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The VAT Flat Rate Scheme (FRS) does simplify the calculation of VAT returns, but there are certain circumstances when you may no longer use the FRS.

You will need to leave if your turnover on the anniversary of joining was more than £230,000 including VAT in the last twelve months or if you expect your total income in the next thirty days to be more than £230,000 (including VAT).

You may also decide that you should leave the FRS if you are classified as a “limited cost trader”. This is defined by HMRC as:

You are classed as a ‘limited cost business’ if your goods cost less than either:

• 2% of your turnover

• £1,000 a year (if your costs are more than 2%)

This means you pay a higher rate of 16.5%.

If you are obliged to use a rate of 16.5% – if your circumstances reveal that you are a limited cost trader – there is no real benefit in using the FRS apart from the simplicity of the reporting.

Traders who use the FRS can make a cash profit if the rate they use – based on their business classification – is one of the lower rates. The FRS rates currently range from 4% to 16.5%. The profit arises because the amount that they are required to pay under the FRS is less than the VAT added to their sales less any VAT included in purchases of goods or services.

If you do benefit in this way you may be reluctant to leave the FRS. Unfortunately, ignoring the turnover exit limits or the limited cost trader regulations is not to be recommended. HMRC are empowered to enforce these rules and charge penalties for non-compliance.

We recommend a periodic review of the VAT scheme that you use to ensure that you are still meeting the requirements to stay in the scheme. It is also advisable to check out any other schemes that you might qualify to join and see what benefits they might offer.

Please call if you would like to discuss your options.

The treasury has announced that the next budget will be presented by the Chancellor, Sajid Javid, on Wednesday 11th March 2020.

In recent years, the Budget has been held in the Autumn. The Autumn Budget 2019 was postponed due to the pre-election uncertainties last year. Now that our government has a significant working majority those uncertainties have been removed. Accordingly, matters that need to be resolved for the tax year 2020-21 – certain Income Tax allowances for example – can be attended to.

It is difficult to predict what The Chancellor will include in his announced changes.

During the recent election campaigning, Boris Johnson did promise that none of the major taxes would be increased and he did announce that the promised decrease in corporation tax, 19% to 17% from April 2020, would likely be deferred.

Hopefully, there will be measures to support business owners as we transition through the EU withdrawal process. Certainly, there should be confirmation that UK businesses in receipt of EU funding will continue to receive equivalent funding from the government once the EU funding tap is turned off.

Due to the possible disruption in supply lines from the and of this month – when the transition away from the EU begins – it would be helpful if the government included supportive changes in the budget that helped UK businesses to maintain their profitability and cash flow.

Parliamentary committees will need to get their skates and resolve any debate on budget clauses as quickly as possible. There is less than 30 days between 11 March and the end of the tax year – 5 April 2020.

We will be reporting on significant changes in this blog immediately following the budget. Until then, we can probably rest easy that tax rates are unlikely to be increased.

Even though many of the uncertainties that have plagued UK politics during 2019 are still to be decided, at least the hiatus in parliament has been resolved; the Conservatives now have a working majority and we can expect action on a number of fronts.

Brexit

Business readers with any sort of trading platform with the EU need to consider their options as the EU withdrawal agreement is likely to be ratified by 31 January 2020. At a minimum, EU traders should complete their Brexit impact assessments and take steps to mitigate any apparent risks identified.

Please call if you would like our help with this process.

When will the 2020 Budget be announced?

The new government will probably concentrate on the EU withdrawal process during January and it is unlikely Budget announcements will be in evidence before February.

Budget issues do need to receive fairly urgent attention as there are a number of Income Tax reliefs that are still to be determined for 2020-21.

As details emerge we will be publishing our usual Budget round-up and advising clients of any new opportunities to trim their tax bills and take advantage of any new opportunities revealed.

The end of the calendar year is a popular accounting date for many businesses, but for those of us with a year-end accounting date of 31 March 2020, reviewing your management accounts for the nine months to the end of December 2019 is a must-do. Please use the following notes as a check list when you undertake this review:

• If you are self-employed and for the nine months you are predicting lower profits for 2019-20 (compared to 2018-19) it may be possible to reduce your self-assessment payment on account due at the end of January. Contact us so we can file an appropriate election.
• If you are self-employed and your profits are predicted to be higher for 2019-20, then you may have underpaid your self-assessment tax for 2019-20. Again, contact us so we can estimate this possible underpayment and work out a realistic savings plan to accumulate the necessary funds to meet this additional tax charge when it becomes due 31 January 2021.
• Use the nine months figures to update your financial budgets for 2020-21. We recommend that all businesses undertake this task as it will identify high points and low points in your cash flow and solvency. Please call if you need help with this task. If you have never created a budget before we can help you crunch the necessary numbers.

