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Beware sting in VAT Annual Accounting Scheme
The VAT annual accounting scheme is open to most businesses with a turnover of up to £1.35m per year. The main benefits of the scheme include the requirement to file one VAT return per year. This can significantly reduce the amount of administration time and the associated cost of preparing and submitting quarterly VAT returns.
A recent First-Tier Tribunal case highlighted an unusual quirk in the way the scheme works and cost one taxpayer dearly. The taxpayer appealed against a penalty of almost £27,000. The background to this penalty started when the taxpayer (a small company employing less than 10 employees) began to use the VAT annual accounting scheme. However, the company experienced significant growth with turnover increasing from £700,000 in 2015 to £2.75m the following year. The taxpayer failed to realise the impact of this on using the VAT annual accounting scheme.
Businesses using the scheme make interim (usually nine monthly) VAT payments during the year, based on their estimated total liability for the year. These payments are followed by one balancing payment which is submitted with the annual VAT return. However, the taxpayer in this case did not submit a final VAT return on time and HMRC issued an estimated assessment.
The taxpayer admitted that they knew this assessment was too low although they did not know the exact shortfall at the time. The taxpayer eventually submitted the missing VAT return and HMRC issued a penalty assessment based on 15% of the 'potential lost revenue'.
The Tribunal examined whether this penalty was justified and had some concerns that the taxpayer might have been treated somewhat harshly due to the way HMRC calculated the potential lost revenue. However, ultimately the penalty was upheld, and the taxpayer was left with a costly bill for failing to submit a correct VAT return on time.Read more..
Give now pay later – what are the settlement rules?
The settlement rules are intended to prevent an individual from gaining a tax advantage by making arrangements that divert his or her income to another person who may be liable at a lower rate of tax or is not liable to Income Tax.
Where a settlor has retained an interest in a property in a settlement the income arising is treated as the settlor’s income for all tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner.
In general, the anti-avoidance settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved.
These arrangements must be:
However, there are a number of everyday scenarios where the settlements legislation does not apply. In fact, after much case law in this area, HMRC has confirmed that if there is no 'bounty' or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income, then the legislation will not apply.Read more..
Company van use – the tax consequences
There are a number of tax consequences to be aware when employees are provided with company vans and fuel. A company van can be defined as a van made available to an employee by reason of their employment. There is usually nothing to report to HMRC if the van is used solely for business journeys, as a pool van or for vans provided as part of a salary sacrifice arrangement. If the van is not exempt then employers must report the cost on form P11D and pay Class 1A National Insurance on the value of the benefit.
Where the private use of a company van is 'insignificant', no tax is payable. The definition of insignificant is quite rigid and only applies where private use is exceptional, intermittent, irregular and lasts for short periods of time or happens on odd occasions throughout the year. Examples might include making a detour to drop children to school or using the company van occasionally to take rubbish to the tip.
Where a company van is used for private journeys there is a standard benefit charge for the private use of a company van of £3,350. There is an additional benefit charge of £633 if fuel is provided for significant private use. If private use of the van is insignificant then no benefit will apply.
A van benefit charge also applies for zero emission vans. This rate is tapered and will increase each year until the tax year starting 6 April 2022. The rate for 2018-19 is 40% of the full rate, meaning that 40% of £3,350 i.e. £1,340 will need to be reported. When the transitional steps are completed in 2022-23, the van benefit charge for zero emissions vans will mirror that of conventionally-fuelled vans.Read more..