November 26, 2008PBR 2008: VAT rate change - the taxpoint rules

For many businesses implementing the new standard rate of VAT it will be necessary to establish the tax point applying to the supply in order to check which rate of VAT should be applied. There are, however, some optional rules which can be applied when the VAT rate reduces so businesses and their advisers may also wish to check these out. This is in the detailed article on change of rate and is also covered in VAT Notice 700 at section 30. The taxpoint rules are explained in VAT Notice 700 at sections 14 and 15. This is also explained in the HMRC technical guidance for businesses at Annex B.
The basic taxpoint

All supplies have a basic taxpoint and in many case this will be the taxpoint adopted for the supply. When goods are supplied, the basic taxpoint is the time when the goods are appropriated to the customer’s order. Normally this means when they are collected, delivered or made available to the customer.

When services are supplied, the basic taxpoint is the date on which the services are performed.

The taxpoint defaults to the basic taxpoint unless one of the following situations arises.

Prior invoice or payment
The issue of a tax invoice or the receipt of payment before the supply is made (according to the basic taxpoint rules) triggers a taxpoint earlier than the basic taxpoint. The actual taxpoint is the earliest event. So if a tax invoice is issued first, then the actual taxpoint is before the basic taxpoint.
Generally speaking this means that a deposit against a future supply creates a taxpoint when paid. Where a deposit is only held against damage to hired goods it is not payment for a supply, and therefore does not create a taxpoint.

Invoice within 14 days
Businesses which invoice within 14 days of the basic taxpoint are able to use the date of the invoice for taxpoint. This simplifies VAT accounting when invoicing is done promptly. It is possible to extend this 14 day period to 28 days in special situations, but businesses will need to ask HMRC for permission to use this rule.

Continuous supplies
Where supplies are made continuously, such as accountancy and tax advice, a taxpoint is created each time cash is received or a tax invoice is issued. So where payments on account are received by a firm of accountants, the VAT rate can be determined by reference to the dates of payment, provided no invoice has already been issued. Where a "request for payment" has been issued, provided this is not a tax invoice no taxpoint has been created, and the time of supply is determined by the date of payment.
In addition, an annual invoice issued in advance (but not more than a year in advance) for payment at pre-arranged intervals (for example, monthly by standing order) can take the taxpoint as determined by the date of payment rather than the invoice date. In this case, an amending credit note will be needed to correct the VAT on the initial invoice.

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November 25, 2008PBR 2008: New service to help struggling taxpayers

Many were hoping the Chancellor would announce a deferral of VAT or tax payment dates, especially with the 31 January SA payment deadline looming. Realistically this was never going to happen.
As Mark Lee explained, the Tory proposal of a deferment of VAT payments by six months for small businesses is likely to cause more harm than good as a delay in payment means that the VAT money is more likely to be spent elsewhere, especially during times when cashflow is tight. "When it falls due the taxman will have no sympathy with traders who have failed to generate the money required to settle their VAT liabilities", said Lee.

However, the Government has announced an immediate ad-hoc relief for all tax payers with the introduction of a new, dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions.

Businesses with current or expected difficulties in meeting tax, National Insurance or other payments owed to HM Revenue & Customs can get in touch with this new service to discuss payment options to help deal with temporary cashflow difficulties. As with any situation where repayment of debt is a problem, taxpayers are encouraged to speak to HMRC as soon as problems are foreseen, not at the last minute!

HMRC state that their staff will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. They will not charge additional late payment surcharges on payments included in the arrangement, although interest will continue to be payable on those taxes where it applies. In most cases you should get a decision in about 10 minutes, although for larger payment debts and those that are more complicated they may need to have a longer, more detailed discussion with you and may need to call you back before finalising payment arrangements.

How will this work in practice? How flexible will HMRC be on payment terms? Only time will tell, but the The Chancellor stated in his speech that "from today HMRC will enable firms facing difficulties to spread their tax on a timetable they can afford...and not for six months but for as long as they need." Unusually therefore, it look as though payment terms will be available for extended periods which will overlap one or more future tax payments.

