Fraudsters invent a new registration requirement for VAT

We advise any recipient to contact HMRC at phishing@hmrc.gsi.gov.uk

The latest scam purports to relate to tax obligations under EU law.

In this case, a newly incorporated company receives a fraudulent letter asking
it to pay £320 by credit card to register on the ‘Intracom VAT Registry’. The
form and style of the letter suggests to the recipient that it has the official
backing of the UK or EU tax authorities and it would be easy for innocent
businesses to be taken in by this scam.

New Traders must register with the Taxman as a business for the payment of Tax.

The Taxman’s Internet spy. HMRC will use a ‘web robot’ to search out new traders who have not registered with them & will fine them where they have been identified. To avoid inadvertently overlooking a notification, registration deadline or a limit refer to the website http:/tax.indicator.co.uk. If you find that you have missed a deadline, the best advice is to contact the Taxman immediately as doing so can mitigate any potential penalty.

Where Company employees & directors make private trips in a company car & do not re-imburse the company, it has to pay tax & NI on the costs of the fuel used at quite a prohibitive rate depending on the Car’s CO2 emissions. The Costs can amount to over £1 a mile. This is then rechargeable to the employee or director. To avoid this entirely the company should have a policy where employees & directors are required to re-imburse the Company for the actual costs of the fuel used & that it is in fact adhered to by re-imbursement within 30 days of the date of the private travel.

Where employees are paid on a Monthly basis, for all amounts paid between £603 & £3,540, an NI rate of 12% applies, all amounts above the upper of these limits are subject to NI rates of just 2%. If commission or bonuses are paid as part of employee payment packages it makes sense to pay these quarterly or bi-annually rather than monthly as all amounts over £3,450 will have an NI rate of just 2% applied & therefore a greater portion of these payment will be paid as lump sums at the lower NI rate.

We think that it is good enough for up to a few (5 or so ) employees; beyond that it is worth purchasing a Commercial package which can costs less than £60 & does not have the limitation referred to above, but may be subject to a renewal fee for every year after that of first purchase.

But is is different for businesses: if you install renewable energy systems on near your business premises you are liable for Corporation Tax on all electricity sold & income generated. As against this, the capital allowances claimed as a tax deductible cost on the costs of installation mean that it would be at least 10 years before the tax would actually have to be paid

In the last Budget, a tax break was given to the other beneficiaries when part of a net estate was given to Charity. The Inheritance Tax rate applicable is reduced from 40% to 36% but only where the Charitable gift made is at least 10% of the value of the net estate. It might be seem as an attempt to compensate the other beneficiaries for the share that they have ’surrendered’ to the Charity. Net estate is the value of someone’s estate less exemptions, e.g. gifts to spouse, less business property relief less the nil rate band (the amount of the taxable estate after reliefs on which the inheritance tax rate is 0%). This is the portion on which at least 10% of the value must be made over to the charity in order for the remainder to qualify for the 4% reduction tax break. Difficult to know what this might be until after death. So if you intend to leave a gift to charity , the best way to ensure that the tax break cann be used is to have the will drawn up by a solicitor.

A partially exempt business is a VAT registered business which makes both chargeable & VAT exempt supplies: provided the costs attributable to the exempt supplies are below certain limits, the VAT paid on those can be claimed. If the business does not use up all the amounts claimable under the limits, then the rental property VAT can be claimed so long as the owner of the VAT-registered business & the rental Property are one & the same.

The underlying message is if the VAT amounts are small enough they can be ignored.

Capital Allowances work in exaclty the same way as enhanced capital allowances for purchases of equiment up to £100k in any one year, so in order to benefit from enhanced capital allowances purchases have to be over this upper limit. The annual investment allowance, this £100k allowance is set to be redu ed to £25 by April 2012 so it will be easier to make those green purchases & capture tax incentives to do so going forward.

For the Taxman, what counts as a reasonable excuse is very limited indeed, usually must be something as defensible as a very serious illness for example & almost certainly excludes excuses like one’s inability to complete the Tax Return on line & submit it over the Internet. Difficulties with the logging on process, with interpretation of the requirements, with completing the return accurately etc simply will not be tolerated under the new tough regime & ignorance is no excuse now even less than it ever was.

The best solution is to make sure that you start work on your Tax Return early enough to have sufficient time to overcome any difficulties that you encounter, get some professional help if you feel you need it (even just a check over what you have done) & ask HMRC for any assistance required early , preferably in writing, keeping a careful record of all such instances of request & reply. If such assistance does not arrive in time & you do end up submitting a return late, the more broader ruling under Tax law may protect you against a penalty but should not be replied upon.

