HMRC will offer the taxpayer the opportunity to enter into a contract to disclose that fraud within 60 days. In return, HMRC will agree not to criminally investigate, removing the risk of prosecution by HMRC. The investigation will then be carried out usingcivil powers, with a view to a civil settlement for tax, interest and a financial penalty. Those who do not respond positively to HMRC's offer will face a full investigation by HMRC, possibly a criminal investigation with a view to prosecution. Moreover, HMRC say that anyone who signs the contract but does not go on to admit and disclose fraud will also face the possibility of a criminal investigation.
Wednesday 25 January 2012
VAT fraud amnesty
From 31 January 2012 HMRC will offer a new Contractual Disclosure Facility (CDF), under which those suspected of fraud will be able to avoid criminal investigation by taking advantage of the facility.
Under the CDF HMRC will contact a taxpayer, in writing, to inform him that he is suspected of serious tax fraud.
HMRC will offer the taxpayer the opportunity to enter into a contract to disclose that fraud within 60 days. In return, HMRC will agree not to criminally investigate, removing the risk of prosecution by HMRC. The investigation will then be carried out usingcivil powers, with a view to a civil settlement for tax, interest and a financial penalty. Those who do not respond positively to HMRC's offer will face a full investigation by HMRC, possibly a criminal investigation with a view to prosecution. Moreover, HMRC say that anyone who signs the contract but does not go on to admit and disclose fraud will also face the possibility of a criminal investigation.
In addition, taxpayers who are not under investigation but who want to admit to tax fraud may fill out a form to voluntarily request that HMRC consider their suitability for a CDF arrangement. In these circumstances HMRC will retain discretion to decide which cases are dealt with civilly, and which are investigated with a view to criminal prosecution.
HMRC will offer the taxpayer the opportunity to enter into a contract to disclose that fraud within 60 days. In return, HMRC will agree not to criminally investigate, removing the risk of prosecution by HMRC. The investigation will then be carried out usingcivil powers, with a view to a civil settlement for tax, interest and a financial penalty. Those who do not respond positively to HMRC's offer will face a full investigation by HMRC, possibly a criminal investigation with a view to prosecution. Moreover, HMRC say that anyone who signs the contract but does not go on to admit and disclose fraud will also face the possibility of a criminal investigation.
Tuesday 24 January 2012
Reclaim VAT on your home/office conversion
With more people now working from home, the question of what can be done with the VAT on the conversion costs is a common issue. What are the rules, and how can you go about reclaiming that VAT?
Example The Managing Director of a company, Mr P, works from home a lot, and is considering having his loft converted into an office to give him more room. The office will contain the usual computers, desks, etc., and be decorated and furnished in line with the proposed use. The full cost of the building work, decorations and equipment will come to £20,000 plus VAT which the company will pay because it will all be used for business purposes. The VAT on the work and equipment will come to £3,000, and Mr P wonders if the company can recover this.
Classic solution The normal answer is that the company can recover the VAT on the equipment, as they own it, and it is for business use. However, the VAT on the building work and decorations cannot be recovered because, prima facie, it is specifically blocked by the VAT legislation. (VAT 1994 s 24 (3) and (7)). This states,
“where a company purchases, acquires, or imports goods or services which are used or to be used in connection with the provision of domestic accommodation by the company for a director, those goods or services are not treated as used or to be used for the company's business, and any input VAT is not recoverable”.
Tip There is a little-known (even to HMRC) concession allowing the recovery of input VAT in certain circumstances. HMRC’s published and internal guidance states,
“Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,)
This means that if Mr P can show he intends using the loft conversion for entirely business purposes, then the company will be able to recover the VAT on the building work and materials. If he can show that the carpets and decorations are for a business purpose as well, than the company will be able to claim that VAT back too. The staff dealing with written VAT enquiries are more experienced in this area than normal VAT Officers, and have more time to consider the matter without the pressure to make a quick assessment. If you make a reasonable case, you should have no trouble getting the VAT back.
The same principle would also apply to extensions, garage conversions, and even using a shed at the bottom of the garden as your office. Provided there is genuine business use, and the purchases and decorations are in line with the proposed use, the VAT should be recoverable by the company.
