Financial Monitor (October 2009)

VAT Standard Rate

The standard rate of VAT reverts back to 17.5% with effect from 1 January 2010.

The basic rules are:

  1. Retailers should start accounting for VAT at 17.5% with effect from 1 January, using the VAT fraction 7/47ths. If the customer has an account and takes the goods away prior to the change, then you account for VAT at 15%.

  2. For all other businesses issuing VAT invoices after 1 January, they should be at 17.5%, unless the goods/services were supplied before the rate change. You can then choose to charge at 15%. For supplies of services that span the change, then you can charge 15% for those 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 1 January, may charge VAT at 17.5%. These rules are optional and you do not need to notify HMRC.

  3. Businesses issuing quotes and estimates for work to commence after 1 January should quote the 17.5% rate. Customers willing to pay before that date can be charged at 15%.

  4. Refunds or credit notes should be dealt with at the same rate originally declared or invoiced, ie. if the adjustment is made after 1 January and it relates to a sale declared at 15%, then the adjustment is at 15%.

  5. Invoices issued for 12 months in advance, with monthly payments plus VAT must show VAT at 15% for all monthly payments up to 31 December 2009. All payments after that date must be at 17.5%.

  6. Sales of tickets to events (theatre, cinema, football season tickets) before 1 January 2010 will attract VAT at 15%, even if the event takes place after the rate change in 2010. The tax point is the receipt of payment.

The increase in VAT will lead to changes to the Flat Rate Scheme percentages and to the Fuel Scale Charges which will be effective from 1 January 2010. These have yet to be announced but those traders whose VAT Return spans the change will need to apply the current figures up to 31 December 2009 and the new figures after 1 January 2010.

There is some anti-forestalling legislation to prevent abuse but this only applies where an invoice is raised or payment received before 31 December 2009 for goods or services to be supplied after 1 January 2010 when the recipient cannot recover the VAT charged to them. In such circumstances VAT at 17.5% will be due if:

In practice the anti-forestalling legislation is not likely to affect many transactions.

VAT – Online Filing and New Payment Arrangement

From 1 April 2010 all current businesses with turnover above £100,000 and all businesses registering after that date will need to file their VAT Returns online and pay any VAT due electronically. For businesses who complete quarterly returns the first return affected will be that for the quarter ended 30 June 2010.

In order to file returns online businesses need to register with HMRC. If you are already registered for PAYE online then you can update your registration to include VAT or you can register for VAT purposes only if you are not so registered on https://online.hmrc.gov.uk/registration/. You will need your:

If you need any assistance with online registration please telephone any of our partners.

HMRC will be publicising the changes extensively over the next few months.

Penalties for Late Payment of PAYE

From May 2010 penalties will be introduced where PAYE payments due each month or quarter are not paid in full and on time. The penalties apply to all employers.

The first late payment in the tax year will not normally be subject to a penalty. The penalties start at 1% for the next three late payments in a year and then rise up to 4% depending on the number of late payments in a year. In addition there are penalties of 5% for PAYE still not paid after six months and a further 5% where an amount is still unpaid after twelve months. These 5% penalties apply even where there is only one late payment in a tax year.

Those unable to make the PAYE payments on time need to contact HMRC on 0845 302 1435 to make a payment arrangement as penalties will not be charged for the period of the arrangement.

Those employers with over 50 employees who are now required to file forms P45 and P46 online will find that penalties will be applied from January 2010 where these forms are filed in paper form. Penalties can range from £100 to £3,000.

Performing Rights Society

Any business that plays music on its premises either on the radio, online, by CD etc. is legally required to obtain a licence from the Performing Rights Society. If you have music playing on your premises then you should visit www.prsformusic.com for advice.

Mileage Rates

The current approved HMRC tax free mileage rates for employees driving their own cars for business purposes is 40p for the first 10,000 miles and 25p thereafter. For most cars these rates are sufficient to cover costs but employers can, if they wish, use a higher rate if a particular employee is disadvantaged. The difference between the rate reimbursed and the approved HMRC rate needs to be included on form P11D and is subject to tax and Class 1A National Insurance Contributions.

Retirement at 65

The High Court has confirmed that it is legal for UK employers to force workers to retire at the age of 65 providing the prescribed procedures to consider requests to work beyond age 65 are followed. The Judge did, however, suggest that the age of 65 as the default retirement age may be justified now but might not continue to be so in the future. The Government are set to review the legislation in 2010.

Maternity and Paternity Leave

The proposal to pay statutory maternity pay (SMP) for twelve months for babies due after 3 April 2010 has been quietly shelved. Accordingly it will remain that a new mother will be entitled to twelve months maternity leave but to SMP for only nine months.

However, from the same date above a woman will be able to transfer up to six months maternity leave entitlement to her husband or partner and with it any unused portion of her SMP entitlement to be taken as Additional Paternity Pay.

Using a Company Investment to Save Inheritance Tax (IHT)

Elderly relatives often do not wish to be involved in IHT planning and do not wish to make gifts because they are often convinced, even when they have substantial assets, that they need all they have to provide for themselves. In any case, gifts are usually only effective for IHT planning if the donor survives more than seven years.

An alternative is for spare monies in bank accounts or shareholdings which are not too pregnant with gain to be exchanged for shares in companies listed on the Alternative Investment Market (AIM) because following two years of ownership these shares currently qualify for 100% Business Property Relief and are IHT free. Obviously care must be taken to ensure that sound investments are made and professional investment advice should be taken.

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544 Facsimile: 0114 275 1366 Email: info@uhy-wingfieldslater.com Web Site: www.uhy-wingfieldslater.com
Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales

A member of the UHY Hacker Young Group of independent UK partnerships. A member of UHY, an international association of independent accounting and consulting firms.

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