The internet has enabled many small businesses to sell internationally, but exporting goods and services can create VAT difficulties.
For VAT purposes you need to know whether you are selling goods (physical things), or services (something you cannot physically touch
eg: downloaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based -
in an EU country or elsewhere and whether the customer is a VAT registered business.
When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale.
This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered
and the goods physically left the UK. Getting the paperwork right is essential.
The rules for international services are more complicated as they depend on the place of supply of the service,
which varies according to the type of service supplied and who it is supplied to (business or non-business customer).
UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country,
in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT and the reverse charge procedure applies.
Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL).
If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter,
you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman
for permission to submit annual ESLs.
The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:
Limited Company Sole Trader/Partnership
Companies are governed by the companies Acts. A company must:
However, annual accounts are necessary for the Inland Revenue tax returns.
Companies may have greater borrowing potential. They can use current assets as security by creating a floating charge.
Sole traders and partners are unrestricted in the amount and purpose of borrowings but cannot create floating charges.
Shares in a company are generally transferable – therefore ownership may change but the business continues.
Incorporation does not guarantee reliability or respectability but gives the impression of a soundly based organisation.
Personally, there may be prestige attached to a directorship.
The unincorporated business does not carry the same prestige.
Tax is payable on director’s remuneration paid via PAYE on the 19th of the following month.
If applicable, higher rate tax is paid by shareholders on dividends under the self-assessment rules.
Corporation tax is payable 9 months after the year-end. For a sole trader or partnership,
tax is generally paid by instalments on the 31 January in the tax year and the 31 July following the tax year.
Tax for 2009/10 is payable:- first payment on account on 31 January 2010, second payment on account on 31 July 2010,
with any final balance due on 31 January 2011. Losses in a company can only be carried forward to set against future profits.
Losses generated by a sole trader or a partner can be set against other income of the year or carried back to prior years.
For profits up to £300,000 tax is charged at 21% (2010/11). Profits are taxed at 40% on taxable income
in excess of £37,000 and at 50% over £150,000 (2010/11).
There is both employer’s and employees’ national insurance payable on directors salaries and bonuses.
The NI charge is greater than that paid by a sole trader/partner.
HM Revenue & Customs (HMRC) has kicked off its Real Time Information (RTI) awareness campaign
and will be writing to more than 1.4 million employers over the next month.
RTI is due to start in April 2013, and will change the way that employers report on and send PAYE data to HMRC.
By October 2013, all employers and pension providers will have to use RTI, as it is vital for Universal Credit to work.
A pilot of the scheme was launched in April 2012, and participants have been providing details of tax,
national insurance and other salary deductions in real time as opposed to at the end of the tax year.
For RTI to work all employers will have to prepare, which is why HMRC is launching its campaign now.
Measures that employers will have to take include:
when Real Time Information becomes a reality, is now less than six months away.
"The letters going out to employers include a useful help sheet, which tells them what to do to get ready for the change.
Employers should read that and take action such as speaking to their payroll software provider or payroll service provider
and checking their employee data is accurate.
"Employers in the pilot who are already using RTI are telling us how straightforward and easy to use it is once you prepare.
The Importance of a Partnership Agreement
If you and your partners don't spell out your rights and responsibilities in a written partnership agreement, you'll be ill-equipped to settle conflicts when they arise, and minor misunderstandings may erupt into full-blown disputes.
How a partnership agreement helps your business
A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. You and your partners can establish the shares of profits (or losses) each partner will take, the responsibilities of each partner, what will happen to the business if a partner leaves and other important guidelines.
Don't be tempted to leave the terms of your partnership up to local laws. Because they were designed as one-size-fits-all fallback rules, they may not be helpful in your particular situation. It's much better to put your agreement into a document that specifically sets out the points you and your partners have agreed on.
What to include in your partnership agreement
Here's a list of the major areas that most partnership agreements cover. You and your partners-to-be should consider these issues before you put the terms in writing:
• Name of the partnership. One of the first things you must do is agree on a name for your partnership. You can use your own last names, such as Smith & Wesson, or you can adopt and register a fictitious business name, such as Hammersmith and Kensington Home Repairs. If you choose a fictitious name, you must make sure that the name isn't already in use.
• Contributions to the partnership. It's critical that you and your partners work out and record who's going to contribute cash, property or services to the business before it opens - and what ownership percentage each partner will have. Disagreements over contributions have doomed many promising businesses.
