‘No Deal’ Brexit: 3 Important Areas to Consider

Movement of goods, product compliance, March 2019, Transitional Simplified Procedures

With so much uncertainty around what Brexit will mean, planning for a “No Deal” scenario seems sensible right now.

Businesses that buy and sell from the EU should have contingency plans in place which need to be flexible to cope with a variety of possible outcomes.

If a ‘No Deal’ happens after March 2019, here are some of the areas you should consider:

  1. Movement of goods

Customs declarations will need to be made and the UK is implementing a new electronic customs declaration system for businesses, so check if your systems and processes are up to scratch. UK businesses will need a UK Economic Operator Registration and Identification (EORI) number, and you can find the forms on the GOV.UK website, Brexit section: https://www.gov.uk/government/brexit

You may also need an agent to help with import/export declarations as you would for trading outside the EU. Check whether you need additional information from your carrier. Importers can register for Transitional Simplified Procedures (TSP), deferring declarations and paying duty at the border. There is HMRC guidance on the new electronic customs system in the Brexit section on the GOV.UK website (link as above).

An essential exercise for all businesses is Supply Chain Mapping – knowing where inputs come from and what product category they fall into can help assess potential tariffs. For businesses that only export to the EU this will be new and could be time-consuming. Further guidance can be found in the “Trade Topics” section of the World Trade Organization (WTO) website: https://www.wto.org/index.htm.

The EU Tariffs can be found at – http://madb.europa.eu/madb/euTariffs.htm

  1. Product compliance

UK product standards and regulations will be aligned to the EU at the point of exit, however in the event of “No Deal”, UK assessment and certification arrangements could cease to be recognised by the EU. See the Brexit section of the GOV.UK  website for further guidance.

  1. Business contracts and employees

If you have contracts with EU companies these may need to be redrafted to clarify the terms for trade, including VAT changes. If your business employs EU nationals then they should register for settled status. You will need to track the nationality status of employees going forward to ensure compliance with immigration rules and regulations.

Summary

Whether there is a “No Deal”, a brief delay in the UK’s departure and a “deal”, or a longer period of transition, we advise all businesses to research every scenario and “plan for the worst and hope for the best”.

For more information, please read our “No Deal” Brexit Planning Checklist.

Don’t Lose Your Personal Allowance!

pension contributions, git aid, tax

For every £2 that your adjusted net income exceeds £100,000 the £11,850 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

The restriction applies between £100,000 and £123,700 adjusted net income. Another way that you could avoid this trap would be to agree with your employer to sacrifice some of your salary in exchange for a tax free benefit in kind. These rules changed from 6 April 2017 but employer pension contributions, bicycles, and employer provided childcare would continue to be tax effective.

Making Tax Digital (MTD) and Farming

MTD, farming, VAT, Xero

As you will have no doubt heard, HM Revenue & Customs (HMRC) are introducing a new way to file a business’ VAT returns from 1 April 2019. For VAT registered businesses with a turnover over the VAT threshold, currently £85,000, this is generally mandatory – there are exceptions, via religious beliefs, age exception and internet speed, however HMRC do not anticipate too many businesses falling within these criteria.

What does it entail?

In simple terms, VAT returns must be filed digitally direct from software, with all the transactional detail that make up a VAT return’s figures being within software. This will come into force for the first VAT return commencing after 1 April 2019, so if you have a May 2019 VAT return, the first VAT return on the new system would be the quarter to 31 August 2019. If you have monthly VAT returns, it would be the month of April 2019.

Which software?

There are many providers of MTD enabled software on the market, most on a subscription basis, so which do you choose? Your accountant may suggest one they prefer, however, it may not provide the management detail you would prefer. If you are looking for a reasonably priced software, yet easy to use and tailored to farming, then Farmplan Cash Focus or Cash Manager could be the right fit for your business. Other mainstream software packages including QuickBooks, Sage and Xero are also available, however, they may not provide the management detail of benefit to you and your business.

As accountants, we are happy to work with any of the above, and others too. We suggest a software package that suits your own requirements and needs, and can talk through the prices of different packages with you. If you would like a demonstration of Farmplan, then please just contact your usual contact or any of the Saint & Co farming team.

The costs

Farmplan Cash Focus is £198 + VAT per year on an annual contract. This software is simply analysing the bank transactions and any other business income/expenses not through the main bank account, with the facility to produce a variety of reports from the data held, together with filing of the VAT. The software is desktop software with the facility of cloud backups, and should suit many farmers. As accountants, we can then use the data for annual accounts, cash flow projections and much more. Other variants of Farmplan, giving extra functionality come at extra cost.

Xero, QuickBooks and Sage pricing is around £10 to £25 per month, depending on the version you use. Each has its own merits, and may be of more relevance to your own business.

If you would prefer Saint & Co to do your VAT calculations, then please contact us. Preparing your VAT quarterly will help to prepare your annual accounts, and can also help with tax planning opportunities throughout the year.

Have staff?

If you require payroll functionality, then all the software above have payroll software capabilities, albeit, this will be at extra cost – costs being dependent generally on the number of employees.

