Latest Business News

New 'Limited Cost Business' Flat Rules come into effect on 1st April 2017 Date: 01-03-17

It was only a matter of time before the HMRC moved to correct the ridiculous situation of small businesses voluntarily registering for VAT so they could make a profit from the Flat Rate scheme. In essence the percentage discounts offered by the HMRC were far too generous for businesses with only modest purchases.

As from 1st April, the HMRC require businesses to review their actual purchases in the reporting period and if the value is less than:
        - 2% of your gross turnover for that period; or
        - £1,000 a year (£250 a quarter)

… you will be classified as a limited cost business and be required to apply a flat rate of 16.5% for that reporting period.

Some businesses with only very modest purchases may therefore find they will be continuously switching between 16.5% and their normal business sector rate for each reporting period. They could easily end up paying more VAT by sticking with the Flat Rate scheme instead of reverting to the Standard Scheme of off-setting the actual purchases input VAT against the sales output VAT and accounting for the difference.

Whether businesses should elect to move from Flat Rate to Standard Rate assessment will have to be decided on a case by case basis. It is advisable to make an early decision on which way to go, as the change only becomes effective from the start of the next VAT reporting period.

The HMRC has published new guidance on the Flat Rate scheme as follows:
    - VAT Notice 733 Flat Rate Scheme for Small Businesses
    - VAT Flat Rate Scheme Percentages

April Increases for the National Living Wage and Minimum National Wage Date: 15-02-17

From 1st April 2017, new rates apply for the mandatory National Living Wage (NLW) and the October 2016 National Minimum Wage (NMW) rates undergo a further increase.

This means any employee aged 25 or over, including directors, working a standard 35 hour week must be paid an annual salary of at least £13,650 for the year ending 31st March 2018 to avoid falling foul of the new mandatory minimum pay rules.

Effective from: 25 and over 21 to 24 18 to 20 Under 18 Apprentice
01-04-2017 £7.50 £7.05 £5.60 £4.05 £3.50
01-10-2016 £7.20 £6.95 £5.55 £4.00 £3.40
01-04-2016 £7.20 £6.70 £5.30 £3.87 £3.30
01-10-2015 £6.70 £6.70 £5.30 £3.87 £3.30
01-10-2014 £6.50 £6.50 £5.13 £3.79 £2.73
01-10-2013 £6.31 £6.31 £5.03 £3.72 £2.68

The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the NMW for their age.

HMRC announce relaxation of RTI-filing penalties small employers Date: 01-06-16

The HMRC originally intended to apply the £100 penalty to all small employers who missed two monthly RTI filing date after 6th April 2016.

They have now reviewed their penalty policy and announced they will only penalise consistent defaulters during 2016-17.

Although many small employers will welcome this news, they should remember this is only a temporary reprieve. CIS contractors continue to suffer a similar fine of £100 for late delivery of their monthly return and have done so for a number of years. So it will only be a matter of time before the same penalty regime is applied to RTI-filing for all employers.

If you haven't done so already, make sure you put in place some kind of reminder safeguard to double check your required RTI-payroll returns are filed on time. We operate a system of reminders for our payroll clients to help them avoid missing key filing deadlines, because we know from bitter experience how easy it is to overlook them. The more fail-safe reminders you have in place … the less likely you will end up having to pay late-filing and late payment penalties.

What will the HMRC accept for the expense of working from home? Date: 21-03-16

You can always work out the floor area of your home office as a proportion of your total home floor area and then apply that ratio to the costs of running your home. This includes mortgage interest, domestic and water rates, insurance, electric and gas, etc.

Alternatively, if you work more than 25 hours a month from home, the HMRC will accept the following flat rates:
    a). 25hrs - 50hrs = Flat Rate of £10 p.m.
    b). 51hrs - 100hrs = Flat Rate of £18 p.m.
    c). 101hrs or more = Flat Rate of £26 p.m.

Someone who works a 35hr week from home, will work an average of 151 hours per month. They will therefore qualify to claim the full £26 p.m. allowance. This works out as £312 a year (or £6 per week).

