VAT after Brexit

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John Hodgson

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On 1 January 2021 the UK left the EU. So what does that mean for UK companies that export goods  to the EU? From an EU perspective, the UK is now a third country (it’s outside the EU, and in this case outside the single market and the customs union). That means the UK is now required to operate full external borders similar to other international trading partners outside the EU.

<h2><strong>What does that mean for UK exporters?</strong></h2><p>Goods exported to the EU after 1 January 2021 will be subject to VAT at 0% (commonly referred to as “Zero-rate”) and following the negotiation of a Free Trade Agreement, goods and services traded between the UK and the EU won’t be subjected to quotas or tariffs.</p><p>However, goods exported from the UK will be subject to input VAT on arrival in the EU member state where a customer is based. The exporter will need to make a customs declaration and the customer will need to pay the import VAT before they can take delivery of the goods. This could be bad news for suppliers as it may discourage customers from ordering again.</p><h2><strong>How can UK exporters manage this?</strong></h2><p>If you’re a retailer, you could mitigate this by either:</p><ul><li>Arranging for an agent to manage the import VAT on your behalf so deliveries can be made after the tax has been paid, or</li><li>Holding your stock within the EU for fulfilment of orders within the EU. But be aware this may require VAT registration in the EU country where the stock is held – and potentially a selling registration in other EU states depending on the amount of sales. You may also need to consider the possibility that the business may be subject to corporation tax in the EU country. </li></ul><p>The good news is that from 1 July 2021 the EU is planning to set up “one stop shops” to simplify VAT within the EU and enable VAT to be accounted for in a single VAT Return.</p><p>Be aware that VAT on services supplied business-to-business will still be subject to the “reverse charge” procedure, and UK businesses incurring EU VAT on travel, hotel and other expenses will no longer be able to reclaim the VAT using the online system and will be required to use the paper-based reclaim process.</p>

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<h2><strong>How have customs procedures changed?</strong></h2><p>Since 1 January 2021, any business that imports or exports goods in and out of the European Economic Area (EEA) – which comprises the 27 EU nation states plus Norway, Iceland and Liechtenstein – now has to make customs declarations. </p><p>Businesses will need to be aware of:</p><ul><li>The need to make a customs declaration whenever the goods enter the UK or EU (unless they’re putting them into temporary storage).</li><li>Controlled goods such as alcohol and tobacco will be subject to additional procedures and Excise duty may be due in addition to VAT.</li><li>Any products of animal origin (such as meat, pet food, milk, or eggs) and regulated products will need pre-notification and relevant health documentation.</li><li>Businesses may want to set up a deferment account to enable VAT to be paid once a month instead of paying taxes and duties on individual assignments.</li></ul><p>Any business moving goods between the UK and the EU will require an UK Economic Operator Registration Identification (EORI) to avoid delays and storage fees if goods can’t be cleared by HMRC at the border</p><p>HMRC have auto-enrolled many VAT-registered companies that have traded with Europe. Firms below the <a href="https://anna.money/blog/guides/what-is-the-vat-registration-threshold-in-the-uk/" target="_blank">VAT threshold</a> and/or those which don’t have a “GB” EORI number need to apply at <a href="https://www.gov.uk/eori" target="_blank">https://www.gov.uk/eori</a></p><h2><strong>Can UK businesses get help?</strong></h2><p>The Customs Grant Scheme has been set up to help businesses adapt to the new customs arrangements.</p><ul><li>To support recruitment, training and upskilling HMRC has set up a fund of £80 million to cover salary costs for new/redeployed staff, up to £12,000 per person and £3,000 for recruitment costs for new employees.</li><li>Grants are available on a first-come, first-served basis. Applications will close on 30 June 2021 or earlier if all £80 million has been allocated at <a href="https://www.customsintermediarygrant.co.uk" target="_blank">https://www.customsintermediarygrant.co.uk</a></li></ul>

Self assessment 2021: Q&A

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With this year’s deadline for self assessment tax return coming up soon (it’s 28 February), it’s handy to check you’re prepared for it. We spoke to our accountant John and he answered some of the most common questions we’ve heard so far.