[ On a more general tax note, the effect of exclusive business use of part of one's main residence on eligibility for CGT Principal Private Residence Relief should be considered, as well as home insurance, and possibly even council tax and business rates]
Tuesday 17 January 2012
A new way to contact HMRC
At last HMRC have agreed to accept emails but only for VAT queries. What are the limitations and benefits of using this service?
Good Communication The government continues promoting its online services but until now HMRC has resisted pressure to use email as a means of communication allegedly for security reasons.
Addressee only If HMRC send you a letter it usually contains personal or confidential information. As the envelope is addressed to the business owner or individual concerned HMRC can be reasonably sure it will be opened by the addressee.
Similarly, HMRC's security checks when you phone them ensure they do not disclose your personal details unwittingly to a third party.
Email addresses, however, are not so secure and can be shared or even accessed by others. HMRC have to find ways round this.
Security 1) HMRC have restricted email enquiries to VAT only, as thrse are least likely to contain personal information.
2) Rather than have a general email address, HMRC have set up a secure online email service accessible through the HMRC website only here .
When you use this service, the response may not be in the same format. HMRC say where they will reply contains confidential information, they will write by post instead.
Advantages 1) You will have immediate confirmation of receipt of your communication.
2) The stencil Emails HMRC provide will help you frame your question by prompting you for relevant information.
However, your enquiry is limited to a maximum of 2,000 characters and there is no easy way of keeping an electronic copy.
TIP Use a PDF printer to keep an electronic copy. There are plenyy of free ones downloadable from the web. Try here .
Good Communication The government continues promoting its online services but until now HMRC has resisted pressure to use email as a means of communication allegedly for security reasons.
Addressee only If HMRC send you a letter it usually contains personal or confidential information. As the envelope is addressed to the business owner or individual concerned HMRC can be reasonably sure it will be opened by the addressee.
Similarly, HMRC's security checks when you phone them ensure they do not disclose your personal details unwittingly to a third party.
Email addresses, however, are not so secure and can be shared or even accessed by others. HMRC have to find ways round this.
Security 1) HMRC have restricted email enquiries to VAT only, as thrse are least likely to contain personal information.
2) Rather than have a general email address, HMRC have set up a secure online email service accessible through the HMRC website only here .
When you use this service, the response may not be in the same format. HMRC say where they will reply contains confidential information, they will write by post instead.
Advantages 1) You will have immediate confirmation of receipt of your communication.
2) The stencil Emails HMRC provide will help you frame your question by prompting you for relevant information.
However, your enquiry is limited to a maximum of 2,000 characters and there is no easy way of keeping an electronic copy.
TIP Use a PDF printer to keep an electronic copy. There are plenyy of free ones downloadable from the web. Try here .
Sunday 15 January 2012
Chair Rental Challenge
Many salon owners overhearing golf club gossip think if they rent a chair to an operative the rental is exempt from VAT. This is NOT so, but some VAT savings can be obtained. How?
Chair rental Basically the idea is to make your operatives self-employed and then rent them a chair in your establishment. Rents are exempt from VAT and - hey presto! - there's no VAT to pay on the rental income. The proprietor's taxable turnover falls below the de-registration threshold (currently £73,000) so they can de-register and save on their own salon earnings as well. Sounds too good to be true.
WARNING It is! This scheme is two decades out of date. The reality is the operatives are paying for a range of services they use in the establishment all of which are standard-rated. The bad news is that you have to account for output tax on the income from your operatives.
The nature of this supply has given rise to numerous tribunal decisions culminating in a set of guidelines issued as long ago as 1992 between Customs and Excise (as it was then called) and the National Hairdressers' Federation which treats this as a standard-rated supply to carry on business in the establishment, including use of the chair and access to other facilities rather than an exempt licence to occupy.
Perm solution In a February 2011 case (Glen-Jones t/a Sophisticuts which can be read here) Mrs Glen-Jones argued that chair rental supplies made to independent operatives were exempt supplies of a licence to occupy land.
HMRC countered by arguing it was a supply of hairdresser's facilities taxable at the standard rate.