Well the answer depends on a number of things..

Where you discover the error & go online to correct it, this may count in your favour as a voluntary disclosure. Where the HMRC discover yet they are less likely to mitigate the penalty.

Where the error is in your favour, not disclosing all income accurately for example & the revenue loses tax income, they will be less sympathetic. You would also have to pay interest on any monies paid late.

Where the error is in their favour & tax is overpaid, the penalty may not be enforced & they would repay the tax along with interest to the taxpayer.

Whether or not assistance was sought from the HMRC itself. If there were delays in responses to queries on the part of HMRC itself, which contributed to an error, they are less likely to pursue a penalty.

With a recent decision by the European Court of Justice, you can now give away samples for marketing purposes without having to account for the VAT. They must be free and they must be from your current product range.

You can reclaim any VAT paid on samples over the last four years. Don’t forget that if the amount being reclaimed is less than £10,000 you can just alter your VAT return (as with any correction to previous returns) but if the amount is over £10,000 you will need to provide the Taxman with full information.

Please note that samples given for marketing purposes differ in their treatment from products given as business gifts. Business gifts are only VAT-free where their total cost is less than £50 per year per person or business so you will still need to account for VAT on these items (and keep a record).

If you are late by up to 3 months, the penalty is a flat rate of £100. Thereafter, there is a penalty of £10 per day for the next 90 days (£900), bringing you up to 31 July 2012. Returns filed late after that will attract a further penalty of £300 or 5% of any tax owed for 2010/11, whichever is the greater amount.

The potential minimum penalty is therefore £1,300 compared to the current penalty of £200.

If you have not already registered for onliine filing, consider doing this and act now. This will extend your deadline to 31 January 2012.

Also, if you do not have all the information you need to complete your return, include estimates (providing the information in the Additional Information section) and tick the ‘estimates included’ box to alert the Taxman.

This is a useful tax relief if you live somewhere that holds an annual event, such as Wimbledon or Glastonbury festival and you can rent your house out during the event. The Olympics also spring to mind. Although the taxman would like to restrict the relief to where only part of the house is available, in fact it also relates to where you let out you whole home, as long as the property is your ‘only or main residence’.

If you also charge for meals, laundry and other services you can include this income in your claim for RARR.

Where you have a new employee who has not given you a P45 or completed a P46, you will be required to operate tax code 0T instead of BR. This has the effect of not allowing any tax-free allowances and it should be operated on a cumulative basis.

Where you have already issued a P45 to a leaving employee but need to pay them more, you are also required to operate the rate 0T, this time on a week1/month 1 basis.

Any shortfall in tax resulting from operating an incorrect code may be the liability of the employer so make sure you operate the correct code.

And don’t forget that as from April 6 2011, all tax forms relating to starting and leaving employees must be submitted online.

If, for example, you have a 10 year lease with a 12 month rent-free period on your premises, you can calculate the rent for the 10 years, calculate the average charge over 10 years and claim it against your income over the 10 years, rather than as you pay it.

If you have rent reviews so that you won’t know the rent for the 10 years, you can calculate the average rent for the period you do know (possibly 3 or 4 years) and claim that over the period.

Ultimately, it all ends up with you claiming the same amount of rent against tax but it may help cashflow in the early years.

You will need to register - give yourself a couple of weeks before the deadline as you will need to receive an Activation code and this can take a week. You will also need some payroll software. The Taxman’s free version is adequate if you only have a few employees. Note that you will need to order paper-copy P60s for manual completion to give to your employees.

If you employ more than a few employees, you will need to buy payroll software (or use a payroll bureau such as Longhill Accounting offer). Using a computerised payroll system will have many benefits, not just for the year-end and will save you time in the long run.

Aim to have prepared your year-end return as early as possible after the tax year end. If there are errors in it (such as including employees on your P35 but not submitting P14 details; errors in NI numbers; including tax from a previous employment in an employee’s total tax paid, to mention a few common errors) it will be rejected. You will then have time to correct these before the deadline of May 19.

Failure to file your Year-end returns online on time will result in a penalty.

For useful notes on Year-end filing, look at http://www.hmrc.gov.uk/paye/payroll/year-end/annual-return.htm

Secondly HMRC is fond of including adjustments to your tax code to cover almost any kind of expected income to save them the trouble of collecting the taxz after the year-end Self-Assessment return is submitted.

