Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
When is an invoice not a VAT invoice?
VAT is determined by the tax point which is the date when VAT must be declared on the VAT return.
The basic tax point for a supply of goods is the time/date of dispatch. The basic tax point for a supply of services is when the services are performed.
However, this can be overridden by an actual tax point which can be before or after the basic tax point. An earlier tax point arises if the supplier issues a VAT invoice or receives a payment in advance of the basic tax point. A later tax point arises where the supplier issues a VAT invoice within 14 days after the basic tax point.
A tax point can only be created by the issue of a VAT invoice, showing the name and address of the supplier and customer, description of goods, supplier’s VAT number, tax point/date, and VAT rate applicable.
What if the invoice says “This is not a VAT invoice”
Issuing an invoice that states “this is not a VAT/tax invoice” in theory does not create a tax point because it is not a VAT invoice and so the tax point shifts to when the invoice is paid. Once paid, the supplier must then issue a proper VAT invoice to the customer.
This approach is also seen with pro-forma invoices.
For goods, the benefits are negligible especially if payment is to be made before dispatch.
For services, the benefits are that the supplier can delay paying output tax on their supply until such time as the customer pays the invoice.
So, the advantage to the supplier is largely cash flow, but on the other side is the increased administrative burden.
The EU is moving towards mandatory digital invoicing.
E-invoicing will be mandatory for cross-border transactions from 2025 and EU digital reporting will start in 2028. Member states may also implement similar processes internally. Italy already has mandatory e-invoicing.
As part of this change, EC sales lists will be replaced by a new digital reporting requirement.
Intra-EU sales will be transacted with near real-time digital e-invoicing becoming a legal requirement from the beginning of 2025.
Based on data extracted from the e-invoices they issue and receive, taxpayers will pass the sales information to their national tax authority. Each member state will submit its transaction data to a new central database operated by the European Commission.
One of the main reasons for adopting this approach is to clamp down on carousel fraud, where bogus cross-border deals are a big drain on VAT revenue. The centralised database will also give tax authorities access to detailed, up-to-the-minute economic data to better model the impact of fiscal or monetary policy interventions.
While ultimately removing barriers to trade within the EU, e-invoicing presents a hurdle to suppliers from non-EU jurisdictions.
Reminder: New VAT penalties from 1 January
From 1 January 2023, HMRC will introduce a fixed rate, points based penalty system for VAT submissions. Initially, HMRC has said there will be a ‘light touch’ approach to the new regime in the first year of operation.
Under the new rules, there will be a single penalty point for each late submission of a VAT return. When a business has exceeded the points threshold, a fixed rate penalty of £200 will be issued for each subsequent late return.
For businesses on standard quarterly returns, the threshold is four points in any two-year period. For those on monthly returns, it will be five points and for those submitting annual VAT returns, just two points.
Points will be reset to zero when all returns have been filed and there has been a continuous period of good compliance (12 month for quarterly filings, six months for monthly filings and 24 months for annual filings).
Quarter set to pay higher rate tax
Arising from the tax threshold freeze, about a quarter of you will be subject to higher rate income tax.
The government will raise billions in additional tax as a result.
Average private sector pay rises are currently estimated to be around 6% on average although inflation is much higher, The increase cost of living will therefore be exacerbated by having to pay more tax.
Sajid Anver Valimohammed, sole director of J Dee Designs Ltd, has been disqualified for eight years after he failed to keep business accounts and records and was unable to hand them over to the company’s liquidators.
Investigators discovered that Valimohammed had withdrawn more than £286,000 from the company bank account including £30,000 from a bounce back loan that the company had applied for.
Due to his failure to keep company accounts, investigators were unable to verify whether J Dee Designs had paid the correct amount of tax it owed, or to ascertain the true financial position of the company when it went into liquidation.
Valimohammed did not contest the disqualification order in court and was banned from being a director for eight years. His ban began on 30 November and the court also awarded full costs to the Insolvency Service.
Savio Gilbert Pereira, sole director of Himalayan Zest Takeaway Limited, was disqualified for 11 years after he fraudulently obtained a £50,000 bounce back loan. The company went into liquidation in November 2021, owing £51,500, which triggered an investigation by the Insolvency Service. In June 2020, Pereira had applied for a bounce back loan, stating the company’s turnover was £207,500. This allowed Pereira to receive the maximum £50,000 loan but investigators subsequently discovered that the turnover had only been around £54,000.
