HMRC changes to VAT penalties and interest charges comes into effect 1st January 2023

HMRC changes to VAT penalties and interest charges comes into effect 1st January 2023

HMRC changes to VAT penalties and interest charges comes into effect 1st January 2023

For VAT periods starting on or after 1st January 2023, the default surcharge fee for filing late VAT returns has been replaced with a new penalties system.  Note nil or repayment returns will also need to be filed on time to avoid incurring penalties.

What happens if you submit your VAT return late

Late submission penalties will work on a points-based system. For each VAT return you submit late you will receive one late submission penalty point.

Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency:

Submission Frequency Penalty Points Threshold Period of Compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

You will be able to reset your points back to zero if you:

  • submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency as shown in the above table:
  • make sure all outstanding returns due for the previous 24 months have been received by HMRC

How will late payment penalties be calculated?

Up to 15 days overdue

You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan up to 15 days after your payment was due.

Between 16 and 30 days overdue

You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

 31 days or more overdue

From this point on, the penalty will be calculated on a daily rate of 4% per year for the duration of the outstanding balance. This will be calculated when the outstanding balance is paid in full or a payment plan it agreed.

How late payment interest will be charged

HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

How late repayment interest will be calculated

HMRC will pay interest on refunds of VAT based on the latest of the due date or date of submission until the repayment date. The rate will be the Bank of England base rate minus 1%, with a minimum rate of 0.5%.

 Whilst these new penalties and charges come into effect from the first return after 1st January 2023, in order to give you time to get used to the changes, they will not be charging a first late payment penalty during the year to 31st December 2023, if you pay in full within 30 days of your payment due date.

As a business, if you are struggling with making your VAT payment, contact HMRC at the earliest opportunity to enquire about a payment plan and avoid these penalties and charges.

 

 

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)

 

 

 

Staff Parties & Tax – What you need to Know

Staff Parties & Tax – What you need to Know

Staff Parties & Tax – What you need to Know

STAFF PARTIES

 We are coming to the end of the year and it’s time to dust of the sparkly outfits and Christmas jumpers as we head into party season.

As an employer organising a staff party, there are a few things you need to keep in mind to take advantage of tax exemptions for your employee entertaining:

Tax exemption for employee entertaining is available if all the following apply:

🎄it’s an annual party or social function, such as a Christmas party or summer barbecue

🎄it’s open to all employees

🎄the cost does not exceed £150 per head (inclusive of VAT)

HMRC have confirmed that Virtual Christmas Parties are eligible for the annual function exemption.

Note – client entertainment is not generally an allowable expense. If your party has clients and employees attending, only claim for the amount spent on your employees.

*  Do you hold multiple events a year?

If you hold multiple annual events e.g., barbecue and Christmas party, these events will remain exempt as long at the combined cost is no more than £150 per head.

If you have used up the £150 exemption on an event and have a further event in the year, you will have to report and pay tax on the full costs of the additional events, even if the cost is less than £150 per head.

Event Costs

For tax exemption, it is important to take care when working out the total cost per head, that it does stay under the £150 per head tax exemption. If the cost per head exceeds this exemption by even by a penny, then the full cost becomes taxable.

The cost per head is considered to be the total cost of the event from start to finish and include food & drink, transport and accommodation. The limit of £150 per head applies to the total number of attendees, so, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests attending.

GIFTS

Gifts to Employees

The limit set by HMRC for an employee gift is £50 and cannot be cash or a cash voucher.

So, if you are thinking about giving your employees a Christmas gift such as a bottle of wine or box of chocolates, HMRC will not seek to tax these small gifts.

However, Christmas gifts paid in cash will be classed as taxable earnings.

Gifts to customers

Generally, client entertaining is not allowable for tax purposes, further, gifts for clients and prospective clients are also not allowed.

The exception is where the gift is small and advertises your company’s services.  This excludes food and drink and vouchers/cash.  The advert, such as the company logo must be on the item, not just the wrapping.  Examples of gifts allowed includes gifts includes pens, diaries, mouse mats, clothing, and umbrellas.

 

The information given above contains general guidance, if you are unsure of any aspect of tax exemption for staff parties and gifts, please get in touch.

 

 

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)

 

 

 

When should you register for VAT?

When should you register for VAT?

When should you register for VAT?

You are required to register your business for VAT with HM Revenue and Customs (HMRC) if: 

  • your total VAT taxable turnover (your sales) over the last 12 months was over £85,000, the current threshold for 2022/23 tax year 
  • you expect your turnover to go over £85,000 in the next 30 days

 You have 30 days from the end of the month you go over the threshold to register for VAT.

 Your effective date of registration is the first day of the second month after you go over the threshold.

 From your effective date of registration, you must: 

  • Charge the right amount of VAT
  • Pay any VAT due to HMRC
  • Submit VAT Returns
  • Keep VAT records and a VAT account

 ___________________________________________________________

 Value Added Tax (VAT) is charged on the majority of goods and services provided by VAT-registered businesses in the UK. It also applies to certain goods and services imported into the UK from the EU and non-EU countries.