<h2>When is the self assessment deadline in 2021?</h2><p>2020 wasn’t a normal year. And that means you get a little bit more time to file your self assessment tax return in 2021. The deadline has been extended by a month – and the deadline is now 28 February 2021.</p><p></p><h2>When do I file my self assessment? </h2><p>If you’re worrying about submitting your self assessment, here are a few key facts you need to know. First of all, check you actually need to submit a tax return. Remember that tax returns are for financial years, not calendar years. </p><p>The deadline for filing your online self assessment for the tax year ending 5 April 2020 was midnight on <strong>31 January 2021</strong> – but don’t panic. HMRC has effectively extended the tax self assessment deadline by a month, until <strong>28 February 2021.</strong> </p><p>That means if you file your tax return online before 28 February 2021, you won’t receive a late filing penalty. Good news for everyone.</p><p></p><h2>When do I need to pay my tax bill?</h2><p>Even though the deadline for filing your tax return has been extended, you’re still obliged to pay your tax bill for the 2019/2020 tax year by 31 January 2021, and you’ll be charged interest for every day it’s late. </p><p>If you’re struggling to pay your Self Assessment tax bill, HMRC does offer support. Once you’ve completed your 2019/2020 tax return you can set up an online payment plan to spread Self Assessment bills (up to £30,000) over up to 12 monthly instalments.</p><p></p><h2>Gah! I’m new to this. Where do I start with doing my tax return?</h2><p>The first thing you need to do is register with HMRC. Anyone who’s self employed needs to register for self assessment. If you’re filing for the 2019/2020 tax year, you should definitely have done this bit by now as the deadline has passed. But if you haven’t, do it ASAP on the Gov UK website and you might still avoid a fine.</p><p>If you’re about to start working for yourself and thinking ahead, you’ll need to register for self assessment by 5 October 2021 so HMRC can issue you with your <a href="https://anna.money/blog/guides/unique-taxpayer-reference-utr-number/" target="_blank">Unique Taxpayer Reference (UTR)</a>. You use this to create a Government Gateway account, which allows you to file your tax return online. Registering with HMRC also means you’ll be issued with a notice to complete your self assessment at the right time, plus regular tax statements.</p><p>Also, if you’ve been self employed and submitted a tax return before, you may already have a UTR. You can just use this to register and set up your account.</p><p></p><h2><strong>What paperwork will I need?</strong></h2><p>You need details of all your income and expenses over the tax year, plus some other bits and bobs. Once you’ve got all these, actually filling in the form online is relatively easy.</p><p>Go get:</p><ul><li>your 10-digit Unique Taxpayer Reference</li><li>your National Insurance number</li><li>Invoices and bank statements showing any untaxed income you earned over the year, including self-employed income, dividends on shares and interest on savings</li><li>Receipts or bank statements detailing any expenses relating to your business – <a href="https://www.gov.uk/expenses-if-youre-self-employed" target="_blank">see what you can claim for</a></li><li>If you also earned money from paid employment, your <a href="https://anna.money/blog/guides/what-is-a-p60-form-and-how-do-i-get-one/" target="_blank">P60</a> showing your taxed income for the year</li><li>If you left paid employment during the tax year, your <a href="https://anna.money/blog/guides/what-is-a-p45-form-and-how-do-i-get-one/" target="_blank">P45</a> showing your income and tax up to the date you left</li><li>If you let out properties, records of any rental income you received</li><li>If you sold property or shares, details of any capital gains you made</li><li>Any contributions to charity or pensions that might be eligible for tax relief</li></ul><p><strong>Please keep in mind:</strong> this blog post is intended as a guide. Check with your accountant before filing anything with HMRC.</p>

Should I be VAT Registered? A guide to VAT filing schemes

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At some point most small businesses will have to decide whether to be VAT registered. We take a quick look at the pros and cons, as well as the most common VAT schemes available.

<h2><strong>The key figure</strong></h2><p>If your turnover for the next month is expected to be over £85,000 or if it totals more than £85,000 in the past 12 months (on a rolling basis) then you must register for <a href="https://anna.money/blog/guides/beginners-guide-to-vat/" target="_blank">VAT</a>. However, you can still voluntarily register if your turnover is less than that.</p><p><strong>The advantages of registering for VAT:</strong></p><ul><li>You can reclaim VAT on purchases</li><li>Your business will appear larger and more established</li></ul><p><strong>The disadvantages of registering for VAT:</strong></p><ul><li>Increased paperwork and admin</li><li>If you’re trading with non-registered traders, or traders who are VAT-exempt (or partially exempt) your product will be more expensive because your customers may not be able to reclaim the VAT.</li></ul><h2><strong>VAT schemes</strong></h2><p>There are lots of different VAT schemes and we’re going to cover some of them in more detail in other blog posts. For now we’re going to look at three of the most popular schemes for small businesses: </p><p></p><h3><strong>Standard scheme</strong></h3><p>This is a fairly straightforward scheme. It’s calculated on the basis that VAT due on sales invoices minus VAT incurred on purchases gives you the amount of VAT payable to HMRC.</p><p>VAT returns are usually prepared on a quarterly basis, but monthly and annual reporting periods are also possible.</p><p>You might use the Standard scheme if your customers are prompt payers or if you receive immediate payment in a shop or online – you would get the income before you have to pay the VAT.</p><p></p><h3><strong>Cash accounting</strong></h3><p>Under this scheme VAT is calculated on the basis of income received from sales invoices minus the VAT on invoices paid during the period covered by the VAT Return.</p><p>You might use this scheme if you offer long periods of credit or have customers who are slow at paying up (it also ensures VAT is not paid on bad debts). It may also offer a cashflow advantage if your purchases don’t incur a significant amount of input VAT to offset against the output VAT on your sales.</p><p>Be aware that if your turnover exceeds £1.35 million you aren’t eligible to stay in the scheme and you’ll have to pay the VAT due on sales and purchase invoices to HMRC.</p><p></p><h3><strong>Flat Rate scheme</strong></h3><p>The Flat Rate VAT scheme was introduced in 2002 to stop small businesses from drowning in admin. You have to apply to join and you’re only eligible if your turnover is under £150,000. Once your turnover exceeds £230,000 you have to withdraw from the scheme.</p><p>The VAT is based on a fixed percentage of sales, with rates set by HMRC. If you spend less than 2% of their annual turnover or £1,000 per annum on goods or services, the rate is set at 16.5%. A discount of 1% is available in your first 12 months of trading. </p><p>The Flat Rate scheme may be particularly beneficial if you’re a freelancer who doesn’t buy many goods or services subject to standard rate VAT goods or services – for example if you’re a freelance contractor, a bookkeeper, a hairdresser or a beautician.</p>

