Proactive

A “VAT only” invoice

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A one off process when the VAT details arrive late

There are times when an application for VAT registration is delayed, and in a few cases that can mean that your business ought to have charged VAT to customers but couldn’t, because the VAT registration number was not known.

In situations like these, it is necessary to issue a “VAT only” invoice as soon as your registration number is known. There are three examples of invoices on this Excel file and the final one shows you how to set out a “VAT only” invoice.

When sending it to the customer(s) it is best to remind them that you are simply following the rules as set out by the VAT office. You have a legal duty to do it this way and they have a legal duty to pay you the VAT!

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Posted on 29 Jul 2010 by The Proactive Accountant Dot Com

Royal Mail deteriorating

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More lost mail than ever before

Last October, we reported that Royal Mail was not delivering. We have had more of the same in April and May 2010 and we need to take serious steps to combat the problem.

In particular, we submitted 7 VAT registration forms recently and we know that only 1 response has been delivered. We have established from phone calls to the VAT Unit that “more information” letters have been sent in the other 6 cases, but either the VAT Unit or Royal Mail are having difficulties with letters.

What makes it worse is that the VAT office believe that VAT is solely the responsibility of the taxpayer and not the accountant. Unlike the rest of HMRC they persist in writing to the taxpayer, and without a clear authority form in place, we have trouble getting any information out of the VAT Central Registration Unit!

We also know from our records of Recorded Delivery and Special Delivery items that the Royal mail failure rate is creeping up from 20% to around 25%.

And, we have reports from clients where business records have been mailed to us in London, but have never been received.

Our solution is twofold. We are pressing on with our paperless operation and we are also moving somewhere more reliable. If you are using our address in London E1, we will be keeping it until 31 Dec 2010. At that stage, any clients who have a registered office with us, will need to establish a new registered office.

With the implementation (in Oct 2009) of all of the provisions of the Companies Act 2006, a registered office should be staffed during normal business hours. After 31 Dec 2010 we will not be able to offer that facility in London E1.

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Posted on 1 Jun 2010 by The Proactive Accountant Dot Com

Disbursement or Expense?

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What is the VAT treatment on recharged expenses?

There is little logic in VAT legislation, and so the system is set out here for your information. Whether we like it or not, we have to follow the rules!

If you are VAT registered, then you charge VAT to your clients, on top of the cost of your product or services.

If in the course of doing that you incur expenses and you want to recharge those expenses, then you have to charge VAT on top of the expenses as well. The absurdity of this means that (for example) the cost of a train ticket which is normally exempt from VAT, becomes a VATable item the moment you recharge it to a client.

Any expense which you “consume” and then recharge to your client falls into this VAT catchment area. The only time you can avoid charging VAT on an expense is when it falls into the narrow definition of a “disbursement”.

That’s for things that you do not consume as part of your service, but which you pass on intact to your client, or on behalf of your client. In the case a solicitor handling a house purchase, the stamp duty is a disbursement and not an expense. It is not “consumed” as part of the service which the solicitor provided.

Likewise, if I recharge the costs of providing clients with tea, coffee and milk, then I need to add VAT to the bill (even though food is exempt from VAT). Whereas if I bought a pint of milk for you and handed it over, unused and unopened, then it would be classed as a disbursement.

Crazy, but true. As a general rule add VAT on top of all the expenses that you recharge to your clients!

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Posted on 27 May 2010 by The Proactive Accountant Dot Com

HMRC authorisation codes

Cancelling your VAT registration

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Tidying things up nicely

Some clients have a fully managed service from us and some of them do their own VAT. If you’re in that second category and you now need to de-register for VAT, the you need this form:

Form VAT7

Experience tells us that when filling it out, it’s easiest to tick BOX E on page 4  and add the cessation date, skip page 5 and go directly to page 6.

Question 7 is about how much VAT you might “owe” the government. If the total VAT at stake is less than £1,000 then they waive it. So, if you’re stocks and assets are less than about £6,600 in total there is no problem. Most businesses need to show the total value of a computer and a printer and that deals with question 7.

Send the completed form to:

HM Revenue & Customs
77 Victoria St
Grimsby
DN31 1DB

We recommend that it is sent by Recorded Delivery!