Needless to say, if you are concerned by the historical results to 31 December 2019 or the outlook for 2020-21, let’s get together and see how best to meet these challenges. With the external pressures that Brexit may pose for your business this is not a time for wishful thinking. Be prepared.

It is fairly common knowledge that the UK tax system is biased in favour of married couples or those partners who have entered into a formal civil partnership.

Note that from 2 December 2019, the Civil Partnership (Opposite Sex Couples) Regulations 2019 came into effect in England and Wales allowing opposite sex couples to enter into a Civil Partnership for the first time.

Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.

This strategy, of transferring partial ownership to a spouse (or civil partner), can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).

The 10% and 20% rates have applied from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.

And don’t forget, CGT is assessed and payable as part of your self-assessment. Any tax payable for 2019-20 will be due for payment 31 January 2021. On the same day you will also have to pay any other underpayment of Income Tax for 2019-20 and your first payment on account for 2020-21.

Also, please note that from 6 April 2020, any CGT due on the sale of a residential property by a UK resident will need to be reported and paid within 30 days of the completion of the sale transaction.

If you own assets that are subject to CGT on disposal and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.

Now that we are approaching the end of the 2019-20 tax year it’s worth noting that you are required to keep your self-employed business records – that underpin your self-assessment tax return for 2019-20 – for 5 years after the 31 January 2021 submission deadline.

This means that you will need to retain your 2019-20 business records until the end of January 2026.

If you lose your business records or if they are stolen or destroyed and you are unable to recreate the transactions, you must do your best to provide figures for your tax return. You will need to advise HMRC if you use estimated or provisional figures.

Your records will need to back-up your business sales, expenses and VAT/PAYE records if you are registered for VAT or employ people.

HMRC may ask to see your:

• Receipts for goods or stock,
• Bank statements, cheque book stubs,
• Copy sales invoices, till rolls and bank paying in slips.

Also, if you have produced accounts using the traditional, accruals method, HMRC may ask to see further records that provide details of:

• what you are owed but have not received yet
• what you have committed to spend but have not paid out yet, for example you have received an invoice but have not paid it yet
• the value of stock and work in progress at the end of your accounting period
• your year-end bank balances
• how much you have invested in the business in the year
• how much money you’ve taken out for your own use.

If you keep your records in a computerised format, make sure you backup each year’s transactions so you can provide details if required.

1 January 2020 – Due date for Corporation Tax due for the year ended 31 March 2019.

19 January 2020 – PAYE and NIC deductions due for month ended 5 January 2020. (If you pay your tax electronically the due date is 22 January 2020)

19 January 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2020.

19 January 2020 – CIS tax deducted for the month ended 5 January 2020 is payable by today.

31 January 2020 – Last day to file 2018-19 self-assessment tax returns online.

31 January 2020 – Balance of self-assessment tax owing for 2018-19 due to be settled on or before today. Also due is any first payment on account for 2019-20.

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.

Businesses that have a significant number of staff paid at Minimum Wage or National Living Wage rates should take note that from April 2020 the rates are increasing.

In more detail the changes announced 31 December 2019 are:

• Annual pay rise of up to £930 for a full time worker.
• National Living Wage (NLW) increasing from £8.21 to £8.72 per hour.
• New NLW rate starts on 1 April 2020 and applies to over 25 years olds.

Nearly 3 million workers are set to benefit from the increases to the NLW and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission. The rise means Government is on track to meet its current target for the NLW to reach 60% of median earnings by 2020.

The new rate starts on 1 April 2020 and results in an increase of £930 over the year for a full-time worker on the National Living Wage. Younger workers who receive the National Minimum Wage will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.

It is worth pointing out that these are not advisory rates, they are compulsory if your staff qualify for either the National Minimum or National Living Wage rates.