As a business owner it is your responsibility to keep track of your turnover (sales) over a consecutive 12-month period, not over the 12 months of your financial year. Remember, if you are getting close to the VAT threshold you must register within 30 days of reaching the current threshold of £85,000 (2022/23 tax year).

When making this calculation any sales which are zero rated need to be included in your calculation to identify if you have reached the threshold for VAT registration. The only rate of VAT you ignore are VAT exempt sales.

When you register for VAT, it is your responsibility as the business owner to apply the correct rate of VAT on the sales you make. For the majority of businesses, it will be 20% (the standard rate at 2022-23). However, for example, in the hospitality industry the rate of VAT to be charged varies depending on what is being sold and where it is to be eaten, (eat in or takeaway, hot and cold food). It is therefore vital for business owners in this industry to fully understand the VAT rates for the food and drink they sell.

HMRC have provided guidance on VAT rates for different goods and services, and this can be found using the following link: VAT rates on different goods and services – GOV.UK (www.gov.uk)

Many small businesses with a turnover below the VAT threshold volunteer to register for VAT as they deem it to be advantageous:

  • VAT can be reclaimed on goods and services purchased from other businesses.
  • If their customers are VAT registered, they will be able to reclaim the VAT, which may give them an advantage over a non-VAT registered business
  • Voluntary registration can be backdated by up to four years, which will allow VAT to be claimed back on equipment and set up costs if you still have those items and can provide the invoices/receipts.

Late Registration

If you register late, you must:

  • pay VAT on the sales you have made since the date you should have registered AND
  • you may need to pay a penalty depending on how much you and how late your registration is.

VAT is not a one size fits all and there are too many variables to cover in this blog.

The most important thing to do if you are not VAT registered, is keep track of your sales over the last 12 months and if you are creeping up on the VAT threshold, take advice from a qualified bookkeeper or accountant.

 

 

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)

 

 

 

Minimum Wage, Statutory Pay and Deduction Thresholds 2022-23

Minimum Wage, Statutory Pay and Deduction Thresholds 2022-23

Minimum Wage, Statutory Pay and Deduction Thresholds 2022-23

Minimum Wage Rates

 The rates change on 1st April each year and the hourly rate for the minimum wage depends on your age and whether you are an apprentice.

You must be at least:

  • school leaving age to get the National Minimum Wage
  • aged 23 to get the National Living Wage – the minimum wage will still apply for workers aged 22 and under

 

✻ National Living Wage (aged 23 and over) has increased 6.60% to £9.50 per hour

✻ 21 to 22 will receive a 9.80% rise to £9.18 per hour

✻ 18 to 20 will receive a 4.10% rise to £6.83 per hour

✻ Under 18’s will receive a 4.10% increase to £4.81 per hour

✻ Apprentices will receive a 11.90% rise to £4.81 per hour**

 

Apprentices are entitled to the apprentice rate if they are:

  • aged under 19
  • aged 19 or over and in the first year of their apprenticeship

ExampleAn apprentice aged 21 in the first year of their apprenticeship is entitled to a minimum hourly rate of £4.81.

Apprentices are entitled to the minimum wage for their age if they both:

  • are aged 19 or over
  • have completed the first year of their apprenticeship

ExampleAn apprentice aged 21 who has completed the first year of their apprenticeship is entitled to a minimum hourly rate of £9.18.

 

Statutory Pay Rates

Statutory Sick Pay (SSP) is £99.35 per week, with the amount due based on the number of working days in the week.

Statutory Maternity Pay (SMP) and Statutory Adoption Pay (SAP) remains the same at 90% of the employee’s average weekly earnings (AWE) for the first 6 weeks. The statutory weekly rate for all weeks after this will be the lower of 90% of AWE or £156.66.

Statutory Paternity Pay (SPP), Statutory Shared Parental Pay (ShPP) and Statutory Parental Bereavement Pay (SPBP) all have the same weekly rate of £156.66 or 90% of AWE, whichever is lower.

 

PAYE Rates

Personal Allowance is £12,570 for the year. Employees can earn £1,048 monthly or £242 weekly free of tax

The standard tax code is 1257L

20% tax is due on earnings between £12,571 and £37,700 per year

40% tax is due on earnings between £37,701 and £150,000 per year

45% tax is due on earnings in excess of £150,000 per year

NIC Rates

Employer National Insurance contributions at 15.05% (including 1.25% increase for social care) are due on employee’s earnings over £9,100 per annum, £758 per month or £175 per week

No Employer NI contributions are due on earnings of apprentices under 25, employees aged under 21, or veterans of the Armed Forces in the first 12 months of their civilian employment

Employee National Insurance contributions at 13.25% (including 1.25% increase for social care) are due on their earnings over £9,880 per annum, £823 per month or £190 per week

 

 

If you require any further assistance with payroll and compliance, please get in touch via https://www.cactusbookkeeping.uk/contact/

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)

 

 

 

Making Tax Digital (MTD) for VAT- 1st April 2022 deadline

Making Tax Digital (MTD) for VAT- 1st April 2022 deadline

Making Tax Digital (MTD) for VAT- 1st April 2022 deadline

There is no hiding from it, MTD for VAT becomes mandatory for all VAT registered businesses from April 2022, even if you are VAT registered but under the £85,00 VAT threshold.  What does this mean for your business?