Posted on 28 Apr 2010 by The Proactive Accountant Dot Com

Did you get a Pension Coding Form?

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There is no legal requirement to complete a P161 form

The people at HMRC Towers have (in their wisdom) decided to rearrange the way that some work is done. Today we learnt more about the new National Insurance and PAYE Service.

It can cause problems. One of which is the way explanations are delivered. Have a look at this  extract from a letter which we received form the newly introduced Complaints Service . . .

If you can translate that paragraph into English please let us know!

Anyway, the new Pension Coding Form P161 is something which we think you can safely ignore. HMRC is perfectly well equipped to get your coding notice wrong, with or without the details on the new form. They seem to do that already by not checking your tax return properly. Save yourself the time and just shred the P161 when you get it!

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Posted on 9 Apr 2010 by The Proactive Accountant Dot Com

HMRC gets it wrong with PAYE coding notices

Why are capital allowances different to depreciation?

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Often there’s little logic in tax law

If you ever look closely at your accounts and tax return (you do look closely, don’t you?) you may notice that they include depreciation and/or capital allowances. And you may notice that the bottom line figure for depreciation and/or capital allowances is usually different.

That’s because depreciation is calculated based on established accounting practices, and capital allowances are based on the rules set out in the Taxes Acts. And no matter which method you are following, these rules only apply to the major items in your business, the things that last for a few years. That means things like motor vehicles, furniture and computers.

Generally speaking, accountants will take the cost of a capital asset (like your new £2,500 super computer) and spread the cost equally over 4 years. Whether or not that truly reflects the depreciation of this item the accounts will show a depreciation figure of precisely £750 in each and every one of the consecutive 4 years.

HM Revenue and Customs do things differently. So at the outset, they ignore the depreciation figure in the accounts and treat the accounts as if that amount wasn’t there. This is called “adding back the depreciation”. Then they take off the capital allowances.

Capital allowances are currently calculated on a 20% reducing balance system. There are a few other special rules (as you might have guessed), but for now we’ll take that £2,500 super computer and write off 20% of it. That gives you a capital allowance in year 1 of £500 and a balance of £2,000. In year 2, the 20% allowance will then be £400 and so on.

Under the capital allowances method, you never quite get down to Zero. With depreciation you know you’re going to hit a value of Zero after 4 years.

And if you ever wanted to compare the capital allowances figures to the depreciation figures, you would need to do a reconciliation every year, starting with year one of the business. The records should be there in all the copies of the accounts and the tax returns. Alternatively, you could just trust your accountant!

Posted on 2 Mar 2010 by The Proactive Accountant Dot Com

VAT changes for 2010

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VAT rate updated to 17.5%

With effect from 1 Jan 2010 the VAT rate returns to the once customary level of 17.5%. It was temporarily reduced to 15% on 1 Dec 2008 as part of the government’s financial stimulus.

All VAT registered businesses will need to charge VAT at 17.5% when appropriate on invoices raised from 1 Jan 2010.

VAT returns on line - soon to be compulsory

In their recent VAT update leaflet, HM Revenue & Customs have told us that all VAT returns will (in future) have to be submitted electronically. We’re not going to wait for the rule to start in 2010/11, we’re going to make progress now! We have three months to go before the end of the 2009/10 tax year and we are writing to the affected clients now. If you’re not yet a client and you want to understand what’s involved with online VAT, check this earlier article.

Posted on 29 Dec 2009 by The Proactive Accountant Dot Com

A fixed asset register

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Claiming tax relief on the big things

All businesses can claim tax relief on business expenses. That can include items that you bought before the business started! Do you have a laptop, and any other IT kit? Is your office equipped with a desk, a chair and a book case? Here’s a typical list of things that you might be introducing. There may be things on this list that you should ignore, and there may be other special things (in your line of business) that we haven’t thought about.

All of these things are “the big things”, the sorts of things that will serve the business over a number of years, and not be used up all in one go. Use this list as a guide, and please compile your own. The descriptions under “model” and “serial number” should be sufficiently clear so that one Dell laptop can be distinguished from the next Dell laptop that you buy, if you see what we mean!

Once your list has been prepared, please send a copy to us.

Posted on 9 Dec 2009 by The Proactive Accountant Dot Com