Tag Archives: vat-payment

Change of bank details for HMRC

By   30 September 2024
0

HMRC has announced that its bank accounts have changed 

The bank details for the following tax regimes have changed:

  • Plastic Packaging Tax
  • Biofuels or gas for road use — Fuel Duty
  • Economic Crime Levy
  • Soft Drinks Industry Levy
  • Trust Registration Penalty

These details have changed to allow HMRC to future proof our accounts in the event of migrating its banking services to another bank.  The new bank details are now permanent and will not change.

All taxpayers who are making payments for the above-mentioned regimes by Faster Payments, Bacs or CHAPS should use the following details:

  • sort code — 08 32 10
  • account number — 12529599
  • account name — HMRC General Business Tax Receipts

Taxpayers who have this banking information stored on their banking apps will need to change the details to reflect the new sort code, account number and account name.

Any customers who pay by Direct Debit do not need to take any action as the changes will be made automatically.

VAT: HMRC updated interest rates.

By   12 August 2024
0

On 1 August 2024, the Bank of England reduced the rate from 5.25% to 5%. HMRC interest rates are linked to the Bank of England base rate, and consequently, it has published updated its interest rate tables which recognises the .25% decrease. This interest applies to late VAT payments and repayments.

These changes will come into effect on:

  • 12 August 2024 for quarterly instalment payments
  • 20 August 2024 for non-quarterly instalments payments.

What is a VAT Loan? – Business finance

By   8 August 2024
0

Although, ideally, a business puts aside the VAT it collects from its customers (output tax charged) to pay its monthly, quarterly, or annual VAT bill, cashflow management can be difficult, especially for small or seasonal businesses with limited cash reserves. There are some things a business can do to mitigate the impact of VAT and one of these is a VAT loan.

Failure to pay VAT on time can lead to penalties and interest which could add to a business’ financial woes.

A VAT loan is a product which provides a short-term financing option to pay VAT on time. The loan covers the VAT amount due during each payment period, which allows a business to spread the VAT cost over a longer time instead of paying it up front in one hit.

Furthermore, there is no need to use up an existing bank facility. A VAT Loan gives a business an alternate financial option to utilise.

How it works

A business can apply for a VAT loan from a bank or other lender. It is usually deemed to be a secured business loan so assets must be put up as security. Once approved, the lender will pay it directly to HMRC. Repayment periods are typically between three months and a year.

The whole process does not usually take long as it is designed to be more streamlined than a standard loan. The money is usually paid to HMRC within days. Evidence of turnover and good credit history will be required, along with usual proof of ID and bank statements etc. Sometimes additional arrangement charges are made along with the interest.

Eligibility

A business must:

VAT bridging loans

There are generally two types of VAT loan: a standard VAT loan and VAT bridging loans. VAT bridging loans differ in that they are specifically a short-term option to assist a business bridge its cashflow gap between making a VAT payment, eg; for a significant purchase, usually property, and recovering this amount from HMRC as a repayment, which can take months (depending when the purchase was made in a VAT quarter and how quickly HMRC make the refund).

Finding a lender

 It is usually advisable to look for a lender who offers VAT loans specifically and compare interest rates, terms, fees etc.

A quick Google produces many VAT loan products to compare.

Downsides

As VAT loans are short term, the interest rates are often higher than other business loans. Additionally, the loan repayments and fees increase strains on a business’ financial commitments.

 

This is a brief overview on the mechanism and does not constitute financial advice. Businesses should seek their own financial counsel. Before signing any loan agreements, you should seek independent financial advice to better understand if a VAT loan you are considering is the right one for you.

VAT: Mind the gap – HMRC latest figures

By   24 June 2024
0

GOV.UK has published details of the most recent measurement of the tax gap for 2022-20223.

What is the tax gap?

The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.

The figures

The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £39.8 billion in absolute terms, in the 2022 to 2023 tax year.

Total theoretical tax liabilities for the year were £823.8 billion.

There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.4% in the tax year 2005 to 2006 to 4.8% in the tax year 2022 to 2023.

While most of the components follow a downward trend, with the largest proportionate fall between 2005 to 2006 and 2022 to 2023 in the VAT gap, falling from 13.7% to 4.9%, the Corporation Tax gap estimate has increased from 11.4% in 2005 to 2006 to 13.9% in 2022 to 2023.

