Increase in the National Minimum Wage

The National Minimum Wage is increasing as of 1 October 2013.

The wage your employees are entitled to depends on their age and whether they are an apprentice – they must be at least school leaving age.

New National Minimum Wage Rates

Year	21 and over	18 to 20	Under 18	Apprentice*
2013 (from 1 October)	£6.31	£5.03	£3.72	£2.68

*This rate is for apprentices under 19 or those in their first year. If you’re 19 or over and past your first year you get the rate that applies to your age.

What do you need to do?

Review your employees’ hourly rates and make sure they all meet the new Minimum Wage rates at least.

What happens if you don’t?

HM Revenue & Customs is targeting employers who don’t pay the National Minimum Wage.

Failure to pay the National Minimum Wage can result in penalties of up to £5,000, prosecution, and even being named and shamed by HMRC.

Check your employee wage rates are compliant today. If you need any help or advice dealing with your business’s payroll affairs, then please contact Accountancy Edge.

Flat Rate VAT Scheme Tips and Traps

In our last post we looked at how the Flat Rate VAT Scheme can have some unexpected benefits for small businesses. Rather than just simplifying their accounting, as intended, adopting the Flat Rate Scheme can result in some businesses making more profit by allowing them to keep some of the VAT they would otherwise have paid to HMRC.

Although the Flat Rate Scheme is supposed to be there for simplicity, it has its own set of tips and traps!

Flat Rate Scheme Tips

First year discount

If it is the first year your business has been registered for VAT, then it’s allowed to deduct 1% from its Flat Rate Percentage.

So, if its normal Flat Rate Percentage was 11% for Advertising businesses, say, then 10% would be the percentage applied to its gross sales to determine the amount of VAT to pay to HMRC.

The 1% discount lasts until the day before the anniversary of your VAT registration.

Capital Expenditure

Usually under the Flat Rate Scheme you cannot claim any relief on VAT incurred on items you purchase. This is taken into account as part of the Flat Rate percentage for each trade.

The exception to this is capital expenditure. If you buy a fixed asset that costs more than £2,000 (including VAT) then you can claim that VAT back on your next Return.

There are some catches. The most important one is that the fixed asset must be one purchase.

Bad debts

If you are unlucky enough to have a customer who doesn’t pay you, then under normal VAT accounting if you’ve accounted for the VAT on the sale, you can deduct it from your next VAT Return.

You can also claim relief for bad debts on the Flat Rate Scheme. But you don’t claim the relief at your Flat Rate percentage. You claim relief for the VAT you actually charged on your invoice. Result!

HMRC says this is because “the flat rate includes an allowance for input tax which only occurs if you have been paid by your customer. As you will not have been paid, you will not have had full credit for any input tax.”

Flat Rate Scheme Traps

Getting the right flat rate percentage

You’d think that this wouldn’t be too difficult. But HMRC keeps the list well hidden and apparently some businesses get confused.

In the VAT Notice for the Flat Rate Scheme, HMRC says:

“We will not normally check your choice of sector when we process your application. So if you have made a mistake you may pay too much tax or too little. Paying too little could mean that you are faced with an unexpected VAT bill at a later date.

“However, if we approve you to join the scheme, we will not change your choice of sector retrospectively as long as your choice was reasonable. It will be sensible to keep a record of why you chose your sector in case you need to show us that your choice was reasonable.”

So if there’s any doubt as to the correct trade sector to use (perhaps your business has more than one trade), make sure you keep a note of why you chose the trade sector you used. This will show you have used reasonable care and protect you against the risk of tax geared penalties.

Cash accounting

Lots of small businesses use cash accounting for VAT. This means they account for VAT on their sales and purchases when things are actually paid for, rather than when an invoice is raised. That way they don’t pay the VAT on invoices that haven’t been paid yet by their customers.

The bad news is that you cannot use cash accounting on the Flat Rate Scheme.

However, you can use the Flat Rate Scheme’s own special cash based method. This means that you account for the Flat Rate VAT due on your invoices when the invoices are paid. The proviso is that if HMRC changes the Flat Rate percentages, you use the rate in force when the invoice was paid, not when the invoice was raised.

Will the Flat Rate VAT Scheme work for you?

Despite its quirks, the Flat Rate Scheme can work really well for lots of businesses. At Accountancy Edge, every year we check whether clients whose businesses are eligible for the Flat Rate Scheme would make more profit by joining it. Even if it doesn’t look like it would work for them, they still know we’ve looked out for them!

If you like us to review your VAT affairs, then get in contact with us today.

Would the flat rate VAT scheme work for your business?

When VAT was introduced in the UK, one of its virtues was supposed to be its simplicity. It’s no surprise then that VAT turned into one of the most complicated taxes that business owners have to deal with.

So HMRC did something uncharacteristic. They introduced a VAT scheme designed to make things simpler for smaller businesses.

The Flat Rate VAT Scheme

The Flat Rate Scheme was meant to make record keeping easier for smaller businesses.

You charge VAT on your sales in the normal way, but there’s no need to keep track of VAT on your purchases. Instead you just need to know your VAT inclusive sales figure (and any VAT on assets you bought that cost more than £2,000).

You take your VAT inclusive sales figure for the quarter and multiply it by the flat rate percentage HMRC provides for your trade sector, and that’s the VAT you have to pay.

An unexpected upside

For some businesses the simplicity of the scheme isn’t the main benefit.

Quite often the amount of VAT the company would pay to HMRC under the Flat Rate scheme is a lot lower than what they would pay under standard VAT cash accounting.

So what happens to the difference? It’s extra profit for your business.

At Accountancy Edge, we check all of our eligible VAT registered clients each year to see if the scheme would work for them. In the last few months we’ve identified several businesses that have been more than £4,000 a year better off just by changing VAT scheme.

And that’s not just a one off. Your business can benefit every year.

So, who is eligible?

Your business can join the Flat Rate Scheme if in the next year your VAT exclusive turnover is likely to be less than £150,000.

Would it be right for your business?

If you’re interested in finding out, then why not get in contact with us?

We can look at our last four VAT returns and tell you whether the Flat Rate Scheme would work for your business. If it would work for you, we’ll also tell you how much extra profit you could make just by changing VAT scheme.

The brand new App from Accountancy Edge

It’s finally landed!

The Brand new App from Accountancy Edge

As a firm we are constantly looking for ways we can improve the service we offer our customers. And we are proud to announce the launch of our brand new Accountancy Edge App. It’s completely free of charge to download and it’s available for iPhone, iPads and Android phones and devices.

So the next time you need to look up a tax rate or work out a VAT calculation, our new App can help. It provides you with up to date, important accountancy data at your fingertips.

It’s available for iPhone, iPad and Android devices and it’s available free of charge today.

Enjoy.

Increase in the National Minimum Wage