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There was a time when you couldn’t turn on the radio, or your phone, without getting an advert for PPI (Payment Protection Insurance) refund claims. If you made a successful claim, you may have banked the money thinking it was tax free.

That is not entirely true. Each PPI settlement includes interest calculated at 8% on the refunded premiums, which is taxable. Some banks deducted 20% tax from the interest, but other lenders didn’t.

The interest portion of the PPI settlement needs to be declared on your tax return for the tax year in which you received the settlement. You may have additional tax to pay on that interest if insufficient tax was deducted by the payer.

Each year HMRC receives a bulk download of data from the banks relating to PPI payments, which it attempts to match to individual taxpayers. However, the PPI data only includes a name and address, which could be years out of date, so the matching exercise is not perfect.

If you receive a letter from HMRC which mentions undeclared interest, this could relate to the PPI claim you forgot you made. Check whether you declared the interest portion of your PPI settlement on your tax return.
If you didn’t declare the interest, you may need to amend a tax return for an earlier year. We can help you do this.

It’s easy to estimate your business mileage, but HMRC wants to see accurate figures recorded as close to the time of the journey as possible. There are a number of apps which can help you with this.

To achieve the precision HMRC is looking for, you need to know where your business journey starts and finishes. That is not necessarily at your home if you are self-employed.

HMRC will argue your work starts when you reach your customer’s site, and any activities performed at your home-office are irrelevant. This prevents you from claiming expenses for travelling from your home to the first customer of the day, but does allow you to claim for journeys between customers.

To claim for business journeys starting from your home, you need to prove your business is truly based there. To support this argument, record the time you spend on working in your home-office, and what you were doing, e.g. contacting suppliers, or drawing up quotes.

Once you have established the number of miles which qualify as business journeys, you can claim 45p for each mile driven up to the first 10,000 miles, and 25p per mile for any additional miles in the tax year. Alternatively, you can claim a proportion of your total motoring expenses that relate to business miles, compared to the total distance you have driven in the year.

Businesses are constantly evolving to adapt to changing markets. The tax system similarly changes to keep up with new business structures and innovative ways to avoid tax.

One such tax avoidance trick, which is perceived to be a particular problem in the construction industry, is when firms charge and collect VAT, but disappear before they pay that VAT over to HMRC. The solution is a ‘reverse charge’ mechanism that will apply to builders, contractors and other trades associated with the building industry.
From 1 October 2019 those VAT-registered building firms will be required to charge themselves VAT when they buy building-related services from other firms in the construction industry.

It will work like this: Firm A does work for Firm B, and both are VAT registered. Firm A will issue an invoice to Firm B that says its services are subject to a reverse charge. Firm B adds the VAT that A would have charged to the cost of the work undertaken by A, but only within its own VAT records. Firm B does not pay the VAT to Firm A, but instead pays the VAT directly to HMRC.

There are a ream of exemptions from this new reverse charge system, such as where A and B are landlord and tenant, or are companies within the same group. We can help you sort out when you may need to apply the reverse charge.

One challenge will be to ensure that your accounting software deals with the new reverse charge correctly.
This comes on top of the other major changes to VAT this year: Making Tax Digital (MTD), which applies for most VAT-registered businesses for VAT periods beginning on or after 1 April 2019. However, some businesses have a deferred start date for MTD, being the first VAT period beginning on or after 1 October 2019. This is the same day that the construction industry reverse charge starts!

VAT returns are the first to be automated under the MTD banner, and conversion of other types of tax returns to full MTD automation is expected. However, in the Spring Statement on 13 March 2019 the Chancellor announced that no other taxes would be drawn into MTD in 2020. This marks a slow-down in the MTD program, which is welcomed, as with everything else going on, businesses have quite enough to cope with!

Families who receive Child Benefit may have that money clawed back as tax where the higher earner in the family has a total net income of £50,000 or more. The full Child Benefit must be repaid where one of the parents has a total income of £60,000 or more.