The HMRC Business Payment Support Line number is 0845 302 1435 and is open Monday - Friday 8.00am to 8.00 pm, and Saturday and Sunday 8.00 am - 4.00 pm.

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November 22, 2008Integral features

This is a new category of capital allowances that applies to expenditure made after 31 March 2008 for companies, or 5 April 2008, for unincorporated businesses. If your client is about to buy or sell a commercial property he will need to be prepared to negotiate for some of the cost to be allocated to this new category of assets.

Integral features can only comprise of assets in the following five groups:

a) Electrical systems (including lighting systems);

b) Cold water systems;

c) Space or water heating systems, a powered system of ventilation, air cooling or air purification and any floor or ceiling comprised in such a system;

d) Lifts, escalators and moving walkways; and

e) External solar shading.

Groups a) and b) would have previously been categorised as part of the building, so only eligible for capital allowances if the building happened to qualify as an industrial or agricultural building. Now they will qualify for a writing down allowance (WDA) of 10%, but what is more important is that they are technically classed as plant and machinery. This allows items within groups a) and b) to qualify for an enhanced capital allowance (eca) of 100% if the particular item is found on the green technology list on the eca website (see below).

Other groups of assets on the integral fixtures list were previously treated as plant fixed to buildings (fixtures) and eligible for WDA of 25%, but now only qualify for WDA of 10%. Most of the items which were previously fixtures continue to qualify as such but the WDA is now only 20% per year.

Finally its worth noting that all new expenditure on integral features and on fixtures will qualify for the Annual Investment Allowance (AIA), which gives a 100% deduction for up to £50,000 of expenditure in one tax year.

Budget announcement of integral features

http://www.hmrc.gov.uk/budget2008/bn07.pdf

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November 12, 2008Late filing of accounts rises 25%

British companies are struggling to meet their deadlines for filing accounts to Companies House, according to the UK body in charge of collecting such data.

Figures obtained by the Financial Times show a 25 per cent increase in late filings over the four years to the end of March 2008 as companies struggle to balance their books in increasingly difficult business conditions. This has been especially marked in the past two years, both of which saw late filings increase by almost 10 per cent.
A total of 238,699 British companies filed their accounts late last year.

Fabrice Desnos, chief executive of Euler Hermes UK, which provides insurance for suppliers trading with other companies on credit, said: "This increase is yet another indication of the worsening financial situation in the UK."

A late filing can be a trigger for banks to cut their credit lines and for insurers to remove cover on trading supply lines.

Coface, another credit insurer, said late accounts can mean automatic withdrawal of trade credit insurance for a company if there is other information that casts doubt on its ability to operate as a going concern. Xavier Deneker, Coface’s chief executive, said: "This is a very important indicator of a company struggling."

Tim Smith, head of trade credit at insurance brokers Marsh, said: "Some companies think if they don’t file bad news, nobody will know. That may have been the situation last year, but because of the current unpredictability that is no longer good enough for underwriters."

Many companies appear to be struggling to guarantee their status as a going concern as credit lines dry up and revenues become more uncertain. "Companies are having to work harder to show they have sufficient cash and sources of funding for the coming year to stay within their facilities and covenants," said Richard Bennison, head of UK audit at accountants KPMG.

Mr Bennison also accused many companies of not realising the importance of prompt filing and said they often left it too late before beginning to prepare the accounts.

Companies House has enjoyed a 30 per cent rise in revenues from fines levied for such late filings over the past four years and last year raised more than £53m. That money is spent centrally by the Treasury.