What is IR35? Explained Rules and Legislation for Off-Payroll Working

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IR35 legislation affects any business that uses off-payroll working (that means workers at a company who aren’t on PAYE). Changes to IR35 were originally due to be introduced last April, but the global pandemic meant they were postponed for a year until April 2021, so we’re taking a quick look at how they might affect you and your business.

<h2><strong>What is IR35?</strong></h2><p>So, what exactly is IR35? It’s a set of tax laws created to work out whether self-employed workers (and workers employed through their own limited companies or intermediaries) are genuine or trying to manipulate the system so they pay less tax. </p><p>An example might be a company that employs a freelance graphic designer. It suits the employee to say they’re freelance as then they pay less tax. And it suits the company employing them as they don’t have to pay national insurance, pension contributions, sick pay or holiday pay. But is the graphic designer really a freelancer? They work the same hours and have the same responsibilities as a full-time employee. IR35 regulations may class them as a “disguised employee” and take a closer look at whether rules have been broken. </p><h2><strong>Who decides if a worker is IR35 compliant?</strong></h2><p>Before 6 April 2021 the responsibility for making sure the rules weren’t broken was with the individual worker. But after this date the responsibility moved onto the companies that employ them. So if you run a company, and you hire someone as a freelancer and contractor, make sure you’re not treating them as an employee. And if you’re a freelancer, think about your role – do you have lots of different clients or just one client who is effectively your employer?</p><p>There are a few questions you can ask to check if you’re a freelancer or employee.</p><ul><li>Do you have any control over where and when you work? If so, you’re more likely to be a freelancer.</li><li>Can someone else do your job? If you’re a freelancer/contractor, someone else should be able to do your job. If no one else can do your job, you’re more likely to be an employee.</li><li>Do you get paid the same amount on the same day every month? Or does it vary depending on how much you worked? If it’s the same every month, you’re almost certainly an employee.</li></ul><h2><strong>Why does this matter?</strong></h2><p>You need to understand IR35 so you don’t fall foul of the rules and end up subject to an IR35 investigation. If HMRC think you’re paying the wrong amount of tax, they can go after you, which could result in a heavy fine and having to repay all the tax you’ve avoided. As well as a lot of stress and anxiety.</p><h2><strong>Does this affect all companies?</strong></h2><p>At the moment IR35 only affects medium and large companies (and the workers they hire). They don’t affect small businesses.</p><p>A small business is any business that meets two or more of the following criteria: </p><ul><li>Annual turnover is no more than £10.2 million;</li><li>A total of fixed and current assets (before deducting current liabilities, long-term liabilities and deferred tax provisions) over £5.1 million; or</li><li>No more than 50 employees.</li></ul>

Filing a zero VAT return

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If you run a VAT registered business, you probably think that if you haven’t traded during a quarter you don’t have to file a VAT Return. Think again…

<p>If you’re VAT registered, you have to file a VAT Return every quarter. </p><p>Even if there is no VAT due for that period (for example, if you registered your company for VAT but haven’t started trading, or if your company is registered for VAT but just hasn’t traded in the relevant period) you still have to file a Return. </p><p>This is known as a Zero VAT Return or a Nil VAT Return.</p><h2>How to file a Zero VAT Return</h2><p>If that all sounds like a bit of a headache, the good news is that it’s really quick and easy to file a Zero VAT Return with ANNA. Just use our <a href="https://anna.money/free-tools/vat-filing/" target="_blank">VAT filing tool</a> and fill in all the values as zero. It’s as simple as that.</p>

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