SHOULD I REGISTER FOR VAT?

If your taxable turnover is below the VAT threshold then you may not have considered whether registering for VAT could be advantageous for you. The VAT registration threshold is £79,000 from 1 April 2013.

If you incur VAT on supplies and the majority of your customers are registered for VAT, then it may be beneficial to register for VAT on a voluntary basis.

This will allow you to recover the input tax paid on the supplies and also allow you to charge VAT on your invoices.

It will also be beneficial if many of your supplies are zero rated, such as food, as you will be able to reclaim VAT suffered and may receive a VAT repayment each quarter, which is beneficial from a cash-flow perspective.

If you decide to register for VAT then your VAT registered customers will be able to recover the VAT charged on your invoices when they next submit their VAT return.

NEW RTI MESSAGES

Real time information (RTI) is all about one-way communications with HMRC. Your payroll software sends reports (called FPS or EPS) to HMRC about the deductions made from your employees' pay, and normally you hear nothing back.

That is starting to change. HMRC is now sending electronic messages to employers to inform them that not all is well with their RTI reports. The first messages concern late submitted FPS reports, but in future there will be messages about late paid PAYE and missing RTI reports.

It is important to get the FPS in on time as then HMRC know that the amount of PAYE paid for the month agrees with the deductions you have reported on the FPS. HMRC will not impose penalties for any late FPS submitted within 2013/14, although the final FPS for 2013/14 (which closes the tax year), can carry a penalty if that is significantly late. The messages about late FPS reports are thus just a warning from HMRC in this tax year, but may indicate there is something wrong with your systems.

From 6 April 2014 there will be automatic penalties for filing a FPS late within the tax year. 'Late' means it arrives with HMRC after the date on which the employees were paid. There will also be penalties for paying PAYE late.

In order to pick up these electronic messages from HMRC you need to use your payroll software, or log on to HMRC's PAYE online services, then look for notifications. The messages are also available using the HMRC's PAYE desktop viewer (PDV) software package. However, the PDV has just been updated so you may need to download the latest version first.

These electronic messages about FPS will be the first of many important messages concerning RTI, so you need to get used to looking for them.

VAT AND INDIRECT EXPORTS CHANGE

When you export goods to a country outside the EU the goods are 'zero-rated' for VAT purposes, which means you do not apply VAT to the value of the goods. However, you need to have the paperwork to prove that the goods left the UK.

If your customer does the physical exporting, in that they take possession of the goods in the UK and handle the shipping, this is called an 'indirect export'. HMRC has previously only allowed you to zero rate the goods in this situation if your customer was an 'overseas person' - they had no VAT registration in the UK and no business establishment here. Also the goods must leave the UK within three months of the handover date.

From 1 October 2013 the rules for indirect exports have been relaxed slightly. Now you can zero rate the goods for export to a country outside the EU even if your customer is VAT registered in the UK. However, the customer must still not have a business established in the UK.

This change in the rules has been brought about due to pressure on the UK to comply with EU rules. It is thus effectively back-dated for four years. If you believe you have applied VAT in the last four years when under this change of rule it would not apply, you can reclaim that VAT. However, HMRC will expect you to pay back any reclaimed VAT to your customers who original bore the VAT on the goods.

We can help you check that you have the VAT position on any exports 100% correct.

EARN-OUT PAYMENTS ON BUSINESS SALES

When you sell a business, you may receive some of the consideration up front and another payment later if the business meets certain targets, that later payment is called an 'earn-out'.

How this earn-out is taxed can be tricky to work out, as it depends on a number of factors. For example: is the earn-out to be paid in cash or as shares or bonds, or is there a cash alternative to the offer of shares/bonds? Can the value of the earn-out be determined at the time the business was sold, or not until some later event has occurred?

Determining or 'ascertaining' the value of the earn-out is crucial for your capital gains tax computation.

If the earn-out can be ascertained (even within a broad range of values) at the time the business is sold, both the up-front and earn-out payments must be taxed as if they were both received together at the business sale date.

This can work in your favour. If the business sale qualifies for entrepreneurs' relief, the up-front payment and earn-out which is taxed with it will also qualify for entrepreneurs' relief. This reduces the tax payable on the earn-out to 10%. However, if the earn-out can't be ascertained until it is received, it won't qualify for entrepreneurs' relief, so will be taxed at 28% (or your highest rate for CGT).

We should discuss all this before you finalise the sale of your business. There are numerous ways of structuring the payment for a business and they all have different tax implications.

