Money Matters (Part 5) – VAT

VAT – Everyone has grown to love to hate it. Whether you’re an employer or self-employed, the processes involved in registering for VAT can be challenging and frustrating. That being said, we thought we’d provide you with everything you need to know so that any processes you go through in the future are plain sailing.

What is VAT?

VAT, or Value Added Tax, is a tax charge on goods and services in the UK, which are considering to be luxury items. It is also charged on goods and some services that are imported from outside the European Union (EU) and brought into the UK from other EU countries.

People often refer to VAT-registered businesses as mini tax collectors. They charge customers VAT on top of their sales price, collect the cash and then pay it over to HM Revenue & Customs – minus any VAT they’ve incurred on their purchases.

Who can and can’t register for VAT?

If you are wanting to register for VAT, you can do so only if you’re part of a business. Here, the individual or organization that is in the business would be known as the ‘taxable person’. Furthermore, in order to register for VAT, you must also be one of the following:

·      An individual

·      A partnership

·      A company

·      A club

·      An association

·      A charity

·      Any other organisation or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference, etc.

·      A trust

·      A Local Authority

There are only a few exceptions where you can’t register for VAT, these being:

·      You sell only goods or services that are exempt from VAT

·      You aren't in business according to the definition that HM Revenue & Customs (HMRC) uses for VAT purpose

You can find out more about exempt and partially-exempt businesses for VAT purposes here. - http://www.hmrc.gov.uk/vat/managing/reclaiming/partial-exemption.htm

When to register for VAT

You are required to register for VAT when you go over the £81,000 threshold, or if you know that you will in a 30-day period. The threshold is based on your VAT taxable turnover, which is defined as the total of everything sold that isn’t VAT exempt. Similarly, you may also need to register for VAT if you take over an existing business that is VAT-registered.

However, if you or your business is not based in the UK, then there is no threshold. Though you must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).

There is also an obligation to register if you think your business’ turnover will exceed the threshold within just 30 days, but for most businesses, this would not apply. There are other scenarios when VAT registration becomes compulsory, for instance if you are trading outside of the UK.

Failure to register on time may lead to late registration penalties and/or ‘failure to notify’ penalties. Furthermore, surcharges and interest are likely to be charged for late payment if the business has a VAT liability. If your business’ turnover exceeds the VAT registration threshold temporarily, you can ask HMRC for an exception from registration.

If the taxable turnover of your business does not exceed the current VAT registration threshold, you can still register for VAT voluntarily.

There are two main reasons why a business might opt to register for VAT:

·      Customers are predominately other VAT-registered businesses and therefore any VAT they are charged can be recovered, so it makes no difference to their customers whether they are VAT registered or not

·      They are often in a refund position with HMRC, so the business is actually better off being VAT registered.

The different rates of VAT

Name	Current rate	Description and examples
Standard	20%	The standard rate of VAT is the default rate – this is the rate that’s charged on most goods and services in the UK unless they’re specifically identified as being reduced or zero-rated.
Reduced	5%	Domestic fuel and power, installation of energy-saving materials, sanitary hygiene products, children’s car seat, etc.
Zero	0%	Food (not meals in a restaurant or hot takeaways though), books/ newspapers, children’s clothes/ shoes, public transport etc.
Exempt	Not applicable	The law stipulates that exempt items must not have any VAT charged on them. Examples include insurance, providing credit, education, fundraising, membership, etc.
Outside the scope	Not applicable	Items that are completely outside of the UK VAT system. Examples include drawings, wages, MOT tests, rates, etc.

The Budget 2014 Debugged (Part 3) – The Employment Allowance

We’re following on from our last Budget 2014 post and bringing you more information about it; this time we’ve got all the facts on Employment allowance debugged.

So what is Employment Allowance?

‘The Employment Allowance’ is part of the Government’s ongoing package for businesses and charities that have employees who incur an employer secondary Class 1 NICs liability.

Since 6^th April 2014, these companies are entitled to claim back (i.e. reduce) a maximum of £2,000 every tax year from their employers Class 1 National Insurance (NIC).

Who can and cannot claim the allowance?

Most employers and charities in the UK will be able to claim the Employment Allowance. However, there are some exceptions. For example, if you:

·      Employ someone for personal, household or domestic work, such as a nanny or care support worker

·      Already claim the allowance through a connected company or charity

·      Are a public authority (including local, district, town and parish councils)

·      Carry out functions either wholly or mainly of a public nature. This is different if you have charitable status such as NHS services.

Moreover, self-employed people are not eligible for the Employment Allowance. The policy overlooks the majority of small businesses, freelancers and contractors. This is primarily due to the self-employed paying Class 2 and Class 4 National Insurance Contributions.

How do you claim Employment Allowance?

The main way to claim Employment allowance is through commercial Payroll software such as Sage One Payroll. This will reduce your monthly (or quarterly) Class 1 NIC liability to HMRC.

For example if your monthly employers Class 1 NIC bill is always £1,200, in April you can offset £1,200 of your Employment Allowance and then use the remaining £800 in May to take the maximum allowance of £2,000.

How much impact will this scheme have? 

The Government estimates that 1.25 million businesses will be able to take advantage of the Employment Allowance. Moreover, if everyone of those businesses utilised the scheme, a total of £2.5 billion will be wiped off the tax bills of UK businesses.

