Dormant companies – obligations

What is a dormant company?

A company or association may be ‘dormant’ if it is not trading and doesn’t have any other income – for example from investments.

A dormant company has different obligations for corporation tax, annual accounts and returns for Companies House in comparison to a trading company.

Dormant companies and corporation tax

Your company is usually dormant for corporation tax if:

  • the company has stopped trading and has no other income
  • is a new limited company that hasn’t yet started trading

If HMRC think your company is dormant, you may get a letter informing you of the decision to treat the company as dormant, and that you don’t have to pay Corporation Tax nor file Company Tax Returns (form CT600.)

If you have not received a ‘notice to deliver a Company Tax Return’ HMRC can be informed of company dormancy by post or over the phone.

If the company becomes active after a period of dormancy, HMRC must be informed within 3 months.

Dormant companies and VAT

If the company was registered for VAT before becoming dormant the company should deregister for VAT within 30 days of the company becoming dormant, unless there are plans for the company to continue trading in the future, then NIL (empty) VAT returns should be sent while the company is dormant.

Dormant companies and employees

If the company has become dormant and there are no plans to restart trading in the financial year, the PAYE scheme in operation by the company should be closed.

Dormant companies and Companies House

A company must file a confirmation statement (previously an annual return) and annual accounts with Companies House, even if the company is dormant for Corporation Tax, and dormant according to Companies House.

A company is classified as dormant by Companies House if it’s had no ‘significant’ transactions in the financial year. Significant transactions could include operating a payroll, earning interest or paying bank charges and fees. Non-significant transactions that are allowed to be undertaken by a company include:

  • Payment of shares by subscribers
  • Fees paid to Companies House for filing a confirmation statement
  • Late filing penalties paid to Companies House

Companies House do not need to be informed if trading is restarted – the next set of non-dormant accounts filed will show the company is no longer dormant.

If you would like to discuss any of this further then please contact us on 0116 242 3400.

Aiden Hyett, Accounts & Tax 

VAT: Overseas sales

VAT: Overseas sales

Below are some very basic rules of how to deal with VAT on overseas sales. If you ever come across these, please contact us as there are a lot more details which should be reviewed before anything is submitted to HMRC.

The following are basic questions that need to be answered before being able to decide whether VAT should be charged or not:

Are you supplying goods or services?

Are you supplying to a business or a consumer?

Where are they located?

Are they VAT registered?

Goods

EU:

VAT Registered Business-

If the VAT number has been provided by the Business and there is a VAT number on the invoice as well as documentary proof of export, VAT can be charged at 0%.

Non-VAT Registered Business or Consumer-

If the customer is not VAT registered you will have to charge VAT at 20%. However this is only true until the distance selling threshold is exceeded, which depends on the country concerned.

 Outside the EU:

If the Customer resides outside the EU, VAT can be charged at 0%.

 Services

EU:

All VAT and Non-VAT Registered Businesses-

VAT can be charged at 0%, if the service is for business purposes.

Consumer-

VAT must be charged at 20%.

However, if it is an ‘e-service’ you would have to charge VAT at that country’s own rate.

Outside the EU:

All VAT and Non-VAT Registered Businesses-

VAT can be charged at 0%.

Consumer-

VAT can be charged at 0% for the following services:

Electronically supplied services

Advertising

Legal

Accountancy

Consultancy

Supply of staff

Hire of goods

Telecoms and broadcasting

 

VAT must be charged at 20% on all other services.

If you have any queries, or require any further information on this, please do not hesitate to contact us 0116 2423400

Jess Cooper, Accounts & Tax 

Autumn Budget 2017

Yesterday saw a budget that focused, as expected, on housing and a stormy economic forecast. Our full summary is available on our website, but the key tax developments are summarised below.

Personal Tax Rates and Allowances

The personal allowance is currently £11,500 and will increase to £11,850 in April 2018. The higher rate threshold similarly increases from £45,000 to £46,350. Phillip Hammond reaffirmed his commitment to raise these thresholds to £12,500 and £50,000 respectively by 2020.

 National Insurance for the self-employed

 After the embarrassment of Mr Hammond’s U-turn earlier this year after attempting to abolish Class 2 National Insurance and increase Class 4, it was announced that in order to give sufficient time for a more popular proposal to be devised, there will be a delay of one year before any reform.

Capital Gains Tax

 After unfavourable consultation, the proposal for a 30-day window between Capital Gains arising and the tax being due has been deferred until April 2020.

 Research and Development

 Large companies claiming relief for research and development under the RDEC scheme will see their credit increase from 11% to 12% as part of plans to help the economy grow after Brexit.

Corporation Tax

Indexation Allowance – a long standing relief for companies making capital gains will be frozen from 01 January 2018. This allowance protected companies from gains that arise as a result of inflation and as a result no relief will be available for inflation accruing after this date. This move is perhaps unsurprising, with property investors more often operating through a limited company as a result of this allowance and the increased taxation of landlords in recent budgets.

