Archive for the 'Tax' Category

Further to my June ‘heads-up’ on Big Brother’s tax collector, HMRC have announced its latest campaign to recover some of the estimated £35 billion unpaid tax – they are next targeting private tutors, of which they estimate there are some half a million!

HMRC’s Tax Catch-up Plan (TCP) gives tutors and coaches the ‘opportunity’ to declare their outstanding tax for the year to April 2010. There is a deadline for declaring an ‘intention to disclose earnings’ of 6 January 2012, followed by a payment deadline of 31 March. Based on the declarations, HMRC may impute up to six years’ worth of tax, and an option may be available to pay in installments.

HMRC state that those making a declaration by this deadline will receive ‘the best possible terms’ for paying the overdue tax, and any penalties are unlikely to be more than 20 per cent of the unpaid tax. HMRC confirmed that those who wait to be found out will face higher penalties or even criminal prosecutions.

Many tutors give private lessons to supplement their income from the ‘day job’, they are likely to be paid in cash and may not declare their earnings to the tax man; my opinion is that many may not even sit down and consider whether these earnings are taxable or not.

This latest announcement follows similar ‘amnesties’ for plumbers, doctors and dentists, and will target tutors teaching academic subjects, fitness and dance, musical instruments, art etc.

Head of HMRC Campaigns, Marian Wilson, commented “Our campaigns…ensure tax is paid so that the money is available to spend on public services used by everyone. We are making it as easy as possible for [tutors] to use this unique opportunity to put their tax affairs in order”.

And now for the Big Brother bit…she added “We are using various intelligence sources to identify and target those who do not take advantage of this opportunity to declare their full income. The message is clear: contact us before we contact you.”

Clearly, many tutors (unless they are tutoring in tax law) may struggle with potentially complex tax declarations and any future tax returns. As ever, the advice must be to make contact with an independent tax advisor if you have any concerns – preferably before Big Brother finds you.

Now that the UK standard VAT rate is 20%, not only consumers but some businesses are feeling its impact – even those who may not feel any net effect may still suffer from cashflow impacts.

I talk to many business owners and senior staff, and I am often amazed (and a little concerned, if I am being honest) that their own accountants often miss a few tricks that should help them.

There are several so-called ‘VAT Schemes’ available to many (though not all) businesses, all of which are designed to make life a little simpler. There may be some restrictions/limits, but they can be a useful tool especially for smaller businesses who need most help. The HMRC website is now much easier to use than it used to be, so look for these so you can check out the rules in more detail.

The Annual Accounting Scheme allows you to complete one VAT return per year (instead of at least four for most business) and the timescales are longer. Although returns are less frequent, VAT is still paid in instalments, so the administrative burned is lightened and cashflow can be smoother. Either of the other schemes mentioned below can be used in conjunction.

The Cash Accounting Scheme allows you to declare output VAT only on cash received rather than when it is invoiced, and input VAT only on cash paid out. This scheme certainly helps from a cashflow perspective for any company whose customers do not pay immediately, and bad debt relief is automatic.

The Flat Rate Scheme is one of my favourites, and this allows you to calculate the VAT liability by applying a single percentage (depending on your business sector) to total VAT-inclusive turnover. It’s quick and simple, with no confusion caused by partial exemption or fuel scale charges. Also, don’t forget that in the first year, HMRC offer a 1% discount on the percentage used. This scheme is targeted at quite small businesses, so check the limits on the website. This scheme cannot be used with the cash accounting scheme, however.

Of course, firstly, businesses need to determine if they need to be registered for VAT at all. If most or all of your customers are also VAT registered it is almost always worthwhile (notwithstanding the administration); otherwise you probably don’t want to register unless you have to. There are other factors to consider such as the administration and record-keeping, the business status of being VAT registered, whether you could reclaim VAT on expenses etc but all of these points can’t be covered here.

The main thing is that once you know what schemes could be available to you, and where to look for more information, then you are in a position to strike up a conversation with your accountant or business advisor and ensure that what you are doing for your business is the best thing.