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Month: September 2017

VAT – an introduction

VAT  (or Value Added Tax to give its full name) was introduced in the UK IN 1973 and is the third largest source of government revenue  after income tax and National Insurance.  VAT is levies on the sale of goods and services by UK businesses.

The standard rate of VAT is currently 20% and this rate has been in place since 4th January 2011.   This rate covers most goods and services.

The other rates are:-

Reduced rate of 5%, which covers some goods and services, such as domestic  fuel or children’s car seats.

Zero rate, examples of which are children’s clothes and some foods.

Some items are exempt from VAT altogether, such as postage stamps and insurance.  No VAT is charged on anything that is outside the scope of the UK VAT system.


VAT is charged by a business  at the point of sale of goods and services.   The threshold for a  business  to register for VAT is when the  VAT taxable turnover exceeds £83,000 (April 2016).   (Taxable turnover is the total value of everything sold that is not exempt from VAT.  There are, however, different thresholds for buying and selling from other EU countries).

To register for VAT, a business will need to contact HMRC if the business goes over the VAT threshold in a rolling 12 month period.  In fact, a business should monitor its turnover regularly  to check whether it will go over the threshold.   It is generally possible to register with HMRC and it is possible to appoint an agent such as Harmonea to submit VAT returns behalf of the business.

The de-registration level for a business is less then £81,000 (April 2016).

There are various VAT schemes and here are examples of some of the schemes:-


The VAT Accrual Scheme:-

This is commonly used.  The return is calculated on the difference between the sales and purchase invoices within the relevant period, in this case, the last quarter.  The return does not take account of whether the sales and purchase invoices have been paid or are still outstanding.     A return is submitted to HMRC every quarter.

The Flat Rate Scheme:-

With this scheme, a business will pay a fixed amount of VAT.  The business will retain the difference between what it pays to HMRC and what it invoices its customers for.   However, no VAT can be claimed on the business’s purchases.  There is an exception to this, where it is possible to reclaim VAT on a single purchase of capital expenditure, where the amount of the purchase, including VAT, is over £2000.

The threshold for joining this scheme is £150000 and is over £230000 to leave.  The scheme cannot be rejoined  until 12 months after leaving.

There are incentives for the first year of registration.


Cash Accounting Scheme:-

With this scheme, VAT is not included on the sales of a business until the customer pays the invoice.  With regard to the purchases, the VAT on these cannot be reclaimed until the purchases have been paid.  Cash Accounting is ideal for those with slow payers.

The joining threshold for this scheme is £1.35 million and the threshold for leaving the scheme is £1.6 million.


Annual Accounting Scheme:-

If this scheme is used, the business will make advance VAT payments to HMRC.  These payments are based on the VAT due for the previous year or on an estimated  return for a new business.

Only once VAT return is submitted each year and this will include the balance of the VAT due.   If the VAT has been overpaid , then it will be necessary to apply for a refund.

The turnover would need to be £1.35 million for joining the scheme and over £1.6 million to leave.


A VAT return can be submitted online and is due one calendar month and seven days after the end of the last quarter, (a quarter is known as the accounting period).  The payment also needs to reach HMRC within this timeframe.  There are various penalties for late submission of a VAT return, the severity of which depends on the amount of previous late submissions and the turnover of the business.


Please contact Harmonea if you would like any more information on VAT.


Self assessment deadline dates

HM Revenue and Customs must receive your tax return and any money you owe by the deadline.

The last tax year started on 6 April 2015 and ended on 5 April 2016.

Action                                                                         Deadline

Register for Self Assessment                                         5 October 2016

To submit Paper tax returns                                         Midnight 31 October 2016

To submit Online tax returns                                       Midnight 31 January 2017

Pay the tax you owe                                                     Midnight 31 January 2017


There’s an additional payment deadline of 31 July if you make advance payments towards your tax bill, known as ‘payments on account’.


Does Auto Enrolment apply to you?

Is your staging date fast approaching and you have done nothing about it?

