Interesting News

News Bulletins

November 2009 - E-NEWS

Please browse through this month’s articles using the links below and contact us if any issues or questions arise.

VAT Holiday Over As Rates Expected To Return To 17.5%

The Government’s one-year VAT holiday will end on 1 January 2010, with rates expected to return to 17.5% from the 15% we have enjoyed all year.

HMRC have confirmed the normal tax point rules will apply: date of invoice or date of payment, whichever comes first.

So if the invoice or payment is made before 1 January, VAT will be at the rate of 15% - anything after that date will be charged at 17.5%. To help us through the transition, HMRC have issued some guidelines we should note:

  • VAT should be calculated at 17.5% from 1 January, using the VAT fraction 7/47ths. Those who reduced their prices last December (2.13 % was the calculated reduction) should increase them by that same figure. If the customer has an account and he takes the goods away prior to the change, then you account for VAT at 15%.
  • Businesses issuing VAT invoices after 1 January should calculate their VAT at 17.5%, unless the goods/services were supplied before the rate change, in which case you can choose to charge at 15%.
    For supplies of services that span the change, you can charge 15% for services provided before the change, 17.5% afterwards or charge all at 17.5%
    Suppliers issuing invoices prior to the rate change, but where delivery will take place after the 1 January, may charge VAT 17.5%
  • When issuing quotes and estimates for work to commence after 1 January you should quote the 17.5% rate. Customers willing to pay before that date can be charged at 15%, (subject to the anti-forestalling legislation – see below).
  • Refunds or credit notes should be dealt with at the same rate originally declared or invoiced.
  • Invoices issued for 12 months in advance, with monthly payments plus VAT, must show VAT at 15% up to 31 December 2009.  Payments after that date must be at 17.5%
  • With ticket sales, the tax point is the receipt of payment. So if a ticket is purchased before 1 January 2010 the VAT rate will be 15%, even if the event takes place after the rate change in 2010. 

Flat Rate Scheme

The increase in VAT will lead to changes to the Flat Rate Scheme percentages and to the Fuel Scale Charges - all effective from 1 January 2010. Those people whose VAT returns span the change will have to carry out two separate calculations. 

Anti-forestalling legislation

With certain businesses, where the goods or services are supplied on or after 1 January 2010, anti avoidance rules have been put into place. These will apply if:

  • You receive pre-payments from persons connected to you for future supplies
  • You issue advance VAT invoices to persons connected to you for future supplies
  • You provide or arrange funding to your customers to enable them to pay in advance for goods or services to be supplied by you
  • You issue VAT invoices that do not have to be paid for at least six months
  • You receive pre-payments or issue advance VAT invoices in excess of £100,000, and this is not your normal commercial practice
  • You supply rights or options to receive goods and services from you free of charge or at a discount ie: receive payment prior to the rate change for a supply to take place after.

These rules will not affect many businesses and they are only invoked if your customer cannot recover the VAT charged in full. For more information, click here.

To coincide with the changes HMRC have produced a guide, available on their website – http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-changes.htm. However, HMRC have not yet published the rates for the Flat Rate Scheme. We will update you once these have been published.

If you would like more information or advice on these changes, please contact Tracy Jenkins or call 023 8046 1200.

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Inheritance Tax Payers Face Interest Rate Hike

Families faced with an Inheritance Tax (IHT) bill after the death of a loved one will soon encounter higher interest charges if they take longer than six months to settle the liability.

HM Revenue and Customs (HMRC) increased its interest rate on late payment to 3% from 29 September 2009, in a move expected to net the government an extra £10 million per year.  For the previous six months the Revenue had charged no interest at all on outstanding IHT liabilities.

“The increase has prompted criticism that it amounts to a ‘stealth tax’ which would unfairly hit families who are struggling to sell a deceased relative’s property in the current depressed market.  At the same time, HMRC has lowered the rate it pays in interest when it returns overpayments which have been made on inheritance tax bills to 1% below base rate, with a floor of 0.5%”. said Tracy Jenkins, Tax Director.

However, HMRC has defended its position, stating it's rates had been ‘streamlined’, following an 18-month consultation, so that all late tax payments were treated the same. A spokesperson for the department added that the move ‘had been largely welcomed by customer groups and their representatives’.

If you would like more information on Inheritance Tax issues please contact Tracy Jenkins, Tax Director or call 023 8046 1200.

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New Timetable For Tax Refunds

We would like to remind taxpayers that the time limit for claiming back overpaid tax is being reduced from six to four years.

While it is normally simpler to make claims when the tax return is submitted, it is also possible to claim back tax at a later date, if required.

Alan Rolfe, Tax Manager said “Next year will mark the transition between the old and new time limits, meaning anyone who has a claim for the tax year 2003/04 must submit it by 31 January 2010, claims for 2004/05 must be submitted by 31 March 2010 and claims for 2005/06 need to be filed by 5 April 2010”.

For more information please contact Alan Rolfe, Tax Manager or call 023 8046 1200.

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Scrappage Scheme

The Vehicle Scrappage Scheme is a voluntary scheme for motor dealers under which participating dealers give buyers a £2,000 discount off the purchase price of a new car (or certain types of small van) in exchange for scrapping their old qualifying vehicle. Funded by the government and manufacturers the scheme has proved very popular and according to the Department for Business Innovation and Skills (BIS) website 260,226 cars have now been scrapped under the scheme, which is set to run until February 2010.

An extra 100,000 (£100 million) has been added to the number of scrappage deals that the government will fund, taking it to 400,000 in total. In a change to the qualifying conditions, the age of the vehicle has also been adjusted to first registered on or before 29 February 2000 for cars or 28 February 2002 for vans.

For general information on the £2,000 scrappage discounts and other conditions visit the BIS website. For HMRC’s views on the business tax and VAT implications of the car and van scrappage scheme click here.

If you have any queries on the tax implications of the scheme please contact Tracy Jenkins, Tax Director or call 023 8046 1200.

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Tax Relief On Nursery Vouchers To Be Withdrawn

In his speech to the Labour Party Conference, the Prime Minister, Gordon Brown announced an extension of free nursery places, to be financed by the withdrawal of the tax and National Insurance (NIC) exemptions for childcare vouchers.

The proposal is that the provision of free nursery places will be extended to two year-olds (this would be on top of the existing free childcare available to three and four year olds). It is expected that 250,000 children will benefit from this by 2015/16.

However, the quid pro quo would be the eventual withdrawal of tax and NIC exemptions for employer provided childcare vouchers. Currently employees are exempt from tax and NIC on childcare vouchers provided by employers. The exemption is available on the first £55 a week of vouchers per employee, as long as a range of conditions are met. Any excess over the £55 is liable to tax and to NIC (both employees’ and employers’ contributions).

Under the proposals, it appears that from April 2011, employees who join an employer-supported voucher scheme will not be entitled to the current tax and NIC exemptions. Those already receiving vouchers will be unaffected until April 2015, when the exemptions for vouchers will be withdrawn completely.

More details are expected in the 2009 Pre-Budget Report.

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