Northern Ireland Archives - JSR Chartered Accountants

September 9, 2011February 2, 2019

VAT Flat Rate Scheme – A Closer Look

Background:

The Flat Rate Scheme for VAT is a scheme specifically
designed by HMR&C to reduce the administrative burden on smaller VAT
registered businesses. The scheme is
restricted to business whose turnover does not exceed a specified
threshold. The scheme also excludes
businesses for a number of other reasons such as if the business has recently
been charged certain VAT penalties.

Application:

Under the Flat Rate Scheme the registered business charges
VAT at the standard rate/ applicable rate for the sale, however when it comes
to paying over the VAT liability to HMR&C the registered business
calculates its VAT liability at a specified “flat rate” based on the level of
sales. The “flat rate” is a
pre-determined percentage that is list out by HMR&C, this flat rate varies
from trading activity, see the current table of rates at Appendix 1 below
(taken from www.hmrc.gov.uk ).

If your business operates within several of the business
areas listed it is necessary to select one rate, and this must be the rate that
best reflects the main or core business activity i.e. the area of your trading
activity that generates the greatest turnover.
This “flat rate” percentage would be applied to your total turnover.

The only VAT on acquisitions that can be recovered while a
business is registered under the Flat Rate Scheme is on capital additions
costing more that £2,000.

Turnover Thresholds for Registration:

A business can apply to register for the Flat Rate Scheme
provided the annual turnover is not expected to exceed £150,000 excluding
VAT. Once your business is registered
on the Flat Rate Scheme the turnover excluding VAT can rise to more than
£230,000

First Year VAT Registration?

By way of a further incentive if in your first year of VAT
registration you enter the Flat Rate scheme then your business can benefit from
a 1% reduction to the appropriate flat rate.
This ‘introductory offer’ from HMR&C applies until the day before
the anniversary of your VAT registration, after which time you will be required
to revert to the standard Flat Rate for your business sector.

Record Keeping

It is essential that you keep a record of the calculations
to support your workings for each vat return and how your vat liability has
been arrived at. You should as a
minimum keep a record of the sales applicable for the vat period, the “flat
rate” percentage you are applying and the resultant vat liability.

Appendix 1 Flat Rate Scheme percentage rates from 4 January 2011

These rates will apply from 4 January 2011 until further
notice.

Category of business	Appropriate percentage
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5
Film, radio, television or video production	13
Financial services	13.5
Forestry or fishing	10.5
General building or construction services*	9.5
Hairdressing or other beauty treatment services	13
Hiring or renting goods	9.5
Hotel or accommodation	10.5
Investigation or security	12
Labour-only building or construction services*	14.5
Laundry or dry-cleaning services	12
Lawyer or legal services	14.5
Library, archive, museum or other cultural activity	9.5
Management consultancy	14
Manufacturing fabricated metal products	10.5
Manufacturing food	9
Manufacturing that is not listed elsewhere	9.5
Manufacturing yarn, textiles or clothing	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Photography	11
Post offices	5
Printing	8.5
Publishing	11
Pubs	6.5
Real estate activity not listed elsewhere	14
Repairing personal or household goods	10
Repairing vehicles	8.5
Retailing food, confectionary, tobacco, newspapers or children’s clothing	4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8
Retailing that is not listed elsewhere	7.5
Retailing vehicles or fuel	6.5
Secretarial services	13
Social work	11
Sport or recreation	8.5
Transport or storage, including couriers, freight, removals and taxis	10
Travel agency	10.5
Veterinary medicine	11
Wholesaling agricultural products	8
Wholesaling food	7.5
Wholesaling that is not listed elsewhere	8.5

August 29, 2011February 2, 2019

Inheritance Tax

Inheritance Tax is one of the most despised and potentially most expensive forms of taxation. The tiny number of individuals who make any effort to reduce their IHT burden is therefore surprising. Simple steps like making a will can drastically reduce an IHT bill, and require very little work. There are a number of ways in which you can cut your inheritance tax liability – but it is important that you act now.

To find out whether or not IHT will actually affect you add up the value of all the assets in the estate – such as a house, possessions, money and investments – and deducting any debts held by you such as mortgages, including household bills and funeral expenses. Although Individual Savings Accounts and Personal Equity Plans are not taxable during your lifetime, the assets included in these ARE liable for inheritance tax. If the total value of your taxable assets exceeds the Nil-Rate Band, which is currently set at £325,000, then you should be taking action to minimise your IHT liability. It is therefore very wise to write a will, something we should all do regardless but it is particularly important in reducing an inheritance tax liability. Having a will in place can avoid leaving all your assets to the mercy of intestacy laws.

Reducing the Estate

One of the ways in which you can limit your liability is to reduce the total size of your estate. There are numerous ways of doing this. Many individuals choose to give gifts to family and friends in life rather than writing them into their will gradually reducing their estate. You may wish to think about downsizing your home in order to reduce the size of your property assets. If this is not realistic, you may also consider an equity release scheme – this will free up some immediate cash, which may be vital in retirement, and will again reduce the size of your estate.

Trusts

More commonly individuals are now turning towards trusts as an effective way of limiting their tax liabilities. Using a discretionary trust you can pass assets on to trust-holders, who are legally charged with looking after them until your death. At this point they will be passed on to your intended beneficiary. This can be an excellent way of pre-empting IHT but of also retaining your ability to determine who benefits from your estate.

However money given away before you die is still usually counted as part of your estate, hence subject to Inheritance Tax, if you die within seven years of giving the gift.

If you make large lifetime gifts, the beneficiaries could take out life insurance against the potential Inheritance Tax bill. Most gifts into trust are now subject to Inheritance Tax even if made during your lifetime, but this is an area where you would need specialist advice.