Those who are not entitled to the minimum wage, according to the HMRC website, are:

• self-employed people running their own business
• company directors
• volunteers or voluntary workers
• workers on a government employment programme, such as the Work Programme
• members of the armed forces
• family members of the employer living in the employer’s home
• non-family members living in the employer’s home who share in the work and leisure activities, are treated as one of the family and are not charged for meals or accommodation, for example au pairs
• workers younger than school leaving age (usually 16)
• higher and further education students on work experience or a work placement up to one year
• people shadowing others at work
• workers on government pre-apprenticeships schemes
• people on the following European Union (EU) programmes: Leonardo da Vinci, Erasmus , Comenius
• people working on a Jobcentre Plus Work trial for up to 6 weeks
• share fishermen
• prisoners
• people living and working in a religious community

HMRC’s powers to enforce compliance in this area have teeth. Not only will you have to stump up for any arrears if you pay less than the statutory rates, HMRC can also levy penalties.

Not all penalties levied by HMRC are civil, many cases are serious enough to warrant a criminal investigation. The first post in the “money” section of the gov.uk website in 2020 reflects on this. The title of the post is a give-a-way:

“Busted! HMRC reveals biggest criminal cases of year 2019”

In what could be seen as a propaganda exercise HMRC are clearly underlining the fact that tax evasion of the criminal kind has their full attention. In more detail the press release says:

This year’s top criminal cases include:

1. 2 wealthy professionals who attempted to steal more than £60 million through a fraudulent tax avoidance scheme which claimed to invest in HIV research and conservation and were jailed for a total of 14 and a half years.

2. A Berkshire-based gang that stole £34 million in VAT and laundered £87 million, the proceeds from selling illicit alcohol through bank accounts in Britain, Cyprus, Hong Kong, Dubai and other countries – were jailed for more than 46 years.

3. A fugitive £17 million tax fraudster who is finally behind bars after he was tracked down to his Prague hideaway and brought back to the UK to serve his 8-year sentence.

4. Five people, including the former owners of a Sussex petrol station, who were sentenced for distributing and selling an estimated 4.8 million litres of illicit fuel to unsuspecting motorists, including haulage companies across the South East.

5. The jailing of a former Top Gear mechanic who helped father and son tax cheats escape from the UK via ferry and Eurotunnel prior to sentencing for a £1 million VAT fraud.

6. Payback time for 5 wealthy tax fraudsters who were involved in one of the UK’s biggest tax frauds.

7. An apparently jobless Londoner who enjoyed a sociable lifestyle of golf and exotic holidays by dodging tax on smuggled tobacco has been jailed.

8. A charity treasurer who tried to steal more than £330,000 in a Gift Aid repayment fraud and spent the money on lavish cruise holidays.

9. Our work with Interpol to take apart a pan-European crime gang involved in cigarette trafficking, drug smuggling and money laundering.

All in all, not a bad haul. We can expect HMRC to expand the range of their anti-tax evasion activities in 2020. No doubt the forthcoming spring budget will have the usual sprinkling of fine print, adding more regulation to the tax code.

High Street rejuvenation funding announced

The first 101 places to benefit from up to £25 million each from the Future High Streets Fund were announced over summer. In the latest step of the £3.6 billion investment in towns and high streets, 20 pilot areas across England will lead the way in rejuvenating town centres with expert and tailored support from the High Streets Task Force. The government has announced the first 14 of these 20 pilot areas.

The High Streets Task Force will give high streets and town centres advice, training and information to adapt and thrive, piloting a range of products and services with 20 places before rolling out across the country next year. The first 14 of the 20 areas were announced 30 December 2019 and are listed below.

The Task Force brings together a range of expert groups on reinventing and restructuring places, including the Royal Town Planning Institute and The Design Council.

Today the government is also announcing an extra £1 million dedicated to providing further support to the 101 high streets announced over summer in planning for the £25 million of funding that is available to them, ensuring the vibrance of these high streets for years to come.

The first fourteen places that will take part in the pilot are:

1. Salford – Swinton Town centre

2. Croydon – Thornton Heath

3. Staffordshire Moorlands – Cheadle

4. Rushmoor – Aldershot Town Centre

5. Birmingham – Stirchley

6. Hyndburn – Accrington Town Centre

7. South Lakeland – Kendal

8. Preston – Friargate

9. Coventry – Coventry City Centre

10. Hartlepool – Hartlepool Town Centre

11. Cheshire West and Chester – Ellesmere Port Town Centre

12. Sandwell – West Bromwich Town Centre

13. Knowsley – Huyton Town Centre

14. Manchester – Withington District Centre