A total of 519,120 VAT returns were filed late by businesses last year, up 13% from 459,190 the previous year. A nice little earner for HMRC from the interest and penalty charges on the outstanding returns.
Some of these penalties could be as high as 15%.
Although HMRC has promised a more sympathetic approach to the late payment of VAT during Covid, it has not promised a blanket exemption for all businesses. It now has to determine what it will accept as a ‘reasonable excuse’ for the late filing and payment of VAT and then these policies need to be interpreted and applied in practice by HMRC personnel.
As you are required to file the return and pay over the vat at the same time this probably means that those who have filed their VAT returns late are likely to have paid late too. Penalties await!
The problem is that if you are late paying your VAT, you probably have a deeper issue in that other payments may also be late. If you add to this the VAT deferred from last year, then you could be in for a difficult time.
Changing the tax year
In 1582, the Gregorian calendar was introduced by Pope Gregory XIII to replace the Julian calendar originally proposed by Julius Caesar back in 46 BC. After some time, scholars calculated that the inaccurate Julian calendar had lost nine solar days. But, while most of Europe changed to the more accurate Gregorian calendar, we continued with the old one until September 1752 – and by this time there was an 11-day difference.
To catch up in that year, 2 September was replaced by 14 September, but to ensure no tax revenue was lost, the missing days were added on at the end of the year.
During the Middle Ages, the legal year began on “Lady Day,” which was 25 March and so, with the reinstatement of the ‘lost days’ after this, the beginning of the tax year became 5 April. Almost there!
Then a further change came in the year 1800, which was not a leap year in the new Gregorian calendar but would have been in the old Julian system. In order to compensate, the British Treasury adjusted the start of the UK tax year by one day, from 5 April to 6 April and it has remained that ever since, including when income tax was imposed in 1842.
The Office for Tax Simplification has confirmed it is reviewing the benefits, costs and implications of moving the UK’s tax year end from 5 April. While the review will focus on a move to 31 March, it will also consider 31 December.
The document confirms that the key focus of the review will be moving the year end to 31 March, the closest month and quarter end, which would align it with the UK financial year end.
Moving the tax year end to 31 December would align the UK with many major economies including France, Germany, the US and Ireland.
VAT payments by Direct Debit
HMRC are moving all the VAT records to another platform, and this will affect your direct debit payments.
As well as communicating by email, HMRC is writing to more than 150,000 VAT-registered businesses where it doesn’t hold a valid email address, explaining what they need to do to continue paying their VAT by direct debit.
In April 2021, HMRC started moving the VAT records of traders who are not signed-up to Making Tax Digital (MTD) for VAT to a new system. This transfer is more complicated for traders that pay by direct debit where HMRC does not hold a valid email address, so HMRC will not start transferring the records for these traders until July 2021. HMRC needs to hold a valid email address for those paying by direct debit to satisfy banking requirements.
When a VAT record is transferred and HMRC’s system does not hold a valid email address, any direct debit mandate will be cancelled. You therefore need to set up a new mandate through your business tax account or make alternative payment arrangements.
Once their record has been transferred to the new database, the trader will be prompted to set up a new direct debit mandate when they sign into their business tax account.
Unfortunately, traders will not know exactly when their record is going to be transferred but it is likely to be sometime before November 2021).
HMRC has confirmed that any direct debit mandate set up to pay deferred VAT is completely separate and therefore unaffected.
Tax implications of director’s loans
Director’s loans can provide a useful mechanism, in the right circumstances, but you need to watch the tax issues. There are tax implications both for director/shareholders taking out these loans and the company itself.
For a director to take out such a loan and take advantage of the tax benefits, they must be a shareholder of the company, so the name is slightly misleading, and they would be more accurately referred to as shareholder loans.
In addition to these loans being able to be taken out by shareholders, they can also be taken out by close family members of a shareholder.
A director’s loan account (DLA) is where the money borrowed from or lent to a company from/to shareholders is recorded.
Withdrawals other than expenses that a shareholder makes from their company bank account must be recorded in its director’s loan account. Where a company has more than one director or shareholder, each person is required to have their own account.
Broadly, where these loans are not repaid within nine months of the end of a company’s corporation tax accounting period:
- corporation tax is payable at 32.5% of the outstanding amount.
- interest on the corporation tax will be added until either the corporation tax or loan is paid off.
Where a loan is written off or released (i.e., not paid back):
- Class 1 National Insurance should be deducted by the company, through its payroll.
In instances when the company writes off, or releases a loan, the personal responsibility of the borrower is to pay income dividend tax on the loan through a personal self-assessment tax return.
The loan is treated as a benefit in kind if the director/shareholder does not pay the company at least a minimum rate of interest on the loan, currently 2% pe annum.
You cannot avoid the tax charge if the loan is repaid immediately before the 9-month deadline and then taken out again. HMRC already thought of that, and it is not effective in removing the tax charge.
However, if a loan account is overdrawn at the end of an accounting period, the corporation tax charge can be avoided if the loan is cleared within nine months and one day after the end of the period and you can do this with a dividend, or a bonus added to salary.
These solutions each trigger potential tax liabilities for the director/shareholder so take advice before you do it.
Let’s talk football!
The developments in the Euros this year may have sparked a wave of holiday requests. So how do you deal with the HR issues that might arise.
To celebrate the EUFA Championship’s 60th ‘birthday’, the matches will not have just one host country but will instead be staged all over Europe, including at Wembley Stadium in London where the final will be held.
This means that you will not only need to think about issues arising from employees seeking to travel abroad for the Championship matches but also those hoping to watch the matches here in the UK, either attending the fixture or watching remotely.
It may be that you intend to allow all employees to take annual/unpaid leave, and this could mean that staff shortages will need to be addressed. Alternatively, you may wish to devise a way of keeping staff up to date with match scores. This does not mean allowing all staff unlimited use of the internet throughout the Championship games, but you could consider assigning one person to keep track of scores and disseminate the information to others.
Other ways include screening matches in the workplace or allowing a radio. Watch out for the licensing.
However you choose to handle the situation, it is worth implementing or updating policies and procedures relating to this issue. Whether it be policies on sickness absence, absence notification, annual leave, or internet usage, you should make sure all staff are aware of the rules so they know what the minimum standards are that they must adhere to. This way, they cannot allege that they did not know that they were breaking a rule.
That said, even fun events in the workplace genuinely supported by organisations can create some disharmony. This means making sure all teams are represented within the business and are given equal billing so that no staff are made to feel less important than others.
It is also important that you continue to enforce social distancing measures for as long as you are legally obliged to do so.
Where staff are still working from home or are hybrid working, it is advisable that if a dip in productivity is observed, you don’t assume it is football related. Get this wrong and dismissing an employee on that basis, without following a proper procedure, could lead to claims of discrimination or unfair dismissal.
Put reasonable policies in place and enforce them fairly across your whole workforce.
If you need help with this, we can refer you to a specialist who can help.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.