However, even if you do die within seven years of making a gift, there is a range of other exemptions worth taking into account to help lessen the tax bill:

- - - Annual Inheritance Tax Exemption. The first £3,000 given away each tax year is completely ignored as part of your estate and thus not subject to Inheritance Tax if you die. If you don’t use this in a year, you can carry it forward for one tax year (no more) and use it then.
    - Gifts to charities and political parties are Inheritance Tax free. Any gifts you make to a ‘qualifying’ charity – during your lifetime or in your will – will be exempt from Inheritance Tax
    - Give £250 each year to everyone you know. Gifts of no more than £250 to any one recipient per tax year are excluded from Inheritance Tax.
    - Gifts from income. Inheritance Tax is a tax on your assets. However if you have an income (pension or earnings for example) and you give money regularly from that which leaves you enough income not to impact your lifestyle, then it is exempt.
    - Gifts on consideration of marriage. There are limits to this though: £5,000 for a gift from a parent, £2,500 from a grandparent, £1,000 from anyone else.
    - Woodland, Heritage, Farm and Business. If you own an agricultural property that’s part of a working farm then a percentage may be exempt from tax.

Spouses

Many married couples choose simply to pass their estate on to their spouse but, while this is an understandable choice, it is often not the most tax-efficient course of action. Rather, you may wish to consider placing assets above your Nil-Rate Band into a trust, which is passed to your children, but only after the death of your spouse. This ensures that both your own and your spouse’s Nil-Rate Bands are used effectively, as any transfers between spouses are exempt from tax. If you are interested in this course of action you should consult a professional.

Finally, it should be remembered that IHT rules favour those who are married or are in a civil partnership. Currently, co-habiting couples that are not married will not qualify for the exemption granted those who have legally codified their relationship. Unfortunately, the only way to gain this exemption is by marrying or entering a civil partnership, and this may therefore be an option you may wish to consider.

Conclusion

As we all know there are only two certainties in life – Death & Taxes. However, with a little timely planning the two do not necessarily have to affect your loved ones at the same time. Take some time now to plan your will, and speak with your accountant to ensure that your assets can and will be distributed in accordance with your wishes in the most tax efficient way.

August 4, 2011April 25, 2014

Do I Really Need an Accountant?

Chartered accountants have come through a rigorous regime of training and examinations, and have wide practical experience which they can use for your benefit. They are the general practitioners of the financial world, with the expert knowledge and integrity to give you high quality advice on any aspect of your financial affairs.You will only fill in one tax return each year, chartered accountants fill in dozens, and you can benefit from that professional expertise and experience.

No-one likes paying taxes. But effective planning to reduce your tax bill requires professional advice. Don’t make decisions based on half-understood newspaper articles, or advice from a friend – they can be so wrong that they cost you money rather than saving it.

Running a business does offer some opportunities to legally save tax. But to make the best of them, you need to talk to your chartered accountant before entering into any major transactions, so that he or she has a chance to advise you on the best approach.

You also have to worry about the tax you deduct from your employees’ wages. On the whole, they are interested in their take-home pay. However, if you, with your chartered accountant’s help, find a tax-efficient way to get cash or benefits into their hands, that can reduce your overall costs.

A lot of people think that you only need a chartered accountant if you run a business. Not true. There are lots of times when you should consult a chartered accountant for your personal financial affairs. Some people have affairs that are so complex, they need to use a chartered accountant regularly to prepare their tax return and generally advise them. But even if you are not in that category, there are still plenty of times when you could benefit from an hour or two of a chartered accountant’s time.

One of the more complicated areas of taxation is the tax charge on benefits in kind, such as company cars. If your employer suggests that you might like to buy your own car and use it for work, how much extra pay would you expect to get to make the switch worthwhile. Don’t know? Your chartered accountant does.

What about a pension? Does your employer have a pension scheme? If so, is it any good? How do you know? Not all chartered accountants give financial advice, but most can give you some general unbiased information about your pension options, and can put you in touch with a reliable adviser.

What about when you change jobs? Do you know what package you should be asking for on termination, or on taking up your new job? Will the moving allowance that you get from your new employer be tax free?

These are all questions that a chartered accountant can help you with. You may face them a handful of times in your career – a chartered accountant deals with these issues regularly. Arrange a meeting to discuss the implications, get the benefit of an hour or two of a chartered accountant’s time.

When you get married, you may not think about inviting along a chartered accountant to the wedding! But it is a good idea to check up on the financial consequences. It might be a good time for parents to make gifts that are free of inheritance tax. You may find that you can reduce your tax bill by moving your savings between you. An hour with a chartered accountant before you say ‘I do’ might help to pay for the honeymoon!

Buying a house is another time when a chartered accountant could be useful. Which is better – to take a big mortgage and keep your savings invested, or use the savings to reduce the mortgage? There is no one answer that is right for everyone, you need a chartered accountant to advise you.

And finally there is death. Asking a chartered accountant for inheritance tax advice might seem morbid – but your spouse and children won’t thank you for your squeamishness. Inheritance tax can make a hard time even worse by creating financial problems. It is a particular problem for couples who aren’t married, since they cannot pass assets to each other tax free, but all families should know what the financial consequences of a death would be – and a chartered accountant can explain it to you.

So if you are considering preparing your own tax return this year or using an unqualified accountant, why not have a quick rethink. Last January we received numerous new clients who had prepared their own tax return and wanted us to have a look at it prior to submission. In EVERY case we were able to reduce their tax bill for them by using reliefs etc that they did not know existed!!!

So who knows, this year we may even be able to persuade HMRC that you have overpaid tax.

Then you won’t just be sending in your tax return – you’ll be getting tax returned!

Jonathan & Stacie Ross