The Corporation Tax gap share has increased from 17% of the overall tax gap in 2018 to 2019 to 34% in 2022 to 2023, while the share of the tax gap from VAT has fallen from 28% of the overall tax gap in 2018 to 2019 to 20% in 2022 to 2023. The Income Tax, NICs and Capital Gains Tax gap share decreased from 39% to 34% over the last 5 years.

The tax gap from small businesses is the largest component of the tax gap by customer group at a 60% share in 2022 to 2023; the tax gap from wealthy and individuals each make up a low proportion of the tax gap at 5% each in 2022 to 2023

The VAT gap

VAT represents 20% of the overall tax gap.

The VAT tax gap is 4.9%.

There are several approaches to measuring tax gaps. VAT and excise duties gaps are mainly estimated using a ‘top-down’ approach, by comparing the implied tax due from consumer expenditure data with tax receipts. Most other components are estimated using a ‘bottom-up’ approach, based on HMRC’s operational data and management information.

A top-down approach uses independent, external data on consumption to estimate the tax base. The tax base is used to calculate a theoretical value of tax that should be paid. The actual amount of tax paid is subtracted from this theoretical value to estimate the tax gap.

VAT: Mind the gap – HMRC latest figures

By   23 June 2023
0

GOV.UK has published details of the most recent measurement of the tax gap for 2021-2022.

What is the tax gap?

The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.

The figures

The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £35.8 billion in absolute terms, in the 2021 to 2022 tax year.

Total theoretical tax liabilities for the year were £739.3 billion.

There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.5% in the tax year 2005 to 2006 to 4.8% in 2021 to 2022 – remaining low and stable between the years 2017 to 2018 and 2021 to 2022.

Criminal activity and evasion accounted for £4.1billion loss in tax collected.

30% of all underpayments of tax were due to a failure to take reasonable care, while 13% of instances were down to evasion.

A massive 56% of the tax gap is made up by small businesses (up from 40% of the total in 2017-18). Whether this is down to HMRC improving collection from large businesses or an increasing failure to crack down on small business is a moot point. It remains to be seen how HMRC react to this new information, but experience insists that small businesses may expect increased attention for the authorities.

The VAT gap

VAT represents 21% of the overall tax gap.

The VAT tax gap is 5.4%.

The absolute VAT gap is £7.6 billion.

The VAT gap has reduced from 14.0% of theoretical VAT liability in 2005 to 2006 to 5.4% in 2021 to 2022.

More than two thirds of the theoretical VAT liability was estimated to be from household consumption. The remainder came from the expenditure by businesses that supply goods and services where the VAT is non-recoverable (they are exempt from VAT), and from the government and housing sectors.

Information on the method used to estimate the VAT gap is here for those interested (I don’t imagine that there will be that many…).

So, £7.6 millions of VAT is missing. That seems an awful lot.

VAT: How to remove penalty points under the new system

By   9 January 2023
0

HMRC has introduced new penalty and interest rules for late returns and payments from 1 January 2023. Details here.

On 4 January 2023 HMRC published guidance on how to remove these points to avoid a penalty. This is particularly important if a business has reached the penalty point threshold.

The penalty thresholds are:

  • annual returns – 2 points
  • quarterly returns – 4 points
  • monthly returns – 5 points

If a business is at the limit and has the maximum points allowed for its accounting periods, it can remove them by meeting two conditions which are:

  • to complete a period of compliance, submitting all returns by the deadline
  • to submit all outstanding returns for the previous 24 months

The guidance sets out how these tests are calculated and applied.

VAT: New penalties and interest for late returns and payments

By   4 November 2022
0

Further to my article on the introduction of changes to penalties for late filing and payments of VAT and follow up guidance, the forthcoming introduction on 1 January 2023 has focussed attention on how they will impact certain businesses.

Late returns

Many businesses who have had to deal with the “old” default surcharge regime realised that it could be disproportionate and create unfair outcomes. The new penalties are, in my view, fairer, and, the changes bring some welcome features and some which are less so.

The good news is that the introduction of the new rules mean that businesses will start with a clean slate, regardless of their position under the default surcharge mechanism – there is no carry over form one set of rules to another.

However, for the first time, late rendering of returns can incur penalties and interest if the returns are either:

  • nil, or
  • repayment

In the previous regime when “non-payment” returns were filed late, this did not trigger a default.