Money Matters (Part 4) – Employed vs. Self Employed

Over the years, it seems that traditional views of what work is are being eroded by the new ideas of employment. Primarily, the discussion of “am I employed or self-employed?” or “which is better?” is a regular debate. We at Finnies have decided to debug some of the myths surrounding employment and self-employed and hopefully answer any questions you might have.

Employed?

In order to answer the question, one needs to determine what kind of contract you have. There are two main forms: A contract of services (for employees) and a contract for services (for self-employed people or independent contractors). In order for you to determine the nature of a contract, you can ask yourself a few questions; if you answer ‘Yes’ then chances are you are employed:

1.     Do you have to do the work yourself?

2.     Can someone tell you at any time what to do, where to carry out the work or when and how to do it?

3.     Can you work a set amount of hours?

4.     Can someone move you from task to task?

5.     Are you paid by the hour, week, or month?

6.     Can you get overtime pay or bonus payment?

Whilst the prospect of being employed may be a deterrent to some, there are many advantages to being employed as opposed to self-employed – you receive a regular and consistent pay packet, your employer has a responsibility for your wellbeing, and you can sit back without worrying about your job stance the week after. Similarly, if you earn a reasonable wage, your mortgage and lifestyle may be dependent on your income.

One main advantage of being employed is maternity leave packages; when you’re self-employed you lose holidays like this. Additionally, other benefits of employment include:

·      Holiday pay

·      Sick pay or Statutory Sick Pay (SSP)

·      A secure position in an organisation

·      A regular guaranteed income

·      Working with other people

·      Access to workplace pension schemes

Self-Employed?

The option of being self-employed is an interesting concept. The Internet has produced a wide range of self-employment opportunities in the creative industries, such as working freelance for an established company, or setting up your own net-based business working from home.

Similar to being employed, in order to deduce whether you’re self employed you can ask yourself a series of questions:

1.     Can you hire someone to do the work or engage helpers at your own expense?

2.     Do you risk you’re own money?

3.     Do you provide the main items of equipment they need to do you’re job, not just the small tools that many employees provide for themselves?

4.     Do you agree to do a job for a fixed price regardless of how long the job may take?

5.     Can you decide what work to do, how and when to do the work and where to provide the services?

6.     Do you regularly work for a number of different people?

7.     Do you have to correct unsatisfactory work in your own time and at your own expense?

Again, if you answer ‘Yes’ to these questions, then you are self-employed. However, whilst this prospect of self-employment can seem initially inviting, there are several dangers involved. For example, you may not be on a regular payroll. Also, there’s a lack of sick pay and maternity leave and also a pension scheme.

However, there can be some major advantages to being self-employed, including:

·      You can be your own boss

·      You can run the business how you want

·      Flexible working hours

·      Reap your own rewards

·      Earn money for yourself

·      Create your own success story

We hope that this has debugged some of the mysteries surrounding the debate of Employed vs. Self-Employed. For more information on this you can visit our website, or specifically or Self-Employment page. Should you have any queries, you can phone us on 01482 861919 or email enquires@finnies.org.uk.

Money Matters (Part 3) - Money Saving Tips for University

It can be a stressful time for students embarking on to university life for the first time. The fear of going into debt, or meeting new people, or even a fear of being homesick – we’ve all been there. So to help out all the students out there we’ve decided to put together a list of top money saving tips.

Tip #1: Budget during your first week

Everyone loves the thought of Freshers Week – the thought of meeting new people, having a good time, but at the bottom of the list of thoughts is that fact you will potentially spend a lot of money during the first week. Some students have even said they spent their entire loan!

So, top of the list of tips has got to be budget during your first week. This can be something quick, for example allocating different amounts of money per day so you know you’re not going to overspend. You can also buy budget books from any stationary shop if you want to write all of your budgets down.

An effective way to save money and budget with night-outs is to actually pre-drink. Pre-drinking will save you money on drinks in the nightclub, meaning you’re happy because you’re having a great night and you are being cost effective!

Tip #2: Plan your meals

Planning your meals can be a very effective way of reducing costs, especially if you buy in bulk. This means you’ll know what food you need rather than panicking and buying more food last minute.

Tip #3: Student Discounts

Lots of places offer these! We highly recommend you invest in a NUS Card. These are super cheap and only cost £12 for a year (literally £1 a month)! For such a low price you get access to discounts to a variety of stores and companies, ranging from Topshop and Amazon to Dominoes and Odeon. You can even go as far as get discounts on holidays with companies such as easyJet and LateRooms.com

Another worthwhile investment is a 16-25 Railcard. This gives you a whopping 33% discount on all rail fares.

Tip #4: Textbooks

It’s inevitable; you’re going to end up buying textbooks for your degree. However, what do you do when you’ve exhausted your use for it? A good idea is to sell it second hand to the year group below to get a bit of money back. Similarly, buying your own copy second hand from someone else will most likely save you money instead of buying a brand new one.

Tip #5: Catch-up TV

Most students when they come to university think about bringing their TV. What they don’t realise is that you need to pay for a TV licence to legally receive your channels. More so, this also applies if you wish to watch programs live on iPlayer – you still need a license to watch programs live whatever platform it’s on.

So instead, why not use Catch Up TV and watch the program after it’s original broadcast? This saves you money since you don’t have to pay for a license to watch programs after it’s broadcast.

So there you go, those are our top money saving tips for University and on behalf of all the staff at Finnies, we’d like to wish all new students the very best of luck with their degrees.