It is the responsibility of the higher earner to tell HMRC that they need to complete a tax return in order to self-assess their tax charges. Although HMRC manages claims for Child Benefit, it doesn’t know which claimants have a higher earning partner.

Many parents aren’t aware of the need to pay back their Child Benefit as tax. If your income rises above £50,000, HMRC don’t necessarily prompt you to complete a tax return. Where HMRC discovers there is tax to pay in respect of Child Benefit, it may issue penalties to the affected parents.

HMRC has now decided to refund some parents for the penalties they were charged for failing to tell the tax office they needed to complete a tax return in order to pay the Child Benefit tax charge. To qualify for a refund of those penalties, your family must have started to receive Child Benefit before 7 January 2013. The penalties will be refunded automatically – you don’t have to contact HMRC.

If you need to declare your Child Benefit to HMRC for 2016/17 or a later year, you still need to complete a tax return. If you forgot to mention Child Benefit on your tax return but you did earn over £50,000, you can amend your return or we can do this for you.

The VAT registration threshold has been fixed at £85,000 from 1 April 2017 until at least 31 March 2022. This may bring more businesses into the VAT fold, if they increase their prices with the rate of inflation.

This threshold can be a cliff edge for many businesses as, once VATable turnover exceeds it, the business must charge VAT on all eligible sales. For your UK sales, you must check the cumulative total of your VATable sales (including zero-rated items) for every 12-month period and register for VAT within 30 days, once this total exceeds £85,000.

Do this calculation every month, as if you tally up your sales just once a year for your accounts, you may miss this 30 day deadline. If your sales suddenly take off, you may be too busy to remember to register for VAT within 30 days. If you register later than the law demands, you can suffer a penalty.

For example, say your annual sales (accruing evenly throughout the year) are £83,000. If you increase your prices by 3% in January 2019, by 31 October 2019 your turnover in the previous 12 months will be £85,075 and you will have to register for VAT within 30 days.

You could restrict your price increase to keep your turnover under £85,000, but if your purchase costs are increasing this will cut your profit margins. Alternatively, you could perhaps restrict your sales by taking longer holidays, if you can afford it.

Another idea is to hive off a part of your business into a separate legal entity, so that each new business has turnover under £85,000. However, this must not be an ‘artificial’ split.

The two businesses should have a bank account each, keep separate business records and file separate tax returns. Ideally, the businesses should provide different services or goods to separate groups of customers. There must be separate contracts with any common suppliers.

Many businesses, however, may wish to register for VAT earlier than needed. Early registration allows you to claim back VAT on your start-up expenses. You can reclaim VAT on services used within the six months before your VAT registration date, and on goods acquired within four years before that date (if they are still held at the date of registration). The VAT paid on an expensive shop refit could be lost if you delay VAT registration for too long.

However, it’s a balancing act – if you register earlier than required, you must account for VAT on sales made after your registration date that could otherwise have been VAT-free.

You can’t change the VAT registration date requested once you’ve applied to register. It’s very important to plan your VAT registration, to ensure the registration date falls at the optimum time for your business.

Businesses that sell digital services (such as eBooks or software) to nonbusiness customers in other EU countries are not required to register for VAT in those EU countries, if the total value of their digital sales to other EU countries is less than £8,818. If below this threshold, they will have to charge UK VAT on the digital supplies.

If your annual digital sales to nonbusiness customers in EU countries are likely to be less than £8,818 for 2019, and were less than that threshold for 2018, you can deregister from VAT MOSS (Mini One Stop Shop) from 1 January 2019. We can help you with this. If such sales are above the threshold and a ‘no deal’ Brexit occurs, businesses will need to register in an EU country for MOSS. It is best to use Eire or Malta, as their forms are in English. This can only be done post Brexit and would have to be done by the 10th of month following the month when the first post Brexit supply is made.

Action Point!
Check your total sales on a 12-month rolling basis.

 

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.