The new National Living Wage (NLW) replaces the Minimum National Wage (MNW) for workers aged 25 and above Date: 01-04-16

From 1st April 2016, the government introduced a new mandatory National Living Wage (NLW) for workers aged 25 and above, initially set at £7.20 - a rise of 50p relative to the current National Minimum Wage (NMW) rate. That's a £910 per annum increase in earnings for a full-time worker on the current NMW. The adult NMW rate is currently set at £6.70. This will continue to apply for those aged 21 to 24.

This means any employee aged 25 or over, including directors, working a standard 35 hour week must pay themselves an annual salary of at least £13,104 to avoid falling foul of the new mandatory minimum pay rule.

Effective from: 25 and over 21 to 24 18 to 20 Under 18 Apprentice
01-04-2016 £7.20 £6.70 £5.30 £3.87 £3.30
01-10-2015 £6.70 £6.70 £5.30 £3.87 £3.30
01-10-2014 £6.50 £6.50 £5.13 £3.79 £2.73
01-10-2013 £6.31 £6.31 £5.03 £3.72 £2.68

The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the NMW for their age.

Do you need to register for the HMRC’s VAT Mini One Stop Shop (MOSS)? Date: 05-01-15

All U.K. micro and small businesses who supply digital services to non-business customers in other EU member states, will now have to comply with the new VAT rules for digital services that come into force on 1 January 2015.

The bad news

The new VAT rules may apply to all businesses that charge a fee for the supply, or access, to online video and digitised instructional documents (PDF's etc) as part of the service they provide. There is no de-minimis exemption. Even if your annual turnover is way below the current UK’s compulsory registration limit of £81,000 you still have to register and account for sales made to other E.U. countries. We have a sporting educational client with an annual turnover of less than £3K that only made a few sales to other E.U. countries last year, but they are nonetheless required to register for VAT.

Yes … you do have to apply for a full VAT registration before you can register for MOSS.

You may have to change your accounting system and online software to identify the country of the customer you are making the supply to.

You will have to make quarterly VAT returns and account to the HMRC for any VAT due.

You will face penalties for not registering for VAT by the 10th day of the following month in which you make a qualifying E.U. supply.

You will face penalties for not making timely VAT returns and payments each quarter.

You will face penalties for not keeping ‘proper’ accounting records and retaining them for effectively seven years.

The HMRC›s own VAT helpline staff are not yet fully up to date on the new legislation. Although the adviser we spoke to today could not be faulted for his good intentions to assist us with our MOSS enquiry, nonetheless he went on to give us incorrect advice. Had we relied upon the helpline advice given, our clients would be in default for not registering for MOSS when they should.

The good new

Provided you qualify and follow the specific registration instructions in the following HMRC Brief 46, you will only need to account for VAT on a quarterly basis on your sales to other E.U. customers.

Just because you make qualifying digital supplies now, and have made qualifying supplies to E.U. customers prior to 2015, does not necessarily mean you have to register now. The rules only require you to register by the 10th day of the following month after you make your first qualifying E.U. supply. This may mean that some small businesses may choose to delay registration until they really have to. Others may decide to register straight away, even if that means they report nil returns for the foreseeable future. Just make sure you are not caught out. If you make a qualifying sale on 31st January you only have until the 10th February to register before you fall into a late registration penalty situation.

For as long as your taxable supplies (turnover) stays below the £81,000 limit, you can elect NOT to charge and account for VAT on your U.K. sales.

You can reclaim input VAT on purchases, although you may have to apportion the amount if you elect not to account for VAT on U.K. sales. By way of example, you would be able to claim for 20% on the input VAT on the purchase of a new computer if 20% on your total sales were charged to VAT in the same period.

What you should do next

The requirement to account for VAT on digital supplies made to E.U. customers at the rate of VAT prevailing in that country … to that country … came into force on 1st January 2015. If you sell digital services to other E.U. countries then registering for MOSS is an obvious and sensible step to take. It simplifies compliance to an acceptable and manageable level.