HMRC can include almost any type of adjustment in your code but you are not obliged to accept them unless they relate to your earnings or pensions received. So ask HMRC to remove any you do not agree with.

However you can reclaim VAT on capital items worth a VAT-inclusive amount of £2000 or more. However ‘capital items’ excludes repairs or modifications to existing buildings or items of machinery.

- Luncheon Vouchers

- Late-night taxi fares

If your employees currently make use of these benefits these will become taxable if the reliefs are withdrawn. To prevent the resentment that might be generated if you ask employees to fund their own tax bills on these you may wish considering settling any tax arising yourself via a PAYE Settlement Agreement (PSA). But any reliefs withdrawn are likely to apply w.e.f. 6 April 2011; i.e. next tax year

Surprisingly the tribunal disagreed with HMRC, drawing a distinction between supervision of MF himself and of the work he carried out (i.e. in the context of airline safety there have to be checks). Checking someones work does not therefore mean that you are controlling them

The solution is to include a ‘prohibition of private use’ clause in your employment contracts so that you can demonstrate to the Taxman that the asset was provided for business use only.

Mobile phones and computers supplied primarily for business use are exempt from benefit in kind if the private use is insignificant. This also applies to equipment provided for employees to work from home.

The whole area of benefits to employees and directors is fraught with difficulties and needs careful consideration when being set up.

The allowance of £50,000 will apply to any ‘golden handshake’ payments made by an employeer into a pension plan for an employee or director who is retiring. This is a change from previous arrangements, where the payment could exceed the normal annual contribution limit.

If you are in a position to retire before April 6 2011, this may be a factor worth considering.

As there is can be a signficant time difference between agreeing your tax and it being collected through your tax code, over-collection may be missed by you so check the code carefully.

Credit notes issued after 4 January relating to invoices with 17.5% rate should be at the 17.5% rate, ie the rate of the original invoice.

For details of flat rates, see  http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a

If you cannot get your tax return in on time, then at least pay enough to cover the tax owed for 2009/10, to be paid before 31 January 2011, and you can avoid this penalty for the current year.  This is because the new law only comes into effect when the Treasury says so and it didn’t say so in the Finance Act 2010.

If you have to estimate the amount, aim on the high side and don’t forget to include your payment on account for 2001/11.

If an employee undertakes a training course and pays for it personally, the costs will only be allowed against his/her tax if it can be shown to be ‘wholly, exclusively and necessarily in the performance of the duties of the employment.’  However, if the employer pays for the course, it can be claimed against the company’s tax and the employee is not deemed to have received a benefit-in-kind. (Section 250, Income Tax (Earnings and Pensions) Act 2003).

It is possible to set up a salary sacrifice scheme for training, even if it is contains an element of personal development not directly relevant to the employment, and this has the added attraction of saving on NI contributions.

If the dormant company commences to trade, you need to submit a CT41G to let the taxman know this.

Even dormant companies need to submit an Annual Return and accounts to Companies House.  Guidance is available at http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml#ch8

Another solution is to set up a limited liability partnership (llp) and transfer the property to that.  An llp is similar to a limited company and it must submit accounts and an annual return to Companies House each year.  However, because it is also similar to a partnership, the split of income can be agreed by the partners each year irrespective of how the partnership is owned.

The cost of setting up a simple llp is not onerous and it may prove to be cost-effective in the long-term because of tax savings.

However, following a recent court case (HMRC vs Patmore), if you have raised finance for your company using your family home, which is jointly owned by you and your spouse, your spouse is entitled to a share of the company and to a dividend stream.  For example, if a mortgage of £100,000 is raised to finance a £200,000 investment, the spouse can be deemed to be a 25% owner (50% x 50%), even if no shares are issued to reflect this. Your spouse can then receive dividends to reflect this ownership, useful if he/she is taxed at the lower rates.

This can be done through a separate trading company which is jointly held or through a consortium, where at least 75% of the share capital is owned by the members of the consortium, each member owning at least 5%.  Any tax losses arising (and these can be high on start-up) can be passed back to the owners and this is known as consortium relief (CR).  There are certain rules which need to be looked at on an individual basis.

The rules were that the losses could be allocated on a basis agreed by the group, regardless of the shareholdings.  Now, new rules will restrict CR in proportion to direct voting powers, not shareholdings or prior agreement amongst the group.

It is possible to agree a balancing payment with group members to compensate a company which loses out significantly under these new arrangements but make sure a clear formula is agreed in advance for this.