USING THE SEIS

The seed enterprise investment scheme (SEIS) is designed to help small companies raise modest amounts of funding (up to £150,000). The investor must subscribe for new shares issued by the company (not buy them from another shareholder), and in return he can claim income tax relief equal to 50% of the cost of those shares.

If the investor has made a capital gain in the same tax year as he makes the SEIS investment, up to 50% of the amount invested in SEIS shares can be set against that capital gain to reduce the CGT payable. This CGT reduction was 100% for gains in 2012/13, but is only 50% for gains arising in 2013/14.

That sounds wonderful, but there are a lot of conditions for the investor and the company to comply with before the SEIS tax relief can be given.

The first hurdle is to check if the company's trade will qualify for SEIS relief. Many 'safe' financial trades such as banking, money lending, accountancy or legal services are excluded. Also any trade where the company is likely to hold valuable property doesn't qualify such as; running hotels or nursing homes, farming, woodland management, property development or property dealing.

Businesses which are related to any of the excluded trades need to be looked at very carefully. For example running a public house can qualify, but if it lets residential rooms it could be classified as a hotel which would mean it doesn't qualify. An estate agent business may qualify, but a large part of an estate agent's business can be arranging mortgages, which is a financial activity that doesn't qualify. HMRC are prepared to provide assurance in advance of issuing shares as to whether a particular trade will qualify.

The second major hurdle is that the SEIS investor must not hold more than 30% of the company either alone, or together with relatives or other associates. Other shareholders can hold 30% or more of the company, but those shareholders will not be eligible for the SEIS tax relief.

An SEIS investor can invest up to £100,000 in a single tax year on which tax relief can be claimed, which can be spread over a number of companies.

VAT ON SALE OF COMMERCIAL BUILDINGS

When purchasing or selling a commercial property one of the first things to establish is whether VAT will be applied to the price of the property. Land and buildings are generally exempt from VAT, but 'new' commercial property (i.e. less than three years old) will have VAT applied. Otherwise VAT should only be charged on the sale of a commercial property where the seller has previously elected to apply VAT to the property. This election is known as the 'option to tax'.

There are circumstances where the option to tax may be disapplied by the seller, such as where the purchaser is going to use the building solely for charitable purposes or the building will be converted into residential use. If there is any question that VAT should not be applied to the sale, the seller must ask the purchaser for written confirmation of the intended use of the building.

When the purchaser plans to convert the building to residential use it must provide the seller with a VAT certificate (form VAT1614D) to confirm their intentions for the building. In other circumstances a written instruction from the purchaser should be sufficient.

Where VAT is applied to the price of the building, the stamp duty land tax (SDLT) charge will inevitably be higher, as SDLT is charged on the gross consideration paid, including the VAT charged. If you are planning to purchase a commercial property, or sell one, ask us to check the VAT implications before the price is agreed.

CONTRACTOR LOAN SCHEMES

Have you taken part in a contractor loan scheme? This is a tax saving scheme which was widely sold to workers in personal service industries, such as IT contractors.

To use the scheme the individual would sign an employment contract with an offshore employer, but work for customers in the UK. The individual would often receive a large proportion of their fee for that work as a loan from the offshore employer. They were told the loan was not taxable, except for a small benefit in kind charge on the unpaid interest on the loan, but that's not what the Taxman thinks.

The Taxman has publicly announced that he is opening tax enquires into individuals' tax returns for periods during which they have used such loan schemes. In some cases the individual will receive a tax bill for the years 2008/09 to 2010/11, to collect the tax they think they avoided. There will be penalties and interest to pay on any tax found to be avoided.

If you have used a similar loan scheme to reduce UK tax, you should talk to us.

NEW EMPLOYEE SHAREHOLDER STATUS

The Government thinks that employees who own shares in their employing company feel more involved in that business and hence are happy and loyal employees. So it has introduced a new share scheme from 1st September 2013 which allows you, as an employer, to give your employees tax-free shares in your company, but in return the employees must give up some key employment rights.

How does this work?

The employee must sign a fresh employment contract called an 'employee shareholder' contract, then they must be issued with shares worth at least £2,000 (and up to £50,000) in their employing company. When the individual sells those shares any gain arising on that disposal is completely exempt from capital gains tax. However, any gain up to £10,900 (for 2013/14) would be tax free anyway.

Normally where shares are awarded to an employee their value is treated as taxable income for that employee, unless the shares are issued under an approved share scheme. In this case the first £2,000 worth of shares awarded will be free of income tax and NIC, but not any further shares.