If you want to know more, talk through your options, or discuss anything else, please contact us

Advisory fuel rates from 1 March 2019

HMRC, VAT

Company-owned vehicles

HM Revenue and Customs have announced revised tax-free advisory fuel rates from 1 March 2019 which may be paid for business journeys in a car owned by the business.   Rates for the previous quarter is shown in brackets.

Engine size Petrol Diesel LPG
1,400 cc or less 11p (12p) 7p (8p)
1,600 cc or less 10p (10p)
1,401 cc to 2,000 cc 14p (15p)  8p (10p)
1,601 cc to 2,000 cc 11p (12p)
Over 2,000 cc 21p (22p) 13p (14p)  13p (15p)

These rates may be used in the following circumstances: –

  1. Where employers reimburse for business travel in company cars.
  2. Where employers provide fuel for company cars but employees are required to reimburse the cost of fuel for private use.

Input VAT claims on mileage paid for company cars or employee-owned vehicles

HM Revenue & Customs will accept the above figures for claiming input VAT on fuel for company cars, provided a VAT receipt is available to cover the cost of the fuel.  They will also accept the use of the above rates by the employer when calculating input VAT on the fuel element for employees using their own vehicles and claiming mileage under the tax-free approved mileage rates for business travel of 45p for the first 10,000 miles and 25p thereafter.

If you have not already done so, remember to update any spreadsheets you may use.

If you have any queries regarding the above or require any further information please do not hesitate to contact us.

Deposit/Cancellation Fees – new VAT treatment

New VAT treatment, hotel

Hoteliers are you ready!

From 1st March 2019 the treatment of cancellation fees is changing.  Previously where a customer has paid a deposit for a room and then subsequently cancelled, you had been allowed to reclaim the output VAT on this deposit, since there would no longer be a supply of accommodation and therefore this fell outside the scope of VAT.

Unfortunately, under the new rules, you will no longer be able to reclaim the VAT on the deposit as you will not be able to reclassify the receipt from a supply of accommodation to a compensation payment. It will be classified as an “unfulfilled supply”.

VAT can only be reclaimed where you actually refund the customer.

This new change will apply to deposits received before 1st March 2019 but cancelled after this date.

No deal Brexit – What about VAT?

The Government and HMRC have updated its collection of high-level guides called “partnership packs”, intended to help businesses involved in importing and exporting prepare for changes to customs procedures after 29 March 2019 in the event of a “no deal” scenario.

If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.

In the event of a “no deal” Brexit the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.

However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.

Postponed VAT Accounting for Imports

The government has announced that in the event of a “no deal” Brexit, it will introduce postponed accounting for import VAT on goods brought into the UK.

This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT at or soon after the time that the goods arrive at the UK border. This procedure will apply both to imports from the EU and non-EU countries.

Low-Value Consignments

If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. Low-Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.

VAT Mini One Stop Shop (VAT MOSS) will come to an to end

A further change if the UK leaves the EU without an agreement is that the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop which currently simplifies VAT reporting for UK businesses.

CUSTOMS CHANGES Businesses can currently move goods freely between EU countries. For customs purposes, this means that businesses trading with the rest of EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.

In the event of a “no deal” Brexit there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation and movements of goods between the UK and EU would end.

HMRC is currently introducing its new Customs Declaration Service (CDS), which replaces its Customs Handling of Import and Export Freight (CHIEF) system.

From 11pm on 29 March 2019, for businesses trading with the EU, the impacts would include businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as are currently applied in cases where goods move between the UK and non-EU countries.

This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).

For imports into the UK, a separate safety and security declaration needs to be made by the carrier of the goods (usually the haulier, airline, freight train operator or shipping line).

For exports from the UK, the export declaration includes the safety and security declaration.

Ignore Making Tax Digital at your peril!

Xero, HMRC, VAT

Less than 6 months now to go until tax gets digital via H M Revenue and Customs’ (HMRC) “Making Tax Digital” initiative. Yet a huge 40% of the affected businesses know nothing about it and have made no plans to conform with the new requirements for submission of their VAT Returns.

From 1 April 2019 VAT registered businesses with turnover above the VAT registration limit (£85,000) must submit their VAT Returns using HMRC approved digital software. The present online VAT filing system will be removed for businesses meeting the MTD criteria. The first VAT Return for a business’ VAT Return period starting after 1 April 2019 must be submitted digitally via “Application Programmed Interfaced” software (this just means that the digital software used must be capable of communicating with HMRC’s own digital software).

Whilst HMRC are expected to be lenient for the first year until people get their digital systems in place, they have published a penalty regime which will come into force from 1 April 2020 for late submissions and payments.

The regime is points based and will only apply to returns with a regular filing frequency e.g. monthly, quarterly or annually. It will not apply to occasional returns e.g. a return to report a one-off transaction.