Automatic Enrolment applies to all employers who have at least one member of staff.  It doesn’t just apply to businesses – if you employ anyone to work for you like a cleaner or nanny for example, that makes you an employer and you will need to ensure that any eligible employees are enrolled into the workplace pension.

Setting up for Auto Enrolment doesn’t have to be costly and it pays to start planning as early as possible.  This gives employers time to research and shop around and helps avoid the risk of a £400 fine.  Recent research shows that most small and micro employers who have already met their pension duties recognise the importance of workplace pensions and think it is a good opportunity for their staff.

Not sure if you are an employer?

If you deduct tax and National Insurance from an employee, this usually makes you an employer. If you use an agency and the agency deducts the PAYE, this makes the agency the employer and you don’t need to do anything.


Not sure if your staff are “eligible”

If your staff are aged between 22 and State pension age and are earning more than £10k per annum, they are eligible and must be enrolled in to a scheme even if they chose to opt out later.  If your staff are younger or older or earning less than that they can still chose to join and you, as their employer may or may not have to contribute depending on the circumstances.


Your Business only has directors and no other staff?

You may be exempt from Auto Enrolment but you need to check.  If you are exempt you will need to tell the pensions regulator and give the reason why.


Already have a pension scheme you would like to use?

You need to check that it meets all the necessary conditions that will make it a “qualifying scheme” for Auto enrolment.  Contact your pension provider to find out.


Your staff earnings all full under the threshold?

You still have legal duties to meet.  For example, you will need to tell your staff about Auto Enrolment and complete and submit a declaration of compliance to the Pension Regulator to let them know what you have done to meet your duties


Do you need a pension scheme but don’t know where to start?

Not all schemes offer the same level of service and some charge more than others, so you should look at different schemes before you decide which is suitable for you and your staff.  The Pension Regulator has information on its website which can help you chose a Pension scheme with a list of providers who can offer pensions to small employers


What happens if you don’t complete the declaration of compliance on time?

Don’t leave your preparations to the last minute.  You will need to supply details of your pension scheme and the staff enrolled five months after you staging date.


Construction Industry Scheme

Construction-SchemeWhat is the construction industry scheme?

Construction Industry Scheme (Often shortened to CIS) is a scheme put in place by HMRC in 2007 where contractors deduct a percentage of money from a subcontractors payments which is then passed on to HMRC.

The scheme only requires contractors to register however subcontractors are advised to register as unregistered subcontractors have a higher rate deducted from their payments.


Why should a Subcontractor register with the scheme?

Subcontractors are advised to register with the scheme to reduce the rate of deduction from their payments. Unregistered subcontractors must have 30% deducted from their payments whereas once registered, this is reduced to 20% deducted. Please note the contractor is liable for any errors within the deductions made and ensuring the subcontractor is verified.


How do I know if I am a contractor or subcontractor?

You are a contractor if you pay subcontractors for construction work and/or your business doesn’t do construction work but you spend an average of £1 million or more a year on construction within any 3 month period.

You are a subcontractor if you complete or aid completion of any construction work for a contractor.


How are the CIS Returns submitted?

All contractors must submit a monthly return to HMRC by 19th of each month. This return can only be submitted online via the HMRC website. If the return is nil this still needs to be submitted however this can be submitted on the phone.

When submitting the monthly return contractors must make sure throughout the month they have deducted the correct rate from their subcontractors. These subcontractors can be verify online where you will need their Unique Tax Reference (UTR), Trading Name, National Insurance Number (if they are a sole trader) OR Company Registration Number (if they are a limited company).


What if I miss the submission date?

If a CIS return is submitted late HMRC will issue a penalty depending on how late it is.

For any returns submitted later than this an additional penalty can be issued of £3000 or 100% of the CIS deductions on the return, whichever is higher.


When and how does a contractor pay this?

Once the monthly return is submitted by the contractor, the total of the deducted amounts must be paid to HMRC by 22nd of the SAME month (by 19th if you’re paying by post). This can be paid by any of the below.