 Stamp Duty

 With the youth vote rocketing in the last election, the government has decided to act further on the concerns that first time buyers are struggling to get on to the property ladder. Stamp duty will be abolished immediately for first time buyers purchasing properties worth up to £300,000. Those buying their first houses in expensive areas such as London will pay no stamp duty on the first £300,000 of properties costing up to £500,000.

 Value Added Tax (VAT)

 The VAT registration threshold will remain at £85,000 p/a for two years from April 2018. This will come as a relief for many, as some predicted this could be lowered to nearer the EU average of £25,000.

Making Tax Digital (MTD)

 As announced in July, no business will be mandated to use MTD until April 2019, and then only for VAT obligations. The scope of MTD will not be widened until April 2020 at the earliest.

The above are only the areas that I feel will be relevant to the majority of our clients, other areas and greater detail can be found on our website, click here. 

Please contact us on 0116 242 3400 if you have a specific query.

Matt Smith.

Hot Topic Making Tax Digital for Business

The government have issued information on how Making Tax Digital for Business (MTDfB) is expected to work for VAT once the rules are introduced in April 2019.

Under the proposed rules, which have been issued subject to consultation, VAT registered businesses with turnover over the VAT registration threshold will be required to submit their VAT return digitally using software. Businesses with a turnover above the VAT threshold (currently £85,000) will have to:

  • keep their records digitally (for VAT purposes only) and
  • provide their VAT return information to HMRC through Making Tax Digital (MTD) functional compatible software.

It has also been confirmed that MTD will be available on a voluntary basis to other businesses, for both VAT and income tax.

Exemptions will be available where HMRC are satisfied the business is run by a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, some insolvent businesses; or where HMRC are satisfied that it is not reasonably practicable to make a return using an electronic return system for reasons of disability, age, remoteness of location or any other reason.

The proposed rules include provisions that where a business is in scope for MTD the business must use functional compatible software to meet the new requirements. This software will either be a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software include:

  • keeping records in a specified digital form
  • preserving digital records in a specified digital form
  • creating a VAT return from the digital records and providing HMRC with this information digitally
  • providing HMRC with VAT data on a voluntary basis and
  • receiving information from HMRC via the API platform that the business has complied.

Businesses will need to preserve digital records in the software for up to six years. The digital records include:

  • ‘designatory data’ including the business name, principal place of business and VAT registration number together with information about which VAT accounting schemes they use
  • the VAT account that each VAT registered business must keep, by law, and
  • information about supplies made and received.

Further information on the required information can be found in Annex 1.

The government will make the final detailed requirements available to the software providers by April 2018 to allow time for the software to be developed and tested prior to the rules coming into effect from April 2019.

VAT returns

Businesses within the scope of MTD for VAT will be required to submit their VAT returns using their functional compatible software.

The information contained with the VAT return will be generated by pulling information from the digital records. This information will contain as a minimum the 9 boxes required for the completion of the VAT return but can also contain a specific data set of supplementary information, all of which will be pulled from the digital records.

Businesses submitting monthly or non-standard period returns will be able to continue to do so. The VAT annual accounting scheme will also be retained with the current conditions. Businesses making these types of returns will also be required to keep digital records and submit their VAT returns through software.

Under the new rules some businesses may choose to voluntarily provide further information:

Periodic updates
Businesses will be able to submit VAT information more frequently than their VAT return obligations require on a voluntary basis as a ‘voluntary update’.
Supplementary data
HMRC believes that businesses and HMRC could benefit from the submission of supplementary data detailing how the figures in the return are arrived at. HMRC believe this additional data will help them target non compliance. The software will allow for the voluntary submission of supplementary VAT data as part of a VAT return or a voluntary update. This will allow HMRC to test with businesses the extent to which they and HMRC can benefit from such supplementary data.

Timescale

VAT is the first tax to be reportable under MTD and businesses within the scope of MTD will need to keep their records digitally, using approved MTD functional compatible software, from 1 April 2019. The software will create the return from the digital records and this will need to be submitted under MTD for return periods starting on or after 1 April 2019.

We will keep you informed of developments in this area and ensure we are ready to deal with the new requirements. Please contact us for more information 0116 2423400

What is the VAT cash accounting scheme?

What is the VAT cash accounting scheme?

The VAT cash accounting scheme is a useful tool for many small businesses, as you only pay the VAT on your sales to HMRC once you have received payment yourself.

However, you may only reclaim VAT on your purchases from HMRC when payment of the invoice has been made.

You can join the cash accounting scheme if your turnover is less than £1.35m, and can continue to use the scheme until your turnover reaches more than £1.6m.