• Allocation of profits, losses and draws. Will profits and losses be allocated in proportion to a partner's percentage interest in the business? And will each partner be entitled to a regular draw (a withdrawal of allocated profits from the business) or will all profits be distributed at the end of each year? You and your partners may have different ideas about how the money should be divided up and distributed, and each of you will have different financial needs, so this is an area to which you should pay particular attention.
•Partners' authority. Without an agreement to the contrary, any partner can bind the partnership without the consent of the other partners. If you want one or all of the partners to obtain the others' consent before binding the partnership, you must make this clear in your partnership agreement.
• Partnership decision-making. Although there's no magic formula or language for divvying up decisions among partners, you'll head off a lot of trouble if you try to work it out beforehand. You may, for example, want to require a unanimous vote of all the partners for every business decision. Or if that leaves you feeling fettered, you can require a unanimous vote for major decisions and allow individual partners to make minor decisions on their own. In that case, your partnership agreement will have to describe what constitutes a major or minor decision. You should carefully think through issues like these when setting up the decision-making process for your business.
• Management duties. You might not want to make ironclad rules about every management detail, but you'd be wise to work out some guidelines in advance. For example, who will keep the books? Who will deal with customers? Supervise employees? Negotiate with suppliers? Think through the management needs of your partnership and be sure you've got everything covered.
• Admitting new partners. Eventually, you may want to expand the business and bring in new partners. Agreeing on a procedure for admitting new partners will make your lives a lot easier when this issue comes up.
• Withdrawal or death of a partner. At least as important as the rules for admitting new partners to the business are the rules for handling the departure of an owner. You should set up a reasonable buyout scheme in your partnership agreement.
• Resolving disputes. If you and your partners become deadlocked on an issue, do you want to go straight to court? It might benefit everyone involved if your partnership agreement provides for alternative dispute resolution, such as mediation or arbitration.
As you can see, there are many issues to consider before you and your partners open for business -- and you shouldn't wait for a conflict to arise before hammering out some sound rules and procedures.
As a general rule, assets owned by spouses in joint names are treated by the Taxman
as shared equally by both partners, and any income produced will be taxed accordingly.
But where actual ownership of an asset differs from 50/50, a married couple can elect to be taxed on their actual share of any income it produces.
However, until 2011 the Taxman would not accept an election for unequal ownership in respect of bank accounts.
His view was that any interest a joint account produced must be declared and taxed on a 50/50 basis
because the money in joint accounts is equally accessible to both spouses.
In practice, where both spouses pay in and withdraw money from an account, it can be virtually impossible
to say how much of the balance belongs to each. This means it’s also impossible to say how much interest each is entitled to.
This problem can be overcome by spouses agreeing how much money in an account belongs to each of them.
Use our draft agreement to indicate who is the beneficial owner of the money in your joint bank accounts and thus the extent
to which interest is taxable on each of you.
When you make an agreement you can submit a Form 17 election stating how the interest is to be allocated for tax purposes.
A Form 17 can be viewed and downloaded from the HMRC website
A Form 17 must be sent to the Taxman within 60 days of the date of declaration.
This deadline will not be extended for any reason. Send a copy of the agreement with the Form 17.
Following the recent announcement of headline settlement between the FSA and the major high street banks-Barclays, HSBC, Lloyds and RBS, there are going to be many businesses which are suffering financially because they had to enter interest rate swap schemes that are not now in their best interest.
Borrowers may not have fully understood or taken financial advice as to they where getting into at the time.
Other businesses may have been given no option other than to have entered the scheme at the time.
Most of these businesses are paying high interest rates that will make survival harder in times of low interest rates.
When a loan was taken out with a swap, the interest rate is in effect fixed at a certain level.
On reviewing the practice, the FSA found what it described as “serious failings” in many such agreements.
Swaps became popular before the 2008-2009 downturn in the economy as they where offered by the Banks as protection against a possible rise in interest rates. They took many forms such as swapping variable for fixed rates and capping rates, and included complex financial products common within the financial markets but not suited to the “real” economy.
This is the area of concern where Borrowers may have felt compelled to take a swap and told that if they did not they would not get the loan. It is felt that Banks may have failed in their duty to explain the concept of swapping rates properly. The rate of interest and the swap may simply have been imposed by the lender and a separate swap provider acting together, something tat the Borrower may not have realised. Most swaps where akin to modern “Casino Style” that Banks used instead of the face to face High Street transaction with someone the Borrowers knew and trusted.
