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Paying a Value Added Tax (VAT) liability can be a large burden for small businesses. This article is aimed at owners of small businesses in the UK and focuses upon how their VAT burden can be successfully managed.

Ten tips on managing your VAT liability:

1.If you do not need to compulsory register for VAT, calculate if it would be worthwhile to de-register for VAT.

2.If you are not registered ensure that you review your requirement to register on a monthly basis, as there are financial penalties for late registration.

3.Make sure that you are calculating your VAT liability correctly. Many business pay VAT on items they shouldn’t and don’t reclaim all the VAT that they are entitled to.

4.Keep up to date with VAT legislation changes that effect your business. It may be worth considering retaining an accountant to keep an eye on this for you.

5.File all VAT returns on time and make sure that VAT payments are made prior to deadlines. There are financial penalties for not meeting VAT deadlines.

6.If you are experiencing cash flow difficulties and can not make your VAT payment on time, then contact HMRC to negotiate payment terms.

7.Calculate if using the flat rate VAT scheme would save you money. This is for businesses with a turnover under £150,000. It saves administration and could be financially beneficial.

8.Consider if you would benefit from cash accounting for VAT purposes. If your taxable turnover is under £1,350,000 a year this method allows you to account for VAT on the basis of cash received and paid, rather than the invoice date or time of supply.

9.Would you benefit from using the annual accounting method. If your turnover is under £1,350,000 under this scheme you make only one VAT return per year.

10.Should you be using a retail scheme. These schemes are for retailers and they are an alternative if it’s not practical to issue invoices for a large number of supplies direct to the public.

VAT is a complex and specialist area of taxation if you are in any doubt over how it applies to you or your business then it is recommended that you contact an accountant or VAT specialist with expertise in this area. You can also contact HMRC direct for advice.

This article is an introduction to certain aspects of VAT legislation only and it is not intended to be comprehensive.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and the rates and legislation associated with VAT will change.

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What is VAT?

VAT is an abbreviation of “Value Added Tax”. It is a tax that is paid by the final consumer on purchases, a VAT registered business has been often described as an unpaid tax collector for the government. Whist VAT is applicable in many countries around the world, this article focuses upon UK VAT.

Are all items sold in the UK subject to VAT?

Not all items sold, nor services delivered in the UK are subject to VAT. The legislation has items and services that are defined as being “outside the scope” of VAT. This means that no VAT is to be charged. There are also other items and services that are within the scope of VAT, but are subject to a rate of zero%, an example of this is non luxury foods (an important point to note is that, some foods are subject to zero% VAT whilst others are standard rated). People often view that when an item is outside the scope of VAT it is the same as being zero rated, this is not true and there are a number of important parts of VAT law that deal with this.

What are the current rates of VAT in the UK?

There are currently three rates of VAT in the UK:

•17.5% (the ’standard’ rate). Changing to 20% from 4 Jan 2011.
•5% (’reduced’ rate) and
•0% (’zero’ rate).

A good firm of Chartered Accountants can help you with VAT compliance.

Who must register for VAT in the UK?

This is a complex area but broadly speaking, if you are in any of the following scenarios then you normally need to register for VAT:

•The taxable turnover of your business in the previous 12 months reaches the VAT registration limit (£70,000 from 1/4/10), although you can also register on a voluntary basis if your turnover is below this.
•You believe your turnover in the next thirty days will exceed the registration limit.
•You take over a business as a going concern whose turnover meets the conditions of the previous two points.
•You buy goods from elsewhere in the EU to a value above the registration limit in one calendar year.

VAT is a complex and specialist area of taxation if you are in any doubt over how it applies to you or your business then it is recommended that you contact an accountant or VAT specialist with expertise in this area.

This article is an introduction only and it is envisaged that further coverage of different VAT issues will be considered in additional articles.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and the rates and legislation associated with VAT will change.

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It is an unfortunate fact of life that you may find yourself or business under enquiry by HM Revenue and Customs (HMRC), through no fault of your own or your accountant.  HMRC enquiries can be random of for various reasons.  HMRC normally don’t have to give a reason as to why they are enquiring into your tax affairs.
HMRC can make enquiries into many taxation areas including:

Self Assessment tax returns
Corporation tax returns
Payroll compliance
VAT compliance
National insurance payments

The whole process can often be very worrying and confusing for the taxpayer. Often, even if HMRC do not find any errors amongst your books and/or records you may find yourself paying high professional costs to defend your position.   There are differing types of enquiry including aspect enquiries, where only part of a self assessment tax return is looked at, to full enquiries where your whole tax return is reviewed. 

The process should begin with a formal letter from HMRC stating that they are making an enquiry.  This is normally accompanied with, or shortly followed with a request for information.  Having reviewed this information it is normal that the investigating HMRC officer will have a long list of questions. This can further lead to discussions about potential tax adjustments and penalties. If there are any errors or adjustments to be made these a normally dealt with under civil law. If fraud or tax evasion is suspected it is possible, under extreme circumstances, that criminal proceedings can occur.