Your business should be eligible to use the scheme if you meet the threshold requirement, unless your VAT affairs are not up-to-date, you have been convicted of a VAT offence or have been penalised for evading VAT over the past 12 months.

What is the advantage of using cash accounting?

Clearly the main benefit of joining this VAT scheme is in the cash flow benefits it provides. If you have a late paying client for example, you will not have to account for the VAT on any outstanding sales invoices until you have been paid. In fact, if you incur any bad debts, the VAT will never need to be paid to HMRC.

What is the disadvantage of using cash accounting?

There may be some disadvantages, depending on your situation.  For example, as you cannot reclaim the VAT on any purchases you make until payment is made, this could cause cashflow problems if you buy a substantial amount of stock on credit.

Joining the cash accounting scheme

You do not need to inform HMRC if you want to join the scheme. However, you must start at the beginning of a new VAT quarter.

You can also leave the scheme at the end of any VAT quarter, if necessary, or if your taxable turnover reaches the £1.6m mark.

If you would like any assistance on joining, leaving or any further information on the cash accounting scheme, then feel free to contact  the office on 0116 242 3400.

Tom Luckett,  Accounts & Tax 

Late registration for VAT can be costly to your business.

Registering for VAT is a must if your turnover reaches a certain level; it’s part of your role to ensure that your business is suitably prepared and aware of when the registration needs to be made.

The VAT registration threshold is £85,000 – meaning that once your turnover crosses this level, in a 12 month rolling period, you may have to register for VAT. This can be a big change for a business and needs serious consideration as to the effects it can have.

A failure to comply with the HMRC rules to register on time can lead to penalties which soon tally up and leave you considerably out of pocket.

The penalty is worked out as a percentage of the VAT due, from the date when you should have registered to the date that HMRC either receive your notification or become fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:

If you registered: Then the penalty rate will be:
not more than 9 months late 5%
more than 9 months but not more than 18 months late 10%
more than 18 months late 15%

There will always be a minimum penalty of £50.

If you feel that your business could be approaching the VAT turnover threshold then get in touch so that we can help. 0116 2423400

Brook Lucas, Accounts & Tax

Tax Calendar

The following Tax Events are due on 19th July 2017:

Business Tax Events

PAYE quarterly payments are due for small employers for the pay periods 6th April 2017 to 5th July 2017.

This deadline is relevant to small employers and contractors only. As a small employer with income tax, national insurance and student loan deductions of less than £1,500 a month you are required to make payment to HMRC of the income tax, national insurance and student loan deductions on a quarterly basis.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. In year interest will be charged if payment is made late. Penalties also apply.

PAYE Student loan and CIS deductions due for the month to 5th July 2017.

This deadline is relevant to employers who have made PAYE deductions from their employees’ salaries and to contractors who have paid subcontractors under the CIS.

Employers are required to make payment to HMRC of the income tax, national insurance and student loan deductions. Contractors are required to make payment to HMRC of the tax deductions made from subcontractors under the CIS.  

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. In year interest will be charged if payment is made late. Penalties also apply.

Class 1A NIC due for 2016/17.

This deadline is relevant for employers who have provided their employees with benefits for 2016/17. These benefits should have been reported by the 6th July and the amount of the Class 1A employer only NI liability due calculated on the form P11D(b).

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. Interest will be charged if payment is made late. Penalties may also apply. 

We have a Tax Calendar on our website so you never miss a deadline to see future deadlines please visit our calendar  https://www.torrwaterfield.co.uk/resources/tax-calendar 

When Do I Have To Register for VAT?

If you are aware of an increase in turnover, or are unsure about whether you should be VAT registered or not, the following points should help:                                                      

  • If your turnover exceeds the registration threshold of £85,000 over a rolling 12 month period then you will need to register for VAT; you will then need to calculate at what point your turnover broke this threshold.
  • Once you know when you exceeded the registration threshold, you need to register by the end of the following month. For example, if the threshold was breached on 31 August, you have to register by 30 September and will be registered from 1 October.
  • If you expect you will breach the registration threshold in a single 30 day period, you must register for VAT immediately.
  • If you are late registering for VAT, then you must pay what you owe from the point at which you should have registered; as well as interest there may be penalties which depend on what you owe and how late your registration is.
  • It is possible to get an exception from registering if your turnover goes over the threshold temporarily. To do this you need to write to HMRC with evidence as to why you believe your net turnover won’t go over £83,000 (de-registration threshold) in the next 12 months. HMRC will then respond confirming whether an exception has been granted or not – this is not always guaranteed – and if denied, they will register you for VAT.
  • You can also register at any point voluntarily – you must pay HMRC any VAT you owe from the date that you become registered.

If you are unsure, there is a helpful link online (www.gov.uk/vat-registration/overview) which explains in further detail the steps you should take when registering for VAT.