The downside is the employee must surrender all of following rights to take up employee shareholder status and receive the free shares:

- compensation for unfair dismissal, apart from when this is automatically unfair or relates to anti-discrimination law;
- request for time off for studying or training;
- request for flexible working; and
- statutory redundancy pay.

Also the employee must give 16 weeks' notice (instead of 8 weeks) when returning from maternity or adoption leave.

This sounds like an attractive deal for an entrepreneur who doesn't care about his own employment rights. However, any person who holds 25% or more of the company (alone or with associates) can't take up employee shareholder status and enjoy the tax-free shares. So this share scheme can only be used to give shares to employees who don't already have a significant share in the company.

Before implementing this scheme you should take employment law advice, and specialist advice on how to value your company's shares. The employees should also take independent advice before signing away their employment rights, but you, as their employer, can pay for that advice with no tax consequences.

INDIVIDUAL SAVINGS ACCOUNTS

Use your Individual Savings Account (ISA) allowance each year to enjoy tax-free interest.

For 2013/14 the limit is £11,520 (of which up to £5,760 can be invested in cash).

You can invest in cash, insurance, stocks and shares, etc. up to the limit each year and all proceeds are free from personal taxation. Investing at the start of each year maximises the tax-free return.

These ISAs are also useful for the retention of income within the fund as this is received effectively tax-free. This means that the fund can grow at a faster rate than if the funds were held outside an ISA where potentially 20%, 40% or 45% of the investment return would be taxed.

Using an ISA to invest £10,000 each year for ten years will provide a pot of £100,000 plus accumulated interest which is generating tax-free returns. Over a number of years this can be a viable alternative to a pension fund as proceeds can be taken at any time and there is no requirement to wait for retirement age or to take an annuity.

USE NON-TAXPAYERS' PERSONAL ALLOWANCES

If one spouse or civil partner is working and the other has no taxable income, it is worthwhile considering transferring income producing investments to the non-working spouse/civil partner in order to utilise their personal allowance.

This will save tax on the income and will increase the overall return from these investments.

This can be useful with even the smallest amounts of savings.

PENSION LIFETIME ALLOWANCE

The Government want us to save enough so we can each draw an adequate pension in retirement, but if you save too much you will be stung with a 55% tax charge when you draw your pension. The boundary between 'enough' and 'too much' savings is set in law by the lifetime allowance, which is a value of your total pension savings at retirement. This allowance will be reduced from £1.5 million to £1.25 million on 6 April 2014.

To give you an overview on these seemingly high numbers: an annual pension of £75,000 for a man aged 65 at retirement, today requires a pension fund of roughly £1.5 million. A pension fund of £1.25 million would deliver an annual pension of about £62,500 to the same person. If you contribute to a defined contribution pension scheme (the most common type), the value of your pension fund will be shown on your annual pension scheme statement.

If you are a member of a final salary pension scheme it will promise to pay you a pension equivalent to a percentage of your final salary. That could be as much as 2/3rds of your final salary. Work backwards from your current salary to get a rough idea of how much your pension fund may be worth. Your pension scheme trustees will be able to give you more accurate figures.

Once you have those figures, you can judge whether you need to elect to fix your lifetime allowance at its current level of £1.5 million, where your pension fund already exceeds £1.25 million. This is known as 'fixed protection 2014', and you need to apply to HMRC to do this before 6 April 2014.

Once fixed protection 2014 is obtained you won't be able to make any further pension contributions to a registered pension scheme. If you are a member of an occupational pension scheme which receives automatic contributions on your behalf, you will have to opt out of that scheme or lose the fixed protection.

After 6 April 2014 there will be another way of protecting your pension fund, called 'individual protection 2014'. This will fix your lifetime allowance at the value of your pension rights as at 6 April 2014, up to a maximum of £1.5 million. You should discuss with your financial adviser which type of pension protection is best for you.

VAT ON STORAGE CHAGNE

The law on whether VAT must be charged on storage facilities changed from 1 October 2012. Before that date if you let out space for storage to individuals or businesses, that service could be exempt from VAT, if you had not elected for the whole building to be subject to VAT (AKA: 'opted to tax'). Since October 2012, if you are VAT registered, you generally need to charge VAT at 20% on the supply of storage areas.

The Taxman has recently confirmed in a new VAT information sheet (10/13) that any let space which is used for storage carries 20% VAT, not just the lock and leave facilities marketed as 'self-storage'. This could affect businesses that let properties or out unused parts of their buildings to others who use that space to store goods or materials. For example a farmer might let out surplus farm buildings on a temporary basis.

