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August 2019

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To August’s Tax Tips & MYOB News.

VAT Annual Accounting Scheme
Many businesses are now filing their first VAT for MTD returns. We are content that with careful planning and the VAT Annual Accounting (AA) scheme, the first deadline for most of our clients is not until October 2021. It has surprised some of our new contacts that most businesses with a turnover below £1.35 million are eligible to join VAT AA.  And there are plenty of other advantages. We like having access to the very helpful VAT AA Helpline (tel:0300 3227873).  See more in the VAT bookkeeping section (and lots more) in our comprehensive AccountEdge Tricks of the Trade.
August 2019
· Reverse Charge for VAT on Building Supplies
· Paypal now has a running total
· The correct way with directors’ NICs
· Changes in accounting for VAT after prices are altered
· August questions and answers
· August key tax dates
Reverse Charge for VAT on Building Supplies
The Autumn Budget 2018 announced a new measure, designed to counter fraud in the construction industry.  The perceived problem is building gangs masters charging VAT on the supply of labour services and then failing to account for the output VAT due to HMRC.  They do this by collecting the VAT on the supplies (sales) and then going “missing” before passing the VAT on to HMRC.  To deal with this the HMRC has decided to put an extra admin load on the innocent rather than prosecute the guilty – as usual.

The change is scheduled to take effect from 1 October 2019.  For certain specified supplies of construction services, the customer will be liable to account to HMRC for the purchase VAT.  This is through a ‘reverse charge’. The reverse charge will apply throughout any supply chain where payments are required to be reported through the Construction Industry Scheme (CIS).

Connected parties within a group structure or with a common interest in land are excluded.   For services supplied to unregistered customers the supplier will retain responsibility for charging VAT and accounting for it to HMRC.

The reverse charge will only apply where the payment is reported for CIS purposes. But since some small businesses take deductions from their subcontractors for CIS, and very many smaller businesses suffer CIS deductions at source, this provision will still have a wide effect.  

The effect on a VAT return will be odd.  Let us imagine a CIS payment of £1200 incl VAT to a subcontractor.  Previously the subcontractor would have received £1000 from the contractor, being the £1200 gross of VAT minus £200 CIS (being £1000 x 20%).  In future the subcontractor will only receive £800, being £1200 gross minus the £200 VAT and minus the £200 CIS.  

The entries in the two VAT returns must be reported carefully.  In the contractor’s VAT return the £800 is reflected as follows:
Box 1 £200 (reverse charge)
Box 2
Box 3 £200
Box 4 £200
Box 5  nil
Box 6  £1000 (reverse charge)
Box 7  £1000
This means that the contractor will pay £200 more VAT to the HMRC than they otherwise would have done.

In the sub contractor’s VAT return the £800 received is reflected as follows:
Box 1 £200
Box 2
Box 3 £200
Box 4 £200  (reverse charge)
Box 5  nil
Box 6  £1000
Box 7  £1000  (reverse charge)
In this case the subcontractor will owe the HMRC nothing – the VAT has been settled on their behalf by the contractor.
Paypal now has a running total
The correct way with directors’ NICs top
Paypal has suddenly become a great deal easier to use.  If you have a Paypal account we suggest you login and go to Summary/ Dashboard.
Look for ‘recent activity’ in the middle of the screen.
Then look for ‘view all’ bottom left of that frame.
The running balance is now given as the final column on the paypal report.
We used to dislike Paypal – it was so hard to cope with the sales, purchases and paypal charges all offsetting each other.
This new column makes Paypal alot easier to reconcile.  the full advantage only benefits those using Acclivity or Mamut AccountEdge.  Older versions of MYOB will not let you reallocate sale receipts.
If you are
– not registered for VAT: then we can instead think of Paypal as an invoicing system.  We would process the sales only when transferred into your main bank account.
– not using Accountedge/ MYOB for stock control: we could potentially completely avoid using an accounts system to record sales.  With planning we could instead rely on the flow of cash receipts.
– Only taking your income through a webshop.  We could use a simplified bookkeeping system which only uses bank/ cash receipts from the bank.  We would rely on the webshop itself for the detail behind the sales to justify the VAT return.

See our article from 2018 about banks that are compatible with Accountedge.   
In certain situations the non-cumulative nature for calculating employee Class 1 National Insurance Contributions (NICs) makes it possible to manipulate earnings to reduce the overall amount payable by taking advantage of the lower rate of primary Class 1 contributions payable once the upper earnings limit has been reached.

This means that that an employee who is paid £2,000 each month of the year will pay considerably more in primary contributions than someone who is paid £600 for 11 months and £23,400 for one month, even though their total earnings for the year are the same.
Read More
Changes in accounting for VAT after prices are altered top
HMRC have published Brief 6 (2019), which explains changes to the rules on accounting for VAT, where the amount paid changes after the VAT has been accounted for to HMRC from 1 September 2019.

The prices businesses charge for goods and services can be reduced after VAT has been accounted for on a supply, for example when a business delivers goods, some of which are faulty, and it agrees with its customer that the price should be reduced.
Read More
August questions and answers top
August key tax dates top
Q. A few years ago I bought an antique chair for £3,500. I have recently been offered £8,000 for it. Will I have to pay capital gains tax if I accept the offer? Answer

Q. I am a VAT-registered trader and use the flat rate scheme for working out my VAT payments. I receive a small amount of rental income each month which I include in turnover to calculate the VAT due to HMRC. The rental income is managed by a letting agent. Should I include the gross or net rent in my VAT? Answer

Q. I am the director of a family-owned company. My wife and my two children are employed by the company. If the company provides a mobile phone to each of us, what will the tax implication be? Answer
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/8/2019
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New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

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About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks, Freeagent or Clearbooks.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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