A taxpayer will receive one point every time they fail to make a return on time. A penalty will be charged and notified once the taxpayer has reached the threshold penalty applicable to the frequency of submission periods as follows:-

Submission frequency Penalty threshold
Annual 2 points
Quarterly 4 points
Monthly 5 points

Points will have a lifetime of two years calculated from the month after the month in which the failure occurred.  Points will expire after a period of good compliance i.e. filing returns on time as long as all returns due within the preceding 24 months have been submitted.  The regime for period of good compliance is again set on the frequency of the returns as follows:-

Submission frequency Period of good compliance
Annual 2 submission
Quarterly 4 submissions
Monthly 6 submissions

As yet HMRC have not issued the amount of the financial penalty to be charged but Saints will keep you advised of this.

As everyone knows time flies, so it is sensible for VAT registered business to look at their record-keeping systems for VAT now and consider switching to an HMRC approved digital package.

Here at Saints we have been planning for our clients’ needs in light of this expected development for some time.  To this end we have adopted Xero Cloud software which has been approved by HMRC as being digitally compliant.  We offer clients flexibility in that we can supply them with Xero and provide the necessary training for businesses to use the package themselves.  Alternatively, advances in technology mean that we can offer clients a fee competitive package to maintain the required book-keeping and submit the digital returns – leaving businesses to concentrate on their day to day operations without worrying about VAT return submission deadlines.

Contact your local Saint & Co Office to learn how this could work for your business and receive a fee quote which could relieve you of a lot of hassle and stress!

Cyndy Potter

Saints Tourism & Leisure Manager

Making Tax Digital for VAT guidance issued

HMRC have now issued their detailed guidance on the digital record keeping and return requirements for Making Tax Digital (MTD) for VAT.

VAT Notice 700/22 clarifies that spreadsheets may still be used to keep business records provided that there is bridging software that links to the Government gateway.

There will however be a one year “grace” period during the first year of MTD when businesses will not be required to have digital links between software programs, referred to in the VAT Notice as a “soft landing”.

The VAT notice includes a number of helpful examples illustrating different accounting systems and the digital links required to comply with MTD for VAT.

The VAT notice is essential reading for all VAT registered businesses.

WHEN DOES MTD FOR VAT START?

The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by your VAT Return.

For example, where a business submits quarterly returns covering the periods to 28 February, 31 May, 31 August and 30 November, the business will need to comply with Making Tax Digital rules for the VAT quarter starting 1 June 2019 and ending on 31 August.

“SOFT LANDING” FOR MTD FOR VAT FOR THE FIRST YEAR

For the first year of MTD for VAT (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product (for example, a bridging product) that is Application Programme Interface (API) – enabled solely for the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.

For the first year of MTD for VAT (VAT periods commencing between 1 April 2019 and 31 March 2020), where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods.

However, for VAT periods starting on or after 1 April 2020, there must be a digital link for any transfer or exchange of data between software programs, products or applications used as functional compatible software.

USE OF SPREADSHEETS IN PREPARING VAT RETURNS

Example 3 in the VAT Notice describes a business that uses a spreadsheet and bridging software from April 2019, which allows the information to be transferred to HMRC via an API.  It uses a spreadsheet to record all sales, purchases, and expenses in a digital format. The VAT Return is then prepared within the spreadsheet, using formulae already written into the spreadsheet.

The VAT Return information is then sent via a mandatory digital link to bridging software, which digitally submits the information directly to HMRC.  Example 6 shows how a spreadsheet would be acceptable in order to consolidate VAT information prior to submit a Group VAT return.

If you haven’t already done so, please contact us to help you get ready for this significant change in VAT accounting and reporting.

No shortcut in accounting for online bookings!

When I started working with serviced accommodation providers some 20 years ago, guests generally looked at places to stay in the brochure produced by the local tourism body (in our case Cumbria Tourism, Keswick Tourism Association etc).  They selected what suited their needs and budget, picked up the phone and if there was availability, made a booking.

How things have changed now that millions of people in the UK have smart phones, tablets/ipads, laptops and PC’s!  Online booking agents or Online Travel Agents (OTAs) acting as disclosed agents for commission, are now the web “platforms” that millions of people use to book their accommodation.  They provide many hotels and guest houses with a substantial portion of their bookings.

The problem is these agents are not all structured in the same way and many are based outside the UK.  To account for the resultant transactions the hotel/guest house proprietor needs to look at the documentation provided, where the head office is established and whether they are paying gross or net of their fees and commission charges.

I’m not going to produce a list of the multitude of on-line agents I see clients using but outline the basics below:-
identify VAT outputs from VAT inputs
If you adopt the Flat Rate VAT scheme then there is no need to pay the Flat Rate VAT on the value of the reverse-charged service or include it on your VAT return.

Regrettably, this is just another thing for a hotelier to think about when preparing the periodic VAT Return.  However, HMRC have confirmed that a VAT Return is not properly completed if agent’s commissions are not accounted for correctly.  The best approach is to identify the booking agencies you deal with, establish where they are based and set up an accounting system to deal with the VAT in the appropriate manner.

Call our Tourism & Leisure Specialist, Cyndy Potter, on 01228 534371 for more information.

Cyndy Potter

Cyndy Potter,  Tourism & Leisure Manager

 

 

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