If both are paid say £6,500, the amount on which employer’s NI is charged is £780 x 2, ie £1,560.  At 12.3%, the NI payable will be £192.  If, however, you pay one individual £13,000 to do the same job, employer’s NI will be charged on £7,280, so you will be paying £895 in NI.  There is therefore a saving of £703 per annum at current rates of Employer’s NI.

Using childcare vouchers, to a maximum of £55 per week, is also tax effective as they are not subject to Employer’s NI.

The savings need to be weighed up against costs of training two employees instead of one etc.

You must wait until the European Court has confirmed the Advocate General’s decision (it may reject the decision but this is unlikely) but compile the details so that you are ready to make a claim as soon as it is possible.

Any payment which remains overdue for 6 months can attract a further 5% penalty and yet a further 5% if overdue after 12 months.

So, if you think you won’t be able to pay your PAYE on time, contact HMRC before the due date and you may be able to come to an agreement for late payment and avoid any penalty - providing you stick to the terms of the payment agreement.

Also, if you don’t have any PAYE in a particular month, don’t forget to complete the payment slip with ‘Nil Due’ so that the taxman knows that you haven’t just forgotten to pay him.

This should mean that there will be a longer timescale between inspections.  If you have recently had an inspection and receive notice of a combined inspection - or Cross Tax Check (CTC) as they are now called - notify the tax office and they may put you further down the list but they are not obliged to do so.

If you have different advisors for different aspects of your tax affairs, authorise one to act as your CTC co-ordinator as this may cut down on the inspector asking duplicate questions from the different advisors.

If your private mileage is less than 10,000 miles per year, it may be worth claiming the VAT on the business element of fuel rather than claiming the VAT on all fuel and applying the fuel scale charge for the private mileage element.

From a business and tax point of view, most allowances and levels have been frozen at last year’s levels.

The big exception to this is the much-trailed 50% income tax rate for those of us lucky enough to have income in excess of £150,000 during 2010-11. Dividends will be taxed at 42.5% and NI contributions will be increased by 1p next year.  Also, the personal allowance will be withdrawn on a tapered basis for people earning in excess of £100,000 per annum.  Anyone earning in excess of £112,950 in 2010/11 will not receive a personal allowance.

Another exception is the increase in Annual Investment Allowance (the value of fixed assets that you can write off within a tax year) from £50,000 to £100,000. In small business terms this is most likely to be useful for businesses starting up close to the tax year end (they can now write off £8,333.33 of assets for each full month of trading rather than £4,166.66).

Corporation tax remains at 28% and entrepreneur’s relief for capital gains tax is to be raised from £1m to £2m effective from 6 April 2010 so if you are considering a disposal of a business, check if it is worth delaying until after 5 April.

Stamp duty for first-time buyers has been abolished on purchases of houses costing less than £250,000, with immediate effect. This was previously £125,000 and is in place until March 2012.  The relevant date is the date of completion not the date of exchange and only applies to buyers if none of the buyers in any one transaction have ever owned a property before (so people returning to the housing market, divorcees buying under their own name, couples buying jointing where one of the two has bought a property before do not qualify). Buy-to-let residences are also excluded.

Duty on alcohol has been increased by 2% above inflation, while ciders have had an extra 10% slapped on them.  This is bad news for Somerset cider producers.

An important thing to note is the tightening up on late submission of VAT returns. Late submissions will now carry penalties.

The turnover threshold for compulsory VAT registration will rise from £68,000 to £70,000 on 1 April 2010.

Partnerships must submit a paper Form VAT2 as there is no online facility yet for this form.  At the moment, sole traders are probably the only group who can save time with online registration.

If your customer pays you after you have claimed tax relief, you will need to include that payment as income in your next tax return and pay any tax due on it.

You will not be liable for personal income tax on reimbursement of these expenses by the company.

• the debt is more than 6 months old and less than 3years and 6 months old;
• you have written off the debt in your VAT accounts and transferred it to a separate bad debt account;
• the debt has not been sold or handed to a factoring company;
• you did not charge more than the normal selling price for the items;
• you are only claiming VAT on the unpaid proportion of any invoice.

To claim a repayment of VAT, include the amount - at the original rate charged - with your purchases for that period, putting the total figure in Box 4 of your VAT return.  You will also need to keep a record of the original invoice, the VAT amount and the period in which it was originally paid, the period in which it was reclaimed and a history of any payments on account.

If your customer subsequently pays you, you must account for the VAT on the receipt and include it in your next return with your Sales figures.