If you have any queries or concerns with regards to any aspect of VAT, feel free to give our office a ring on 0116 242 3400 and we will be happy to discuss this with you. 

Jake Dempsey, Accounts & Tax

When Do I Have To Register for VAT?

If you are aware of an increase in turnover, or are unsure about whether you should be VAT registered or not, the following points should help:                                                   

  • If your turnover exceeds the registration threshold of £85,000 over a rolling 12 month period then you will need to register for VAT; you will then need to calculate at what point your turnover broke this threshold.
  • Once you know when you exceeded the registration threshold, you need to register by the end of the following month. For example, if the threshold was breached on 31 August, you have to register by 30 September and will be registered from 1 October.
  • If you expect you will breach the registration threshold in a single 30 day period, you must register for VAT immediately.
  • If you are late registering for VAT, then you must pay what you owe from the point at which you should have registered; as well as interest there may be penalties which depend on what you owe and how late your registration is.
  • It is possible to get an exception from registering if your turnover goes over the threshold temporarily. To do this you need to write to HMRC with evidence as to why you believe your net turnover won’t go over £83,000 (de-registration threshold) in the next 12 months. HMRC will then respond confirming whether an exception has been granted or not – this is not always guaranteed – and if denied, they will register you for VAT.
  • You can also register at any point voluntarily – you must pay HMRC any VAT you owe from the date that you become registered.

If you are unsure, there is a helpful link online (www.gov.uk/vat-registration/overview) which explains in further detail the steps you should take when registering for VAT.

If you have any queries or concerns with regards to any aspect of VAT, feel free to give our office a ring on 0116 242 3400 and we will be happy to discuss this with you.

Jake Dempsey 

Accounts & Tax 

Spring Budget 2017

I am sure that you have seen the headlines in the papers this morning about the Budget and for a detailed analysis please see the report on our website:

www.torrwaterfield.co.uk/news/budget-report.

The items that have caught my attention and I think are relevant to most people are as follows:

National Insurance for the self-employed

At present, if self-employed, you pay class 2 National Insurance of £145.60 for a complete year, and class 4 at 9% based on your level of profits.  The Government do not think that this is fair as employees pay National Insurance at 12%.  To level this position, class 2 National Insurance will be abolished from 06/04/2018 and the class 4 element will increase to 10% from that date, and to 11% from 06/04/2019, thus bringing the self-employed more in line with the employed.

Dividend changes again …

From 06/04/2016 broadly the first £5,000 of dividend income is taxed at 0 % (Dividend Allowance).  This will continue until 05/04/2018.  However, from 06/04/2018 the Dividend Allowance will reduce to £2,000.  This will mainly affect the family company shareholder and increase their tax liability as follows:

Basic rate taxpayer – additional tax of £225

Higher rate taxpayer – additional tax of £975

Additional rate taxpayer – additional tax of £1,143

Individual Savings Accounts (ISAs)

 The overall limit is increasing from £15,240 to £20,000 on 06/04/2017.

Property and trading income allowances

Although this was mentioned last year it comes into play on 06/04/2017. It is as it says, so if you have property or trading income of £1,000 or less you will no longer need to declare this or pay tax on it.  This could cover small amounts of rent from Air ‘bnb’ activities or trading on ebay. 

New Childcare provisions

 If you are taking out new childcare provisions from 06/04/2017 then, instead of opting for a salary sacrifice scheme and receiving vouchers, for every 80 pence that you contribute the Government will contribute 20 pence. The maximum the Government will contribute will generally be £2,000.

Making Tax Digital

This will be introduced on 06/04/2018 for businesses, the self-employed and landlords who have profits chargeable to Income Tax and pay Class 4 National insurance Contributions where their turnover is in excess of the VAT Threshold, which will be £85,000 from 01/04/2017.

As this is a very new area please contact us for further information.

Salary Sacrifice

 From 06/04/2017 this is changing, but it is still beneficial for both the employer and employee to sacrifice salary in respect of employer provided pensions, childcare vouchers, workplace nurseries and cycle to work schemes. 

Construction Industry

The government are launching a consultation on 20 March 2017 to look at various areas, including the qualifying criteria for Gross Payment Status and options to combat VAT supply chain fraud in supplies of labour.

In addition to the above, certain other changes come into force on 06/04/2017 that have been mentioned in earlier Budgets namely:

Restrictions on residential property interest

Landlords will no longer be able to deduct all of their finance costs from their property income.

Inheritance Tax residence nil rate band

There will be an additional nil rate band for deaths on or after 06/04/2017 where an interest in a main residence passes to direct descendants.

As mentioned above I have only mentioned the areas that I believe will be most relevant to the majority of our clients but other areas can be found on our website.

Please contact us if you have a specific query. 0116 24243400

Julia Harrison, Tax ManagerJulia Harrison April 2012