The First Tier Tribunal found the supply to be essentially a taxable supply of hairdressing services and the non-exclusive right of an operative to occupy the basement was merely a minor element of that supply.
Are the operatives self-employed? In a recent case the First Tier Tribunal commented that had the tenancy agreement been correctly drafted, it could have seen two supplies - a licence to occupy land and a supply of supporting services. VAT exemption would have applied to the licence to occupy land if the plan attached to the agreement had clearly identified the occupied area AND the references to the ancillary services had formed part of a separate VATable service contract.
TIP Separate the licence to occupy land from from the supply of any other services. Draw up proper legal documents identifying the area each operative occupies on a plan. Have a fixed rent, not one based on a share of each operative's takings.
Chair rental Basically the idea is to make your operatives self-employed and then rent them a chair in your establishment. Rents are exempt from VAT and - hey presto! - there's no VAT to pay on the rental income. The proprietor's taxable turnover falls below the de-registration threshold (currently £73,000) so they can de-register and save on their own salon earnings as well. Sounds too good to be true.
WARNING It is! This scheme is two decades out of date. The reality is the operatives are paying for a range of services they use in the establishment all of which are standard-rated. The bad news is that you have to account for output tax on the income from your operatives.
The nature of this supply has given rise to numerous tribunal decisions culminating in a set of guidelines issued as long ago as 1992 between Customs and Excise (as it was then called) and the National Hairdressers' Federation which treats this as a standard-rated supply to carry on business in the establishment, including use of the chair and access to other facilities rather than an exempt licence to occupy.
Perm solution In a February 2011 case (Glen-Jones t/a Sophisticuts which can be read here) Mrs Glen-Jones argued that chair rental supplies made to independent operatives were exempt supplies of a licence to occupy land.
HMRC countered by arguing it was a supply of hairdresser's facilities taxable at the standard rate.
The First Tier Tribunal found the supply to be essentially a taxable supply of hairdressing services and the non-exclusive right of an operative to occupy the basement was merely a minor element of that supply.
Are the operatives self-employed? In a recent case the First Tier Tribunal commented that had the tenancy agreement been correctly drafted, it could have seen two supplies - a licence to occupy land and a supply of supporting services. VAT exemption would have applied to the licence to occupy land if the plan attached to the agreement had clearly identified the occupied area AND the references to the ancillary services had formed part of a separate VATable service contract.
TIP Separate the licence to occupy land from from the supply of any other services. Draw up proper legal documents identifying the area each operative occupies on a plan. Have a fixed rent, not one based on a share of each operative's takings.
Get the VAT back on clothing
So you have to spend heavily on staff clothing. Golf club gossip says you can claim the VAT back. Is this so? What conditions apply to a successful claim?
Business expense HMRC says VAT incurred on uniforms or protective clothing can be claimed as input tax because it is a business expense.
The wig, gown and bands a barrister is required to wear in court are considered to be a uniform and the VAT incurred is therefore claimable as input tax.
Proving it's a business expense This can be tricky. A VAT Tribunal dismissed the taxpayer's argument that an art consultant required a high dress standard "to create a professional image."
The provision of clothing is normally a personal responsibility. A claim that business reasons require a high standard of dress does not justify allowing the VAT incurred to be claimed as input tax.
In another VAT Tribunal case it was stated "to dress well in order to conform with the standards of a particular lifestyle" was not a business expense.
Rock on! A classic case involved a musician who claimed the VAT back on a wig! HMRC paid him a visit (enough to raise anybody's follicles) and disallowed the VAT. He claimed the wig was needed to maintain his image as a musician. Photographs, posters, record and cd covers, press releases, and artwork (on which his business relied) would all need reprinting if his appearance changed.
He appealed to the VAT Tribunal who decided the wig had indeed been purchased for the purpose of his business and he could reclaim the VAT.
The VAT on clothing used solely as stage costumes is reclaimable. Ordinary clothing worn by an entertainer or celebrity will usually be worn privately as well in which case the VAT is NOT reclaimable.