Story from: Financial Times

November 6, 2008UK interest rates slashed to 3%

The Bank of England has made a shock one-and-a-half percentage point cut in UK interest rates to 3%, the lowest level since 1955.
The size of the cut - the most dramatic since 1981 - signals the Bank’s concern the UK is heading for a long recession, the BBC’s economics editor says.
It follows an emergency cut in rates last month from 5% to 4.5%.
However, banks are expected to take their time deciding whether to pass on the cut to mortgage holders and savers.
‘Bigger than expected’
It is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997.
BBC economics editor Hugh Pym said: “The Bank of England is using terms like ‘very marked deterioration in the outlook’ and ’severe contraction’.
“It is clearly very concerned about the possibility of a prolonged recession in the UK.
“The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected.”
Following the announcement the FTSE stock market gained more than 100 points, to stand down 86 points, or 1.90%, at 4,444.67 by 1245 GMT in London.
‘The right call’
The move has been broadly welcomed by business bodies and trade unions.
Richard Lambert, CBI director-general, said: “This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for.”
He added: “This cut… should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers.”
The TUC’s head of economics Adam Lent said the move was “the right call”.
“It shows the Bank now understands that the problem is recession not inflation.”
Meanwhile, the Institute of Directors (IoD) said interest rates could touch record lows of 2% or less by this time next year.
“The sooner we get interest rates down the less is the risk of a long and deep recession,” said IoD chief economist Graeme Leach.
Mortgage fears
The hefty cut will reduce monthly repayments for those with tracker deals - an estimated 40% of mortgage holders - by about £134 on an average £150,000 mortgage.
There have been some concerns that a cut in the Bank of England’s base rate might not be passed on to other borrowers.
Prime Minister Gordon Brown was asked about this problem in the House of Commons on Wednesday because Abbey had just raised its tracker mortgage rates for new customers.
“We want the banks and building societies to pass on the interest rate cuts to their mortgage holders,” he said.
“What we’ve been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary.”
Given the surprise level of the Bank rate cut, mortgage lenders will take their time to decide whether they will pass on cuts to variable rate mortgage holders, which account for 10% of total home loans, according to the Council of Mortgage Lenders.
The major lenders said rates were “under review”, however Lloyds TSB has promised to pass on the rate cut in full to its variable rate mortgage customers.
The group, which also lends through Cheltenham & Gloucester, says its standard variable rate, currently 6.5%, will never be more than 2% above Bank of England base rate.
Customers on fixed-rate deals will see no change to their repayments until they come to remortgage.
The cut is likely to hit savers who face a cut in the interest rates they receive from their deposits.
Manufacturing decline
The Bank of England’s interest rate move came after a series of figures released this week provided further evidence that the UK economy is sliding towards recession.
New figures from the Halifax showed house prices fell by another 2.2% in October, pushing the drop in house prices to 13.7% over the past year.
Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row.
According to an index compiled by the Chartered Institute of Purchase and Supply output from services was at its lowest level since its poll began in 1996.
Also, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980.
Manufacturing output fell by 0.8% in September, much worse than analysts’ expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003.

Story from: BBC

November 5, 2008Hidden spreadsheet rows hit Barclays with toxic Lehman contracts

On Tuesday 5 November, lawyers for Barclays Capital appeared before the US Bankruptcy Court in New York to try and extricate the company from taking on Lehman Brothers liabilities accidentially included in a PDF copy made of an asset spreadsheet.

Following Lehman’s collapse in September, Barclays Capital agreed to pay $1.35bn for the failed bank’s assets once they had been stipped clean of some of the more toxic elements. Unfortunately, a docket submitted by Barclays’ representatives Cleary Gottlieb Steen & Hamilton LLP to the bankruptcy court in advance of the 22 September sale date included 179 contracts that should have omitted.

In an affadavit uncovered by the Above the Law.com website, the junior associate who compiled the list explained what happened.

On the evening of 18 September a colleague asked the clerk to help reformat an Excel asset spreadsheet and convert it into a PDF.

"Some of the rows of the original Excel spreadsheet were spaced too close together or too far apart, making it difficult to read when printed or converted to PDF format. I therefore globally re-sized all the rows in the document to make it easier to read when printed or converted to PDF format." The clerk also removed several columns that were not needed in the final document.

The coverted document was subsequently handed into the court, but the clerk was not aware that the original spreadsheet included hidden rows, nor that there were 179 contracts designated with "N" in a column to indicate that they should not be included in the sale.

"I also was not aware that these hidden rows were exposed when I globally re-sized the rows in the spreadsheet or that, once exposed, they would appear without the original designations," the unfortunate clerk testified.