Dave Elliott, chief examiner at the Insolvency Service, said: ‘The Insolvency Service takes bounce back loan abuse and the failure to keep, preserve and deliver up books and records very seriously.
Tax when giving to children
Giving a financial gift is relatively straightforward, particularly if it is cash. However, there may be unexpected tax consequences.
While giving and receiving cash does not incur a tax bill, if you die within seven years of making the transfer then inheritance tax (IHT) rules will come into play. This applies if the value of your estate exceeds £325,000 at death, with amounts over this limit potentially attracting a tax-charge payable by your beneficiaries.
There are however several exemptions that allow people to make financial gifts without worrying about a hefty IHT bill. These include:
- up to £3,000 can be given away every year tax-free. This allowance can be carried forward for one tax year which means up to £6,000 can potentially be gifted in a lump sum free from future IHT liabilities; and
- the small gift allowance means multiple cash sums of up to £250 per recipient can be given without affecting an IHT liability.
In addition, people can also give money away that comes out of their regular income ie a regular payment that does not affect the giver’s standard of living.
Save up to £9,000 in a Junior ISA
While the IHT rules still apply on the amounts donated, up to £9,000 can be saved into a JISA every tax year – with all returns free from tax – allowing parents and grandparents to potentially club together and contribute without the restrictions on the interest that can be applied that come with a savings account.
A child cannot manage the money themselves until they turn 16 and cannot access it until they are 18
Like adults, children have a tax-free personal allowance enabling them to earn £12,570 income a year and a personal savings allowance, which means even basic rate taxpayers can earn up to £1,000 of savings interest tax free as well.
Start a pension and set your children up for retirement now
Non-taxpayers, including children, have an annual gross pension allowance of £3,600 with contributions still attracting 20% tax relief. This means a relative could invest up to £2,880 into a Junior Self-Invested Personal Pension (Junior SIPP) which is then topped by up with £720 from the government.
As with all pensions, returns accumulate free from tax
Taskforce recovers £400m from fraud probes
The latest figures from the National Fraud Initiative (NFI) showed that more than £400m was recovered in 2020-22, up from £250m in 2018-20, bringing total counter fraud savings to £2.4bn since the organisation was set up in 1996.
However, the figure represents a tiny percentage of total public sector fraud and error, which was estimated to be at least £33bn a year according to a 2022 report by the Public Sector Fraud Authority.
Flexible Working Rules
Employees can currently only request flexible working after completing 26 weeks of service. This will be removed so that employees will be able to request flexible working from day one of employment.
Employers will have to respond to requests within two months (currently 3 months).
Flexible working covers working from home and in the office, job-sharing, flexitime, and working compressed, annualised, or staggered hours.
If an employer cannot accommodate a request to work flexibly, they will be required to discuss alternative options before they can reject the request.
The government has also outlawed exclusivity clauses for low paid workers, earning a guaranteed weekly income on or below the Lower Earnings Limit of £123 a week. This removes rules restricting them from working for multiple employers and will affect around 1.5 million low paid workers.
Gen Z want to set up a business
Two thirds of 16 to 25 years old workers have either started their own business or aspire to do so in 2023 compared to nearly a third of people overall
This comes from research by AAT (Association of Accounting Technicians).
The survey of more than 2,000 UK workers showed that nearly a third of UK workers have started their own business or considered doing so in 2023. In addition, 19% felt that this was the only way for career progression and a further 18% made this move because they felt trapped in their job.
Despite this, nearly one in 10 (9%) people are put off starting a business by tax and accounting and one in five (20%) do not think accountancy skills are important to start a business.
Additional research by AAT with 500 small business owners in the UK revealed that the top three mistakes when starting a business are poor understanding of the target market (30%), cash flow management (19%) and ignoring technology (19%). The research also found:
- 93% made mistakes when starting their business;
- 16% missed the tax deadline;
- over a quarter (26%) admit they have next to no accounting knowledge;
- on average, small business owners didn’t hire a qualified accountant until just over a year into operating their business;
- almost two thirds (65%) wish they had known more about accountancy before starting their business; and
- advice from small business owners is create a business plan (40%), invest in market research (36%) and hire an accountant (33%).
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