Treat it as a gift Use the business gift rules to claim back the VAT on "perk" clothing (neither uniforms nor protective clothing). Perks are an accepted business expense so if you provide your staff with clothing the VAT incurred is a business expense. However, if the clothes cost more than £50 in any twelve-month period, you will have to account for output VAT on their value. Make sure the clothes are worth less than £50 excluding VAT.
Business expense HMRC says VAT incurred on uniforms or protective clothing can be claimed as input tax because it is a business expense.
The wig, gown and bands a barrister is required to wear in court are considered to be a uniform and the VAT incurred is therefore claimable as input tax.
Proving it's a business expense This can be tricky. A VAT Tribunal dismissed the taxpayer's argument that an art consultant required a high dress standard "to create a professional image."
The provision of clothing is normally a personal responsibility. A claim that business reasons require a high standard of dress does not justify allowing the VAT incurred to be claimed as input tax.
In another VAT Tribunal case it was stated "to dress well in order to conform with the standards of a particular lifestyle" was not a business expense.
Rock on! A classic case involved a musician who claimed the VAT back on a wig! HMRC paid him a visit (enough to raise anybody's follicles) and disallowed the VAT. He claimed the wig was needed to maintain his image as a musician. Photographs, posters, record and cd covers, press releases, and artwork (on which his business relied) would all need reprinting if his appearance changed.
He appealed to the VAT Tribunal who decided the wig had indeed been purchased for the purpose of his business and he could reclaim the VAT.
The VAT on clothing used solely as stage costumes is reclaimable. Ordinary clothing worn by an entertainer or celebrity will usually be worn privately as well in which case the VAT is NOT reclaimable.
Treat it as a gift Use the business gift rules to claim back the VAT on "perk" clothing (neither uniforms nor protective clothing). Perks are an accepted business expense so if you provide your staff with clothing the VAT incurred is a business expense. However, if the clothes cost more than £50 in any twelve-month period, you will have to account for output VAT on their value. Make sure the clothes are worth less than £50 excluding VAT.
Avoiding registration by splitting
So your business is growing. You want to avoid having to register for VAT. The golf club gossip is that you can avoid registration and save VAT by splitting your business. Is this true?
Close to VAT threshold A common problem for a small business dealing directly with the public and approaching the VAT registration threshold (currently £73,000), is how can they pass on the 20% VAT charge without losing business or reducing profit by absorbing the additional cost themselves.
Example V Gogh is a one man band painter and decorator dealing largely with private individuals. Lately, he's also been winning some commercial contracts and this pushes him close to the registration threshold. If he registers, he'll have to put up his prices to domestic customers by 20% or absorb it. Can he avoid VAT registration?
Split the business He could split the business in two, one part dealing with commercial contracts and the other with work from private individuals. How can he achieve this without upsetting HMRC?
TIP If he's going to split the business, it must be real and not just on paper. He needs to set up a limited company or partnership to deal with the commercial contracts while continuing to run the domestic side as a sole proprietor. Each side - commercial and domestic - has its own bank account, accounting records and purchases are all made through the correct legal entity and NOT by having a common stock for both businesses.
What can HMRC do? If he does all this and continues doing it, HMRC can only issue him with a direction ( a disaggregation direction) to treat the businesses as one from a current date.
TIP If he splits the business properly. he can still save all the VAT up to the time HMRC issue him with a direction.
Beating HMRC If he can show HMRC the two businesses are not economically connected, he may avoid registration altogether (assuming both businesses remain below the registration threshold). For example Wilf, a sole proprietor runs a gas fitting business and sells used cars on the side. The combined turnover of both businesses counts towards his VAT registration threshold. However, if he puts one into a limited company or partnership the turnover of each business will be looked at separately and HMRC cannot direct them to be treated as one.
WARNING If Wilf gets it wrong....doesn't have separate bank accounts etc, HMRC will say there never were two business and compulsorily register him from a much earlier date. Wilf will then have to account for all VAT on all the turnover of both businesses from the day their combined turnover exceeded the VAT registration threshold, plus penalties and interest.
TIP This type of VAT planning is common in the licensed trade where, typically, the wife runs the food side as a separate, unregistered business. If you are doing something similar (sharing premises) make sure you charge rent to the unregistered business in exactly the same way as you would to a third party.