This is a welcome development for many businesses and I feel that if you where involved in changing from variable to fixed rates on the advice of the Banks.
HMRC has released guidance on the new reduced rate of inheritance tax available to estates which leave a ten per cent donation to a registered charity.
Currently, estates worth over £325,000 are liable to pay inheritance tax at a rate of 40 per cent, however, as of the 6 April 2012 estates leaving 10 per cent to charity may pay a reduced rate of 36 per cent.
HMRC has stated that in order to qualify for the reduced inheritance tax rate, individuals must leave at least 10 per cent of the net value of an estate to a qualifying charity, and have outlined the following points:
According to calculations by the Telegraph, the move is to cost the Treasury £25 million for the tax year 2012/13, although it is hoped that charities will receive an additional £300 million over the coming three years.
HMRC is also currently altering the way charitable donations are claimed through Gift Aid by reducing the amount of required paper work for smaller donations.
We can help with inheritance tax planning. Please contact us for more details.
An agreement between the UK's 'big six' energy companies, meaning they will be required to tell customers if they are overpaying and allow them to switch to a better deal , is to cut the bills of millions of consumers and businesses, according to the Government and business groups.
Deputy Prime Minister Nick Clegg said that the deal, which will cover 99 per cent of energy customers in the UK, will save households up to £100 a year when it is implemented in the autumn.
According to ministers, seven out of 10 consumers are on inefficient and costly tariffs due to nearly 120 different and complicated tariffs available on the market.
Announcing the move, Nick Clegg also alluded to the Government's Green Deal due to come into force in October this year, which will enable homes and businesses to recoup payments of energy efficient improvements through their energy bill. It is hoped the deal will reduce both carbon emissions and household and business energy bills.
Retailers, tradespeople, energy companies and investors supplying the improvements will also benefit from the deal, with the Government estimating it to support 100,000 jobs within five years.
Responding to Nick Clegg's speech Katja Hall, chief policy director of the Confederation of British Industry (CBI), said: "This pledge by energy companies is a positive step, which together with the Green Deal will make a real difference to the energy bills of consumers and businesses in difficult times.
"It's increasingly important to argue the case for our green economy in helping to deliver much-needed growth. Energy efficiency and a shift towards a low carbon economy will not only bring benefits in cost savings, but also provide opportunities for growth and investment.
"With the right policies in place, the Government can give investors the confidence they need to inject billions of pounds into our energy infrastructure and create thousands of jobs. The key is investor certainty and a new long-term industrial policy will be crucial to achieving this."
Significant tax and benefit changes, which come into force with the beginning of the 2012/13 tax year on 6 April, will affect millions of families around the UK, according to Government and opposition figures.
Amongst the biggest changes is the increase in the income tax personal threshold - the amount of income that can be received tax-free - which is to rise by £630 to £8,105. Other benefits, including job seeker allowance and maternity benefits are to rise by 5.2 per cent in line with inflation.
Opposition MPs and unions, however, have criticised the freezing of child benefits and changes which will see parents working a minimum of 24 hours per week - rather than the current 16 hours - in order to qualify for working tax credits.
The Trade Union Congress has said the changes to tax credits will outweigh any benefits from the personal allowance being raised, with some families loosing up to 20 times more than they will gain as a result.
TUC General Secretary Brendan Barber said: "Millions of people will be getting a small boost from the personal allowance increase this Friday, but working families are likely to have lost far more from cuts to tax credits. With unemployment at a 17-year high and full-time jobs being replaced with part-time ones, parents struggling to find 24 hours of work between them could lose thousands of pounds.
"Complicated changes to child benefit for higher rate taxpayers will provide further financial headaches for many parents this year.
"From tax credits to cuts in vital public services, families are bearing the brunt of the government's austerity measures. This approach is self-defeating as providing greater support towards the cost of raising children helps their development and boosts the economy, as parents tend to spend nearly every penny they earn."
Other key changes include:
The Government has published the Finance Bill 2012, in which tax measures announced in Budget 2011 and 2012 come into force.
This year's Bill includes ongoing measures to maintain the Government's deficit reduction strategy, whilst supporting growth and employment. It also hopes to undertake significant tax reforms.
Key legislation in the Bill includes:
"The measures in this Bill will create a tax system which supports a strong economy and promotes a fair society. In other words, a tax system that works for Britain".