CGT relief on incorporation, VAT flat rate scheme, Fake HMRC contacts

Many businesses still want to incorporate for non-tax reasons, so last
week we reviewed the reliefs which can postpone or reduce CGT due
on incorporation. We also examined a problem found when applying for the
VAT flat rate scheme, and we had a warning about convincing tax
repayment scams which may catch-out your clients. 

This is an
extract from our topical tax tips newsletter dated 7 July
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>> 

VAT flat rate scheme
The VAT flat rate scheme (FRS) for small businesses is very useful. It reduces the work needed to complete a VAT return, as generally only the sales income is considered. Many businesses can also make a small profit purely from using the scheme. 

However, that profit depends on the trade category the business opts to use. This category determines the FRS percentage which must be applied to the gross sales income to calculate the VAT payable to HMRC each quarter. 

When the business applies to use the FRS it should pick the trade category which best fits a plain English description of the majority of its trade. For example, a mechanical engineer would not pick the category “architect, civil and structural engineers”, as a mechanical engineer (dealing with machines) is a very different job to a civil engineer (dealing with buildings and structures). If there is no category which is a good fit, the business should choose one of the catch-all categories such as “business services that are not listed elsewhere”. 

You can apply for the FRS online as part of the process of registering the business for VAT. This allows the business to benefit from a reduction in its FRS percentage by 1% point during the first 12 months in which it is VAT registered. However, the HMRC computer may not register the business category which you have picked. 

As part of the FRS application you can enter a free text description of the business activity. If that doesn’t match one of the trade categories, you can use the more precise Standard Industrial Classification (SIC) code. The computer then matches the SIC code to one of the trade categories, but not always as you would expect. An online message should tell you which trade category has been selected. 

If you are not happy with the computer’s choice of trade category your only option is to cancel the online application, and use the stand alone form VAT600FRS to apply for the FRS. This is an interactive form, but it doesn’t try to guess the trade category for you. It must be completed then printed out for signing and submission to HMRC.

This is an
extract from our topical tax tips newsletter dated 7 July
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>

Financial reporting standards, Professional conduct, Reclaiming input VAT on commercial vehicles

This is a time of major upheaval to financial reporting standards, and we summarise changes fundamental in quantifying and reporting on business profits on which tax computations are to be based. Last week the tax profession updated its guidance on professional conduct and we look at how this affects everyone working in tax. Finally, we update you on HMRC’s latest list of car-derived vans and combi vans for input VAT purposes.

Transition to new accounting standards 
Beware of the tax repercussions which follow the changes summarised in this week’s newsletter. 

Reported profits of a business are the starting point for computing taxable profits for income tax or corporation tax purposes. On transition from one valid basis of accounting to another, a significant number of accounting adjustments may be required and these could have a crucial impact on your clients’ tax liabilities. Positive adjustments (i.e. those that increase profits or reduce losses) are taxed as receipts, and negative adjustments are allowed as expenses.

This is an
extract from our tax tips newsletter dated 7 May 2015. The newsletter
itself contained more details and links to related source material for this story. And, of course there were the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
for free by registering here>>>