The law firm says that a junior associate had reformatted an Excel spreadsheet into a PDF document to post on the court’s website.

Clearly Gottlieb filed a motion to asking for relief from the final sale order due to "mistake or excusable neglect" toextricate its client from the potentially disastrous commitments.

Above the Law noted that the work took place just after 11:30pm. "Who knows how much sleep anybody at Cleary got between Lehman crashing on the 15th and the 18th when the mistake happened? And, as we all know, they don’t teach "Excel" in law school and they really, really should," it commented.

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November 2, 2008Home is where the start-up is

New report charts increase in home enterprise - and what government should do to nurture it

Did you know that:

There are more than 2.1 million home-based businesses in the UK, out of a total of 4.5 million small and medium-sized enterprises?
Home-based businesses have a combined turnover of over £364 billion?
Over 60% of new businesses are started at home?
These are amongst the findings in a a new Home Business Report compiled by Enterprise Nation with support from BT. And as headlines they show the value of home-based business to the economy.

The report uncovers growth in the number of home businesses - a 2.9% increase from 2005 to 2006. 1,400 new businesses are started from home each week. The highest growth is coming from mums, young people and the over 50s - so home business, the report says, is a route to bringing people into employment who otherwise might not have contributed to the economy.

What kind of businesses are they? According to the report, the fastest growing sectors for home businesses are in the business and professional services sector (such as accountants and website developers), onlinetrading (such as eBay-ers), personal services (such as home interior designers, hairdressers, party planners), food (products and caterers), and domestic energy (including people selling excess DIY ‘green’ power back into the national grid).

So while hi-tech is part of the picture, it’s not the whole story. However, people starting up businesses in more traditional fields are also becoming increasingly IT-savvy, and many have websites and use e-commerce platforms to punch above their weight.

Growing the home business

Amongst home business entrepreneurs surveyed by Enterprise Nation for the report, there is almost universal determination to grow the business. But most do not see this as being about increasing the number of their employees. 63% said they would rather outsource projects and new work rather than increase headcount.

In many ways this ties in with the ethos of running a home business, where people are seeking both to reduce overheads and to have a way of life that provides a distinctive blending of home and work life, rather than wanting to recreate a large company on their doorstep.

Most home businesses, however, feel that there is a lack of business support available for them. And as many business grants from local or regional agencies focus on creating employed jobs, government needs to look more broadly at ways to create wealth.

Why work from home?

According to the report, there are 3 main reasons why people choose to run a business from home:

Savings - starting out at home saves money in avoiding the cost of an extra office It also saves time. A new business owner can gain up to 20 extra days per year through giving up the daily commute. This is time that can be spent on growing the business, rather than sitting in traffic jams.

Technology - advances in technology mean that almost any trade can now be carried out at home. Business owners are developing their websites as a virtual window to the world and utilising software to manage projects, work with partners and develop new business.

The work/life blend - people are heading home to be close to family and friends. Starting and growing a business from home is enabling thousands of families to be together, work together and share the financial rewards. Research for BT shows that ‘Flexibility/working the hours I choose’ and ‘Better work/life balance’ were the two most popular factors when business owners chose to start from home, coming in at a higher ranking than ‘lower overhead costs.

And with the growth in home-based businesses amongst the over 50s, it would seem that there may be evidence of more mature workers wanting to realise their dream through running their own business, rather than working towards retirement making money for someone else. And in the context of an ageing society, it would be interesting to know how many are planning to work beyond normal retirement age.

Home business 10 point action plan

The Home Business Report proposes a 10 point action plan that government should adopt to support and promote home business. This involves:

gathering better data on the extent, needs and performance of home business

designing new government policies and programmes to support home based business, e.g. by looking at how business expansion grants are applied

introducing tax relief for for home business owners, recognising their social and environmental value

developing more local physical infrastructure to support home businesses, e.g. funding live/work developments and ‘hub’ facilities for home-based business.

There are similarities here to the recommendations in the report Under the Radar, produced by the Live/Work Network for the Commission for Rural Communities. With this gathering weight of evidence, we will have to see how government and local agencies respond.

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