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VAT – Agricultural Flat Rate Scheme

The VAT agricultural flat rate scheme (AFRS) provides an alternative to VAT registration for farmers. Very broadly, under the scheme farmers do not account for VAT, submit VAT returns or reclaim input tax. Instead, they charge – and keep – a flat rate addition on sales made to VAT registered customers.

Prior to 1 January 2021 the AFRS did not have set entry and exit thresholds, and as such there was no strict limit on the size of farming business which could benefit from it. HMRC could however seek to cancel membership of the scheme on the grounds that it was “necessary for the protection of the revenue”.

From 1 January 2021 the scheme is no longer available to larger farming businesses. Or farmers who in the last 24 months have been:

  • eligible to register for VAT in the name of a VAT group
  • registered for VAT in the name of a division; or
  • ‘associated’ with another person i.e. under the dominant influence of bound together economically.

From 1 January 2021 the AFRS has the following thresholds:

  • Entry threshold – in order to join the scheme, annual turnover from farming activities must be below £150,000
  • Exit threshold-  farmers have to leave the scheme if their annual turnover from farming activities is above £230,000.

More information on applying these thresholds, and the AFRS more widely, can be found in VAT Notice 700/46.

Second Hand Margin Schemes – Vehicles

Second-hand goods, including second-hand motor vehicles, can be sold on the margin scheme subject to the following conditions:

  • The vehicles must be ‘eligible’.
  • The vehicle must be acquired under eligible circumstances – that is where you have not incurred VAT on its purchase because it was bought from an individual, a non-VAT registered business or sold to you on the margin scheme.
  • You comply with the calculation rules and record keeping requirements.

Only second-hand vehicles can be sold under the Margin Scheme. Under the legal definition of second-hand goods, a second-hand motor vehicle is one which:

  • has been driven on the road for business or pleasure purposes
  • is suitable for further use as it is or after repair

But what if you buy commercial vans and convert them into motorhomes?

Vat will have been incurred on the purchase of the commercial vehicle and in any event, this would not meet the second condition as ‘suitable for further use as it is or after repair’ – the conversion has created a different type of vehicle altogether, it is not simply a repair.

Therefore, the sale of these vehicles would not be eligible for sale on the margin scheme, and VAT should be charged on the full selling price as normal. Any VAT incurred on the cost of conversion would be recoverable as input tax.

Accountants and burn out

There is a lot in the accountancy press at the moment about burnt out accountants. I am not sur where they are but of the ones that I come into contact, they seem to be doing away fine. There have been and will continue to be challenges from grant advice and support, furlough claims, VAT reverse charge and Brexit. But if it was not these, then it would have been something else.

If you choose to be in business, the demands placed upon you, especially if you employ people, are challenging and never ending. If everything is going smoothly, you just haven’t found out yet what is going wrong. Get used to it!

You can understand that there will be those accountants at the ends of their careers where the return to the office has created another level of stress, and then they are seeing MTD on the horizon and so decide it is time to throw in the towel and let others fight those battles.

What do we mean by burnout? I have seen burnout defined in terms of three key areas of symptoms:

  1. Emotional exhaustion – when we feel we have ‘cared too much’.
  2. Depersonalisation – when our capacity for empathy and caring dwindles.
  3. Decreased accomplishments – when we feel that we are not contributing or being productive, i.e. ‘nothing I do matters’.

On the other hand stress is a natural mental and physiological response to a real or perceived threat. Burnout is the ca physical manifestation which may be brought on by prolonged exposure to stress. Some people are affected in this was, others are not.

The effects of burnout can include:

  • Insomnia
  • Chronic fatigue
  • Irritability
  • Pessimism
  • Feeling hopeless
  • Self-medicating

People find different ways of dealing with stress in order to ensure that it is short lived and does not spill over into physical effects e.g. burnout, or interfere with relationships outside of the workplace.

An accountant life is always demanding and challenging and that is part of the appeal, at least for some of us. You have to find ways to switch off. These might include exercise, talking , crying (not recommended in the office), hugging  (keep it appropriate) and laughter (I can put you in touch with a laughter therapist).

You have to find your way to deal with the effects of working under pressure and whichever way that is, it neds to be constructive and if possible, helping you to develop as a person. Your workplace experiences are valuable in building your worth. You just need to get everything in balance.

MTD – Making Tax Delightful Update

IMTD or Making Tax Digital, is still a work in progress for HMRC but there is little doubt it is going to happen.

MTD VAT is being extended to all businesses voluntarily registered for VAT for their first VAT return period starting on or after 1 April 2022. 

Around 100,000 businesses that should already be complying with MTD VAT have still to sign up. HMRC knows which aren’t filing using the correct method so it is important to get do it right as soon as possible, before they become mor heavy handed.

From April 2021 where digital records are held in a suite of software and spreadsheets, any data transfer between these products must be digital (i.e. no re-keying). It remains to be seen how HMRC will enforce this but you don’t want to get caught out.

MTD ITSA (i.e. for income tax) is due to commence from 6 April 2023 and will apply to unincorporated businesses and landlords with total business or property income above £10,000 per year.

Quarterly reports are likely to require quarterly totals under headings following the self-employed pages of the self-assessment tax return.

The first accounting periods to be affected by MTD ITSA will be those beginning on or after 6 April 2023. The first quarterly reports will be those due for businesses using fiscal year accounting, so for the quarter 6 April 2023 to 5 July 2023. As for MTD VAT, these must be derived directly from digital records and filed using API enabled software.

Quarterly reports will be needed for each business a taxpayer has, which includes each property business, and also a rent-a-room business.

One of the areas of uncertainty is how you will report income other than from trading and property. HMRC’s expectation is that most MTD software will allow non-MTD income to be reported but it is also building a new service to allow non-MTD income to reported separately. In due course, this new service will replace the current self-assessment system which will be decommissioned.

Questions?

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 alan.long@thelongpartnership.co.uk.

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