There are only a few exceptions to this new VAT rule. Those include where the space is let to a charity and it is not used for business purposes, and where the space is predominately used for an active purpose such as retail, and the storage is an ancillary activity.

It is the landlord's responsibility to know how the let space is used and charge the relevant rate of VAT. If you have not charged VAT when you should have done for periods from 1 October 2012, you may need to correct this error in your next VAT return. We can advise you on the best way to do this.

NEW ATED CHARGE

The annual tax on enveloped dwellings (ATED) came into effect on 1 April 2013. This new tax applies to residential properties in the UK worth over £2 million, which are owned by a non-natural person, such as a company, trust or partnership that includes a company as a member.

The value of the residential property is measured as at 1 April 2012, not the purchase price.

Is your farmhouse owned by a farming partnership, which also has a company as a member?

Does your company own properties which are used to house employees?

In both of those circumstances the property is potentially subject to the ATED charge if it is worth £2 million or more. The ATED charge ranges from £15,000 to £140,000 per year, and is payable by 31 October 2013 for 2013/14.

There are many exemptions and reliefs for ATED, including for farmhouses occupied by farm workers, and for properties occupied by employees who don't individually own more than 10% of the company. However, to claim the relevant exemption, the property owner needs to submit an ATED return to HMRC without delay.

The ATED return can be completed online on the HMRC website, and there is no need to register through the Government gateway. You can also download a paper version of the ATED return from the HMRC website. There is space on the ATED return to appoint us as your tax agent so we can then submit the return on your behalf. Note that the deadline for submitting the ATED return for 2013/14 is 1 October 2013.

CHILD BENEFITS WHEN TURN 16

If you have a child aged 16, check whether you are still receiving all the child benefit and child tax credits you expect to.

Child benefit and child tax credit both stop automatically on 31st August on or after the child's 16th birthday, but where the child is in approved education or training, the parent who claims the child benefit is entitled to extend that claim until the child reaches their 20th birthday. 'Approved education' means at least 12 hours of supervised study per week, and the training can include an apprenticeship.

From September 2013 children who live in England (the rules are different in Wales, Northern Ireland and Scotland) are required by law to remain in education or training until the end of the academic year in which they turn 17. So there are a lot of families out there with 16 years olds who are in approved education, but who have lost their child benefit.

If you are one of those parents, and you want to continue to receive the child benefit, you need to contact the Child Benefit office at HMRC, to inform them that your child is still in approved education or training.

Similar rules apply for child tax credit. In that case the claimant must contact the Tax Credit office.

Although child benefit and child tax credit are both administered by HMRC, you need to inform them twice, as one section of HMRC cannot pass the relevant information to another part!

You may prefer not to receive the child benefit if you or your partner/spouse earns £50,000 or more. In that case all or part of the child benefit paid to your family is clawed-back through the operation of the high income child benefit charge (HICBC). HMRC has written to some of the parents who may be due to pay the HICBC, but not all, as they cannot correctly identify every person who may be liable to pay the charge.

If you are the highest earner in a family that has claimed child benefit since 7 January 2013, and your total income is £50,000 or more, you need to declare that child benefit on your tax return form. If you don't normally complete a self-assessment tax return form, you need to ask HMRC to set you up on the self-assessment tax return system. We can help you with that, but don't delay, as if you fail to complete the tax return form on time there will be automatic penalties to pay.

RESURFACING – REPAIRS OR CAPITAL

Any business owner, whose property includes a road, driveway, or parking area, will have to repair those surfaces at some point. The question is whether to charge the costs to 'repairs' or to 'capital improvements' in the accounts.

This decision has significant tax consequences, as the cost of repairs will qualify for a tax deduction, but capital improvements will not. Capital expenditure on improvements or renewals doesn't get a tax deduction until the property is sold. Capital allowances can't be claimed for the cost of laying roads or the structure of buildings, except in rare cases where the facility is used for research and development.

Tax Inspectors frequently challenge the cost of repairs in business accounts, particularly where the sum expended in one year is large. The Inspector may argue that where a road is resurfaced, the work should be treated as a renewal (capital) and not a repair. However, following a number of tax cases on this issue HMRC has changed its official guidance to its Tax Inspectors. The new guidance states that where a road has been resurfaced, that amounts to a repair and not a renewal or a replacement, so the cost is tax allowable.

There are still many grey areas which can be argued to be one side of the capital/repairs line or the other. If you need a second opinion on the tax deductibility of your property expenses, please do ask us.