Nil returns

Businesses which did not carry out any activity in the prescribed period, eg; intending traders, businesses temporary closed, or at the end of their life will have to recognise that a late nil return will now trigger points.

Repayment returns

Again, businesses which typically submit repayment returns, such as; new build constructors, exporters, and any business supplying zero rated goods or services will have to recognise tardy submissions will now affect them.

We understand that HMRC is aware of the impact on this sector and is planning to communicate with these businesses to make them aware of the new changes.

An additional point;  from 1 March 2021 the Domestic Reverse Charge was introduced for the construction industry. As a result, an increased number of builders found themselves in a repayment position and will now need to ensure timely returns to avoid penalties.

Late payments – penalties and interest

The new late payment penalties regime will replace the default surcharge, which served as a combined late submission and late payment sanction.

Under the new rules, there will be two separate late payment penalties.

The first penalty has two separate elements:

  1. 2% of the VAT unpaid at day 15
  2. a further 2% of the VAT unpaid at day 30

The second penalty is triggered from day 31. This is charged daily and is based on an annual rate of 4% of any outstanding amount. 

If all outstanding VAT is paid within 15 days of the due date, no late-payment penalty will arise. Although here will however still be late payment interest.

Interest

From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.

Time-to-Pay arrangements

HMRC offers the option of requesting a Time To Pay arrangement. This will enable a business to stop a penalty from accruing any further by approaching HMRC and agreeing a schedule for paying their outstanding tax.

Period of familiarisation

HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.

Appeals

It is anticipated that the number of appeals against late filing/payments will be reduced because of the more proportional approach of the new rules. However, it is still possible to appeal if a taxpayer considers the imposition of penalties and interest is unfair. An appellant needs a reasonable excuse to succeed.

Action

Advisers should ensure that clients affected by the new rules, specifically repayment business and those submitting nil returns, are aware of the impact. I know that a lot of these are habitual late filers and some “save up” returns for when they need a cash injection.

It will also be prudent for advisers to monitor penalty points accrued. We understand that HMRC is looking at how this information could be made available to agents and taxpayers. We expect more details about this in the coming months, including how software can be used to display points.

Repayment supplement

The new system may be fairer, however, the withdrawal of the repayment supplement is not! More details here. (I am still quite cross!)

New VAT penalties and interest charges

By   18 May 2022
1

Further to my article explaining the changes to late returns and payment penalties, HMRC has now published further guidance on new regime.

These changes, originally intended to be introduced on I April 2022 have been delayed until 1 January 2023 (for VAT periods starting on, or after, this date).

From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.

Period of familiarisation

HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.

More on late returns here and on late payments here.

Making Tax Digital for VAT – extra revenue calculated

By   21 March 2022
2

HMRC has published research which evaluates the impact of the introduction of Making Tax Digital (MTD) for VAT.

The report sets out that an additional circa £185 million of tax has been collected, according to its data. This is compared to the original estimate which was that an additional amount of £115 million of VAT would be received by the department.

For businesses above the registration threshold, the estimated additional tax revenue due to MTD is an average of £57 per business. This represents a 0.9% increase from the average amount estimated had the businesses not used MTD. HMRC says that this research provides “strong evidence that Making Tax Digital is achieving its objective of reducing the tax gap by reducing the amount of errors made when filing tax returns”.

MTD background

MTD aims to reduce the tax gap by helping businesses pay the right amount of tax. The tax gap is the difference between the theoretical amount of tax that should be paid and the actual tax receipts. The difference is caused by several reasons including avoidance, evasion, and calculation errors or failure to take reasonable care when filing returns.

MTD is intended to tackle the part of the tax gap which is caused by error and failure to take reasonable care. Businesses are required to keep records in digital form and file their VAT returns using software that directly extracts information from these digital records. This should improve accuracy and remove opportunities to make certain types of mistakes in preparing and submitting tax returns, particularly arithmetical and transposition errors.

Downside

All is not sweetness and light though. HMRC has been slammed by The House of Lords Economic Affairs Committee which published a report that said that MTD for VAT cost far more than was predicted in HMRC’s impact assessments. The Committee also criticised HMRC, saying it “inadequately considered the needs and concerns of smaller businesses” and that HMRC has neglected its duty to support small businesses through the implementation of the controversial measures, suggesting it “will make life even more difficult” for them. In addition, the Committee said it “remained unconvinced” of the government’s logic used to justify the speed and rigidity with which the programme was being introduced.