If you do make digital supplies, your accountant should have already contacted you about how the new rules may or may not apply to you. If you remain undecided about whether the digital service you provide falls within the scope of the new VAT rules then please talk to a professional adviser like MAAP (01202 482121) as soon as possible. The new rules will catch many small businesses out and you really do not want to be one of them.

The Minimum National Wage increases from 1st October 2014 Date: 01-10-14

Just a reminder the Minimum National Wage (MNW) increased on 1st October 2014 to £6.50 from £6.31 per hour.

To view the current and past MNW rates, click here.

When does a temporary place of work become permanent Date: 15-09-14

Employees may be asked to work at more than one location and for tax purposes it is essential to establish if it is a ‘temporary’ or ‘permanent’ place of work.

If it a temporary place of work, all commuting costs to and from that site will be allowable for tax purposes.

If the site is deemed to be a permanent location, then normal commuting costs will not be allowable for tax purposes.

We have produced a simple flowchart that can help you determine the temporary or permanent status of a particular work place location based on the latest (Sep 2014) HMRC published guidance notes on the subject.

The flowchart covers most basic situations, but it is worth reading the examples given by the HMRC in their notes to make sure you make the correct choices. The expense of commuting can amount to several thousands of pounds and if the HMRC later disagree with your tax treatment, the amount will be retrospectively added to your salary calculations and taxed to PAYE and NI accordingly.

Penalties for late delivery of RTI Payroll return start from 5th October 2015 Date: 15-06-14

If you operate a payroll of more than 50 employees then from 6th October 2014 you face a minimum penalty of £300 every month if you fail to make the correct FPS or EPS submissions. The first penalty notices will be issued in January 2015 but the HMRC have already indicated they will always ignore the first default in each tax year.

Small employers (10-49 employees) have until 5th April 2015 before penalties (£200) will apply.

Micro employers (1-9 employees) have until 5th April 2016 before penalties of £100) will apply.

It should be remembered the FPS or EPS has to be filed with the HMRC before the normal payroll payment date as defined by the written or verbal contract of employment.

Running a sports club: Did you know? Date: 14-12-13

It would appear that many small social and amateur sports clubs are operating without the correct insurances in place to protect the organisers and other members from a large claim for losses or injuries arising from an accident that occurs during an event organised by the club.

Accountants are often accused of being over-prudent. Sometimes we are right to be so. In 2012, we mediated a five figure, no fault insurance claim for a club member who suffered a serious injury during training with one of our smaller sporting club clients. Accidents do happen, and fortunately our client was carrying insurance that settled the claim. If he hadn´t been insured, he would most likely have had to re-mortgage, or even sell, his family home to meet the claim. An awful situation to suddenly find yourself engulfed in just because you happen to give up your free time to teach other people your hobby.

We recommend that organisers of any social or sporting club should very carefully review their insurance provisions to make sure they have both adequate third party and personal accident cover. We gather from the underwriters of this case that the number of similar claims against small clubs is on the increase. For this reason the option to incorporate to limit personal liability even further deserves serious consideration.

Read a fully account of the risks involved by clicking here.

HMRC Publish Penalties for late PAYE/NI Payments Date: 02-12-12

We suspect that these will be the first of a series of penalty notices attaching to defaults in the operation of payrolls as the introduction of RTI progresses.

Excluding the first late payment, the following percentages will be applied for late payments of PAYE/NI according to the number of defaults in a fiscal year:
1-3 late payments: 1%
4-6 late payments: 2%
7-9 late payments: 3%
10+ late payments: 4%

If the amount of PAYE/NI you are due to pay each month is less than £1,500 we recommend you elect to pay quarterly. Providing you put aside the tax due, it reduces the chances of falling foul of the new penalty regime.

Client Case Studies

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MAAP Accountants
Sigma House, 44 Willow Way
Christchurch, Dorset, BH23 1LA
Tel: 01202 482121
info@maap.co.uk