 

 

  • You will now be required to file your VAT returns directly from the accounting software you use to record your day-to-day transactions.

 

Accounting software can be specific software such as FreeAgent, QuickBooks, Sage or one of the other 549 compatible software providers listed on HMRC website (https://bit.ly/3HwfQve), or, if you use  spreadsheets to calculate your VAT figures, you will need to use bridging software to report these figures to HMRC.

Records you must keep include:

  • your business name, address, and VAT registration number
  • any VAT accounting schemes you use
  • copies of all invoices/credit notes you issue
  • copies of all invoices/credit notes you received (originals or electronic copies)
  • name, address, and VAT number of any self-billing suppliers
  • import and export records
  • records of any items you cannot reclaim VAT on – e.g., business entertainment
  • records of all zero-rated items, reduced or VAT exempt items you buy or sell
  • a VAT account
  • any adjustments you make to a return

 

If you are not already using software, now is a great time to check into this.  Accounting software would be a positive move forward as you have the ability to download bank transaction into the software and attach your documents to the transactions in your software, this means everything is stored in one place.  The software will then calculate your VAT and link direct to HMRC to file the return.

 

If you bank with NatWest, RBS or Mettle business banking, you can use FreeAgent software for free.

 

Please remember your account transactions are only as accurate as the information entered and the knowledge or the person recording the transactions.  If you are unsure of what is required to comply with MTD or require assistance with choosing software, please get in touch and book a discovery call.

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)

 

 

 

Accountant v Bookkeeper

Accountant v Bookkeeper

Accountant v Bookkeeper

In the accounting world bookkeepers and accountants are to some extent intertwined as bookkeeping is part of accountancy.  Bookkeeping (keeping books) is the first step of the accounting process; an accountant will complete the process by analysing the information prepared by the bookkeeper.

What will a Bookkeeper do for my Business?

Bookkeepers play a vital role in the efficient running of a business, keeping an accurate and complete record of the financial transactions of the business, helping to maintain compliance, and ensuring the financial information is kept up to date.

By nature, most businesses generate a whole lot of paperwork, such as purchase invoices, receipts, and expense claims.  A bookkeeper will transform that bundle of paperwork into something orderly and accurate that will reflect the current position of the business.  They will help keep the business running smoothly by maintaining a general ledger, process supplier payments, raise customer invoices, credit control your customers, undertake bank reconciliation, record inventory and complete VAT returns and payroll.

Depending on the business requirements, bookkeeping can be undertaken more regularly on a weekly, fortnightly or monthly basis.  Completing the paperwork more regularly will allow the bookkeeper to provide more up to date information on the current position of the business.

What will an Accountant do for my Business?

Accountants look at the big picture, they will use the financial information prepared by the bookkeeper and provide insights and financial advice based on that information.

Accountants have an in-depth understanding of the taxation system and requirements.  They will perform audits, prepare tax returns, financial forecasting, and tax filing.

Depending on the business an accountant will generally work less frequently on the business accounts.  Accountants may only look at the business books once a year when completing the annual accounts or they may work on quarterly vat returns or when dealing with cashflow forecasting.

The following list provides a comparison of some of the services offered but is in no way a definitive list as bookkeepers/accountants services may vary.

Bookkeeper Accountant
Process invoices, receipts, payments Prepare adjusting entries
Produce sales invoices & credit control Prepare financial statements
Bank transactions & reconciliation Tax returns & filing
Maintain and balance ledgers Management reporting
VAT Returns Financial analysis and strategy
Payroll Tax advice and planning
Cash Flow & Reporting Auditing

Does a business need a bookkeeper and an accountant?

This will depend on the preference of the business owner and the size and complexity of the business itself.

A bookkeeper will keep a business well organised and deal with the day-to-day business transactions through to year end, along with helping to maintain compliance.

An accountant will ensure that the business meets its tax obligations and assist the business with financial management to help drive it forward.

Both bookkeepers and accountants have their place in any business which is why so many businesses rely on both.

 

Thinking of outsourcing?

If you are looking to outsource your bookkeeping, make sure you choose a qualified bookkeeper.  Sue Haynes MICB PM.Dip of Cactus Bookkeeping is a member of the Institute of Certified Bookkeepers (ICB), the world’s leading bookkeeping organisation.  Undertaking continuous professional development supported by the ICB, enables me to update my knowledge and expertise to help and support my clients.   Get in touch to book your Discovery Call to chat through your requirements.

 

ABOUT SUE

Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)