We weigh up the VAT flat rate scheme for small businesses, help you to identify unused tax allowances, and discuss the financial handbook for independent training providers – all covered in today’s blog post
Understanding the pros and cons of the VAT Flat Rate Scheme for businesses
Value Added Tax (VAT) is a significant consideration for businesses. It impacts your cash flow, the amount of admin work needed, and even your overall profitability. One option available to businesses – with a VAT exclusive turnover of £150,000 or less – is the VAT Flat Rate Scheme (FRS), which offers a simplified approach to VAT accounting. However, deciding whether to adopt this scheme requires careful consideration of its benefits and drawbacks.
The VAT Flat Rate Scheme operates by applying a fixed percentage to your turnover to determine the VAT payable to HM Revenue and Customs (HMRC). This fixed rate varies depending on the industry sector that your business operates in. While this simplicity can be appealing, it’s crucial for businesses to evaluate whether this scheme aligns with their specific circumstances.
The advantages
One of the primary advantages of the VAT Flat Rate Scheme is how simple it is to operate. Unlike traditional VAT accounting, where businesses need to track VAT on sales and purchases separately, FRS simplifies this process by applying a flat rate to the total turnover. This can save time and reduce the administrative burden, and if you run a smaller business this can be a big help!
Businesses under the VAT Flat Rate Scheme can also benefit from potentially paying less VAT to HMRC compared to the traditional accounting methods of accounting for VAT. The scheme allows for your business to keep the difference between the VAT charged to customers and the VAT paid to HMRC, which can provide an additional margin for your business.
The disadvantages
However, while the VAT Flat Rate Scheme offers simplicity and potential cost savings, it may not be suitable for all businesses. One of the notable drawbacks is the inability to reclaim VAT on purchases, except for certain capital assets over £2,000. This means that if your business buys in a lot of supplies where you pay VAT on them, you may not benefit from the scheme as much as others.
Additionally, the fixed rates provided by HMRC may not always accurately reflect your business’s specific VAT position. While these rates are designed to approximate the average VAT payable for different industries, businesses with atypical cost structures or profit margins may find themselves disadvantaged by the scheme.
Furthermore, you need to consider the future growth of your business and how this might impact your VAT liabilities under the Flat Rate Scheme. As turnover increases, the fixed percentage applied to turnover may result in higher VAT payments compared to the traditional methods of accounting for VAT. This could potentially erode the scheme’s cost-saving benefits.
Before deciding whether to adopt the VAT Flat Rate Scheme, it is important that you carefully evaluate your current VAT position, including the proportion of VATable sales and purchases, as well as any potential future changes in turnover.
We have tools that can help you decide whether joining or leaving the Flat Rate Scheme is a good choice for your business. Please feel free to get in touch with us. We would be happy to help you!
Are you eligible for a £252 saving on your tax bill?
With the tax year ending on 5 April, March is a good month to check whether sharing unused tax allowances with your partner could save you some money.
HM Revenue and Customs (HMRC) say that March is the most popular month for Marriage Allowance applications. Almost 70,000 couples applied in March last year. As there is also the option to backdate their claim for the previous 4 tax years, eligible couples who have not previously claimed could receive a lump sum payment of more than £1,000.
Marriage allowance allows individuals to transfer up to 10% of their tax-free Personal Allowance to their husband, wife, or civil partner. For the 2023/24 tax year, this means a maximum amount of £252 could be available to those who qualify.
In order to benefit, either you or your partner must have an annual income of less than the Personal Allowance, which is currently £12,570. And the higher earning partner’s income must be between £12,571 and £50,270. If you live in Scotland, the higher earning partner’s income must be between £12,571 and £43,662.
To find out if you are eligible, you can use HMRC’s online calculator at https://www.tax.service.gov.uk/marriage-allowance-application/benefit-calculator
If you need any help working out whether you are eligible or in applying for the allowance, please do not hesitate to contact us!
Additional protection now available for UK food and drink sold in Japan
A total of 37 Geographical Indications (GIs) gained formal protection last week as part of a deal agreed between Japan and the UK.
Iconic food products such as Cornish Pasties, Welsh Lamb, Scotch Beef, Cornish Clotted Cream, and Melton Mowbray Pork Pies will all receive protection under the agreement. This means that UK businesses exporting these food and drink products to Japan will be protected against local and other businesses imitating these products in Japan.
Under the agreement, a number of Japanese agricultural products and drinks will have their GIs protected in the UK.
For a full list of the protected foods and drinks, please see: https://www.gov.uk/government/news/uk-businesses-welcome-protection-for-iconic-british-food-and-drink-in-japan
Financial handbook for independent training providers released
David Withey, Chief Executive of the Education and Skills Funding Agency (ESFA) has written to independent training providers in receipt of direct funding from the Department for Education (DfE) or ESFA. The letter announces the publishing of a financial handbook for independent training providers.
The financial handbook describes a mix of requirements, best practice and discretionary elements that are tiered depending on the organisation’s level of funding.
It covers many aspects of financial management and governance. For many independent training providers, these procedures will already be part of their good financial management. However, there may be some new requirements that need to be adjusted for, such as those involving internal review and audit.
The financial handbook comes into effect on 1 August 2024, which allows a few months to make any needed adjustments. Certain parts of the handbook will be phased in over a longer 2-to-3 year timescale.
The financial handbook can be viewed here: https://www.gov.uk/guidance/financial-handbook-for-independent-training-providers
A webinar that introduces the handbook can be viewed on YouTube at: https://www.youtube.com/watch?v=xyR99SnvkJE
If you need any help reviewing or implementing financial systems, please get in touch with us. We would be very happy to help you!
Director of care home investment scheme fraud banned
Robin Forster, the director of two companies involved in operating an unauthorised care home investment scheme has been banned from being a company director for 14 years.
A total of £57 million had been taken from investors and put at risk in the unauthorised scheme. Based in the north-east of England, Qualia Care Properties Ltd and Qualia Care Developments Ltd offered investors the opportunity to invest in care homes. Investors bought a long-term lease on a care home room. The care home was run by a third company, Qualia Care Ltd, who sublet the room back to the other 2 companies.
Investors were promised returns of between 8-10% of the purchase price. However, the Financial Conduct Authority (FCA) successfully argued in court that the scheme was unlawful and amounted to an unauthorised collective investment scheme. The court also agreed that Mr Forster had made false and misleading statements to investors since the promised returns were never likely to be achievable or the scheme itself sustainable.
The FCA is currently seeking to recover the £57 million lost by investors.
To compound matters, during the four days leading up to the two companies going administration, Mr Forster arranged for more than £2 million to be transferred out of the companies into a connected company. This was despite the fact that monies were owed to creditors.
Both factors – running the unauthorised scheme, and depriving creditors of more than £2 million – contributed to the 14-year ban.
News like this serves as a good reminder that as far as investment returns go, if it sounds too good to be true, it probably is!