It is highly recommended that you have a Chartered Accountant who is experienced in HMRC procedures and tax law to represent you if you find yourself under enquiry by HMRC. A good Chartered Accountant will be able to advice you of your legal position, the likely outcome and deal with most matters on your behalf.

Whilst no one can guarantee that you wouldn’t be subject to a HMRC enquiry, some accountants offer peace of mind to their clients by providing a fee protection service.
The service works on the basis that you pay a modest annual subscription, in the event of a HMRC  enquiry the accountant then makes a claim on their firms fee protection insurance policy, which is normally underwritten by a national insurance company.  As such all of their fees may be met by the insurance company.
Nobody can prevent you from being investigated by the Taxman, but a good accountant can help to ensure that you get the best possible support and advice without having to worry about the cost. Please note that you should check with the accountant what the actual terms and conditions are that relate to the services that they offer.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice.

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National Insurance contributions (NICs) are paid to build up a person’s entitlement to certain state benefits, including the State Retirement Pension. The amount that an individual is liable to pay depends on their own personal circumstances.

Who should pay National Insurance?

National Insurance is payable by all UK individuals aged over 16 that are either employed or self-employed and their earning are above a certain level. If you are an employee and reach the state retirement age you are no longer required to make NICs. Similarly if you are self-employed and reach the state retirement age you immediately are no longer required to make class 2 NICs, and from the tax year following the year you reached the state retirement age you are no longer required to make class 4 contributions.

The types of National Insurance contributions are detailed below:

Class 1 – paid by employees, sometimes politicians have referred to this as “an employment tax” or “a tax on Jobs”. Two elements to class 1 contributions which are employee’s contributions are deducted from an employees pay. Employer’s contributions are paid by employers when they pay employees.

Class 2 – this paid by self employed people. It is a flat rate regardless of earning (provided that the self-employed person has earning over a certain level, if earnings are lower than this level then a “small earning exemption” may be applied for). These are normally paid either quarterly via a bill from HMRC or monthly by direct debit.

Class 3 – These are voluntary National Insurance Contributions, in certain circumstances some people may wish to make these. For example, but not limited to, you have not made sufficient contributions in the year or perhaps you are living abroad but want to maintain your potential UK state benefits. It is highly recommended that you speak to an experienced professional prior to making such contributions.

Class 4 – These are payable by self-employed people in addition to Class 2 contributions, if their income is above a certain level. The level of these contributions are dependent on earnings. Class 4 National Insurance contributions are normally payable with income tax calculated on an individual’s Self-assessment tax return.

If you have any concerns about your NIC payments or record we suggest you contact a suitably qualified and experienced professional such as a South Wales Chartered Accountant.

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The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice.

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Over the years many people have commented on taxes, some of the more famous quotes are below:
“There is no such thing as a good tax.” Winston Churchill
“In this world nothing is certain but death and taxes.” Benjamin Franklin
“Death and taxes and childbirth! There’s never any convenient time for any of them” Margaret Mitchell
“Thinking is one thing no one has ever been able to tax.” Charles F. Kettering
“The difference between tax avoidance and tax evasion is the thickness of a prison wall.” Denis Healey
“The way taxes are, you might as well marry for love.” Joe E. Lewis

Although the above quotes may be amusing one common thread is that most normal people simply don’t like paying taxes! In the UK you can pay tax when you buy something, earn a wage, run a business, employ someone, own a house, sell an asset, take out an insurance policy, import an object, make a gift, fuel your car and even when you die. It is absolutely fair to say that it is just about impossible to avoid paying tax in one form or another. However whilst taxes may be unavoidable a good tax accountant can should be able to help reduce the impact in the following ways:

Preparing tax returns that are correct
Claiming all allowances that you are entitled to
Advising you of legal tax saving measures
Advising you in advance of the tax implications of your decisions
Investigating and advising you of changes in your business status that could save you money.
Planning your future activities to minimise tax
Giving you as much warning as possible of the tax payable
Filing tax returns on time

It is a sensible assumption that in a developed country there will always be taxes of one form or another. What is a fair taxation system in the view of one will inevitable be completely unfair to another. Bearing this in mind it makes sense to learn to live with taxes, by taking the view that paying tax will always remain but with the help of a good accountant you only need to pay the minimum that is legally demanded from you. It is important to remember that any method used to reduce your tax liability is completely legal as in the UK there are high penalties for illegal tax evasion strategies. These can range from financial penalties to extreme cases prison sentences. As such it is worth reiterating that a good tax accountant is a very worthwhile investment. Perhaps the best way to finish this article is with the quote from Denis Healey, “The difference between tax avoidance and tax evasion is the thickness of a prison wall.”

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