  • Direct Debit
  • Online or Telephone Banking
  • Online Card Payment
  • BACS
  • Post
  • Cheque


What if subcontractors pay too much?

Contractors throughout the year must provide each subcontractor with a Payment and Deduction Statement. This statement should show a breakdown of what was submitted on the monthly return.

Sole Trader

  • If the subcontractor is a sole trader the CIS deductions are recorded on their Self-Assessment Tax Return.
  • HMRC will then work out your Tax and National Insurance bill for the year taking off any deductions suffered.
  • If tax is still owed then you must pay this by 31st If an overpayment has been made a refund will be issued by HMRC.

Limited Company

  • If the subcontractor is a limited company you will need to submit your monthly Full Payment Submission (FPS) as usual.
  • The subcontractor will then need to send in an Employer Payment Submission (EPS) at the end of the tax year showing all deductions suffered throughout the year.
  • HMRC will take the deductions off what you owe in PAYE and National Insurance


If you have any queries regarding this please feel free to contact us.




Credit Control

What is Credit Control?

Credit control is a system of debt management which will allow a business to effectively monitor its cash flow.

Credit control will help a business to monitor which customers it will be able to give credit to (i.e. it will give credit only to those customers who are able to pay).  Credit control is also used to ensure that customers pay on time, thus preventing the business from developing cash flow problems.

Should credit control not be properly monitored, then the business could be affected by cash flow problems, either due to credit incorrectly being given to customers, or due to a lack of payments received.  This could potentially affect  the cash flow of your own business and thus potentially the success of your business, which is why credit control is so important.

Methods of Credit Control.

Prevention is one method of maintaining credit control.  If it is felt that a business may be heading towards cash flow problems, then a creditor may decide that stricter terms of credit control may be required.   This could be achieved by reducing the amount of credit allowed to the customer.  Another option would be to allow existing customers to pay by agreed instalments.  Early payment may also be encouraged by allowing a discount for early settlement.    Such discounts are normally around 2.5% of the invoice and the terms of the discount would need to be included in the content of the invoice.

It is important to have a clear strategy of credit control.

The first step in any strategy is to know the customer and to establish, from the outset, the terms of credit control.  It is then important to send the customer the initial invoice promptly.  It is also important to ensure that the initial invoice is correct. .If the invoice is not initially correct, then payment could be delayed whilst the customer queries any errors.

The invoice should be addressed to the correct person and contain details of the goods or service supplied, the date of the invoice, the invoice number,  the date that the payment is due and the terms of any credit allowed.  Bank details may also be included to allow payment to be made directly.   It is important to enable the process of payment to be as straightforward for the customer as possible so as to encourage prompt payment and to ensure that funds reach the business bank account quickly.  Payment by cheque, for example, may cause delay as the cheque has to be received, then paid into the bank account.   The funds will then need to be cleared.  Electronic payment can avoid these issues.

Once the initial invoice has been sent, then it will need to be monitored.  It is, therefore, important to be aware of then the payment is actually due.  The invoice may be followed up shortly afterthe date of issue with a courtesy call to confirm that the invoice has been received and to clarify the date that the payment should be expected.

If the invoice remains unpaid 28 days after being issued, then the customer should be called again to remind the customer that the payment is still outstanding. This call may be followed up by an email, again to remind the customer that the payment is due.

If the payment still remains outstanding, then a letter should be sent to the customer to advise that the payment is late.  The customer should be advised that as the payment is late, then interest may be charged on the debt under the Late Payment of Commercial Debts (Interest) Act 1998.

If the payment then still remains outstanding, then a further letter should be sent to the customer to advise that the debt may be passed to a debt collection agency.

Throughout the whole process of credit control, it is important to ensure that accurate records of any written correspondence are kept.  Any phone calls should also be logged.

It is possible to use an outside company for credit control.  The advantage of this is that the process of credit control can be followed professionally, but impartially, without the additional burden of personal interest.

If you have any further questions on credit control, then please do not hesitate to contact us at Harmonea.