Crystal Umbrella

New guidance from HM Revenue and Customs states that payments made by cheque will require to have cleared by the due date in order to avoid penalties being charged. This policy will come into effect on 1^st April. This now means that irrespective of the date that the cheque is actually received by HMRC, the payment will only be considered to be on time if it clears on time.

In a press release, chartered accountants Kingston Smith said: “If you are posting a cheque to HMRC, you should allow enough time for the post to arrive and for the cheque to clear. With businesses now relying on HMRC’s efficiency to bank their cheques promptly, electronic payment methods are likely to look much more attractive.”

Kingston Smith’s VAT partner, Adrian Houston, actually pointed out the inequity between the processes for electronic payments and cheque payments as those paying electronically usually have a grace period of seven days following the due date whereas those paying by cheque will now have to make the payment seven days in advance.

Another change due to be implemented on 1^st April requires any businesses who have an annual turnover of £100,000 or more to file and pay their VAT return online from now on. This rule will exist even if the business’s turnover drops below this threshold.

Houston concluded: “Most of the traders paying by cheque after April 1st will be small in size and number [so] this new measure is likely to go unchallenged and HMRC will get its wish i.e payment by cheque will become a rarity.”

As we reach the end of the year, we are faced with the return of the 17.5% VAT rate. However, the Chartered Institute of Taxation (CioT) has issued a warning to all contractors and businesses that the VAT increase is not the only taxation change which will come into effect in 2010. The EU VAT package will also come into force on New Years Day and, according to CioT this will result in “big changes” to the taxation rules governing services provided across countries.

At present, for tax purposes, services are considered to be supplies wherever the supplier is based. However, from next year the services will be classed as having been supplied wherever the client’s customer is based.

The purpose of these changes is to put an end to businesses relocating with the sole aim of cutting their VAT bill.

Chairman of the CIOT’s VAT and indirect taxes sub-committee, Douglas Gordon said: “Any business which supplies or receives cross-border services needs to be ready for these changes. Most will be already have been contacted by their advisers but any that haven’t should seek advice straight away. The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.

He concluded: “However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them.”

The Forum of Private Businesses (FPB) is lobbying the government to include specified tax cuts within their pre-budget report on 9^th December. The FPB have recently surveyed all of their members and more than twenty per cent believe that the government should be focussing policies to relieve tax burdens on SMEs.

A number of changes have been suggested by FPB in their proposals to government. These include the creation of a national insurance holiday for businesses with less than ten employees alongside a delay in the implementation of the planned 0.5% NIC rise. They would also like to see corporation tax cut to 20%. They see this as a small concession by the government which could really benefit businesses.

VAT is another major taxation issue and the FPB would like the return of the 17.5% rate should be postponed to a more reasonable timescale. They also believe that VAT should be reduced permanently within labour-intensive sectors to just 5%.

Finally, they are asking that all small businesses are automatically enrolled for the Small Business Rate Relief as figures show that less than half of the businesses who qualify for this relief have actually applied for it.

Phil Orford, FPB’s Chief Executive, said: “There is still a long and difficult road ahead of us, but small businesses are key drivers of the economy and the Government must create a tax environment in which they can thrive. That means tax relief in specific areas that would help to foster cash flow, innovation and employment opportunities so that small businesses are able to seize the opportunities that will emerge as the economy emerges from recession.”

The rate of VAT was reduced to 15% at the height of the country’s economic downturn. At the time, the chancellor warned that it would revert back to 17.5% as soon as the economy showed signs of recovery. HMRC have now confirmed that this will happen on 1^st January 2010. This will affect the majority of businesses from the stroke of midnight at New Year. The only exception will be pubs and clubs who operate through the night. However, tax experts have said that such businesses can only expect a few hours grace period from HMRC before they will have to apply the full rate.

HMRC have issued guidance to support businesses through the transition of reverting back to the original VAT rate. It is expected that the change will cost businesses in the region of £125m.

Choosing to increase VAT on New Years’ Day has been met with criticism from business groups and economists alike.

George Bull, from accountancy group Baker Tilly, spoke to the Financial Times about the impending increase. He said that he believed that the VAT cut had failed to achieve an increase in consumer spending as had been hoped. He believes this is the reason why the reduction looks set to be cancelled at the turn of the year.

For many, it’s hardly surprising as recent indications suggest that the decrease barely impacted upon consumer spending. Although for campaigners wanting to postpone the imminent VAT rise, the refusal to prolong the period is seen as a significant disappointment.