from your PC.
Tax Diary June/July 2012
1 June 2012 – Due date for Corporation Tax due for the year ended 31 August 2011.
19 June 2012 – PAYE and NIC deductions due for month ended 5 June 2012. (If you pay your tax electronically the due date is 22 June 2012.)
19 June 2012 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2012.
19 June 2012 – CIS tax deducted for the month ended 5 June 2012 is payable by today.
1 July 2012 – Due date for corporation tax due for the year ended 30 September 2011.
6 July 2012 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.
6 July 2012 – Deadline for submitting form 42 (reporting of transactions in employment related securities).
19 July 2012 – Pay Class 1A NICs (by the 22 July 2012 if paid electronically).
19 July 2012 – PAYE and NIC deductions due for month ended 5 July 2012. (If you pay your tax electronically the due date is 22 July 2012.)
19 July 2012 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2012.
19 July 2012 – CIS tax deducted for the month ended 5 July 2012 is payable by today.