Close to VAT threshold A common problem for a small business dealing directly with the public and approaching the VAT registration threshold (currently £73,000), is how can they pass on the 20% VAT charge without losing business or reducing profit by absorbing the additional cost themselves.
Example V Gogh is a one man band painter and decorator dealing largely with private individuals. Lately, he's also been winning some commercial contracts and this pushes him close to the registration threshold. If he registers, he'll have to put up his prices to domestic customers by 20% or absorb it. Can he avoid VAT registration?
Split the business He could split the business in two, one part dealing with commercial contracts and the other with work from private individuals. How can he achieve this without upsetting HMRC?
TIP If he's going to split the business, it must be real and not just on paper. He needs to set up a limited company or partnership to deal with the commercial contracts while continuing to run the domestic side as a sole proprietor. Each side - commercial and domestic - has its own bank account, accounting records and purchases are all made through the correct legal entity and NOT by having a common stock for both businesses.
What can HMRC do? If he does all this and continues doing it, HMRC can only issue him with a direction ( a disaggregation direction) to treat the businesses as one from a current date.
TIP If he splits the business properly. he can still save all the VAT up to the time HMRC issue him with a direction.
Beating HMRC If he can show HMRC the two businesses are not economically connected, he may avoid registration altogether (assuming both businesses remain below the registration threshold). For example Wilf, a sole proprietor runs a gas fitting business and sells used cars on the side. The combined turnover of both businesses counts towards his VAT registration threshold. However, if he puts one into a limited company or partnership the turnover of each business will be looked at separately and HMRC cannot direct them to be treated as one.
WARNING If Wilf gets it wrong....doesn't have separate bank accounts etc, HMRC will say there never were two business and compulsorily register him from a much earlier date. Wilf will then have to account for all VAT on all the turnover of both businesses from the day their combined turnover exceeded the VAT registration threshold, plus penalties and interest.
TIP This type of VAT planning is common in the licensed trade where, typically, the wife runs the food side as a separate, unregistered business. If you are doing something similar (sharing premises) make sure you charge rent to the unregistered business in exactly the same way as you would to a third party.
Channel Islands loophole closes
HMRC withdraws the Low Value Consignment Relief (LVCR) from April 1, 2012. What you need to know.
VAT-free Under LVCR goods having a value of less than £15 can be imported free of Vat. Many high street retailers have exploited this concession to set up operations (typically in the Channel Islands) to sell mail order Cds, Dvds, books and small items. Although this is good for consumers, it badly hit small independent traders unable to compete with the big boys.
Better for all? Under pressure from small business associations HMRC hs announced that from April 1, 2012 LVCR will no longer be available to goods imported into the UK from the Channel Islands. The government state this will bring increased fairness to businesses, benefit the economy and protect millions in tax revenue. Let's see what happens to the price of Cds etc!
Stage Change At first the government reduced the LVCR threshold from £18 to £15 with effect from November1, 2011 and this applies until April 1, 2012.
VAT TIP The change to LVCR does not affect the existing import reliefs for gifts from outside the EU, including the Channel Islands, which apply to non-commercial consignments eg gifts sent to family members or friends.
VAT-free Under LVCR goods having a value of less than £15 can be imported free of Vat. Many high street retailers have exploited this concession to set up operations (typically in the Channel Islands) to sell mail order Cds, Dvds, books and small items. Although this is good for consumers, it badly hit small independent traders unable to compete with the big boys.
Better for all? Under pressure from small business associations HMRC hs announced that from April 1, 2012 LVCR will no longer be available to goods imported into the UK from the Channel Islands. The government state this will bring increased fairness to businesses, benefit the economy and protect millions in tax revenue. Let's see what happens to the price of Cds etc!
Stage Change At first the government reduced the LVCR threshold from £18 to £15 with effect from November1, 2011 and this applies until April 1, 2012.
VAT TIP The change to LVCR does not affect the existing import reliefs for gifts from outside the EU, including the Channel Islands, which apply to non-commercial consignments eg gifts sent to family members or friends.
Subscribe to:
Posts (Atom)