The requirement to report the supply of services came into effect on 1 January 2101 and can be a complex area.  There is help available from HMRC on their website at

http://www.hmrc.gov.uk/vat/managing/international/esl/reporting-esl.htm#2

This service enables you to check the code number in force for your employees and download a copy for your files.  You can also check what forms have been submitted by you and add comments if necessary.

More information is available from HMRC on their website at:

http://www.hmrc.gov.uk/paye/tools/pdv/index.htm

Alternatively, you could consider keeping the company running and release the profits through the payment of dividends over a number of years. Tax-free allowances and rate bands can be used to maximise the dividend payable each year.  Transferring some of the shares to your spouse could mean that they too can withdraw dividends to utilise their tax-free allowances and lower rate tax bands.

Further indicators of such a relationship include the level of control you exercise over the work, when it is done and who provides most of the tools of the trade, as is whether you pay on a job-by-job basis or on an hourly or daily rate.

If you are a company director and the service is something you could use for personal purposes, then you will be taxed on the benefit-in-kind (BIK).  The value of the BIK is based on the cost of providing it so if, for example, your customer can sort out your home computer for you and the only cost is the hard-drive, then this is the cost that you will be taxed on.  The BIK will have to be included on your P11D so don’t forget to get your customer to itemise this cost on his invoice.

There are four different methods for dealing with this:

• claim 100% of the VAT if there is NO private mileage;
• Use the HMRC scale charge payment for the private element, information available on http://www.hmrc.gov.uk/budget2009/bn69.pdf.  This may not be appropriate if your annual mileage is low so you need to keep an eye on this to ensure you are not losing out;
• mileage method, keeping a record of mileage for business purposes (for cars and vans, that’s 40p for the first 10,000 miles, 25p per mile thereafter in the tax year);
• reclaim nothing - though a disclaimer to this effect will relate to all your vehicles, including commercial trucks etc.

There may be VAT periods when one or other method is more appropriate and you can change your method from one period to the next.

<!–[endif]–>

To qualify for the full basic pension, currently £4,953 per annum, you will need 30 years of full contributions, effectively £165 per year of contributions.  This will cost £626.60 (£12.05 * 52) per missing year. To make it worthwhile topping up, you would need to collect your pension for almost 4 years - £626/165.

For others not reaching retirement age before April 5 2015, topping up is restricted to buying a maximum of six years of contributions, with at least one full year already on record.

Providing him with your bank details - securely - will also speed up the process as he can refund the money directly into your account.

The effect will be to allow 100% capital allowances in the year of purchase.  The re-definition applies retrospectively to April 2008 so if you have purchased a double-cab pick-up since then, you can claim full tax relief for it.  If you have already submitted a claim, you are entitled to amend it.

While there are the more obvious factors of salaries, dividends, tax implications for capital allowances and loss relief, one less obvious factor relates to motor cars.  The treatment of cars for tax purposes differs depending on whether you are a partner/sole trader or a director of a company.  There is a big benefit-in-kind charge for directors who have a company car.  The company also has to pay Class 1A NI contributions on the value of that benefit-in-kind.  On a car costing £20,000, and using current rates of tax and NI, the total additional cost of the car will be almost £13,000, some of which is picked up by the director and the balance by the company.

If a car is part of the deal, this needs to be factored in when deciding on which route to take.

• give them as much information as possible to enable them to give you as appropriate an answer as they can; and
• keep a written note of what was discussed and follow the conversation up with a letter to them, setting out your understanding of what was said.  Request written confirmation or clarification if they do not agree.

This applies to all tax and HMRC-related topics.

In the unlikely event that he does arrive unannounced, the best thing to do is to remain calm, say it is not a convenient time and try to re-arrange a mutually convenient time, possibly at a neutral venue such as your accountant’s office or even suggest that you will come to his office.

If the VAT effect of the error is less than £10,000, you can adjust your next VAT return.  If it exceeds this amount, you need to advise the Taxman in writing and provide him with full details of the error.  Do not also adjust your VAT return as this may result in double accounting for the VAT.

The Taxman may charge a penalty for underpaid VAT if he thinks you didn’t take ‘reasonable care’.  It is best practice to advise him of errors of less than £10,000, if only to show willingness for full disclosure as this may reduce or even eliminate the risk of him charging a penalty.

Main accountancy bodies are co-ordinating responses - watch this space.

Cars have not qualified for the Annual Investment Allowance since it was brought in last year and are subject to the new Capital Allowances rules (less advantageous than the old ones). They now get a First Year Allowance of 40% (for this year only; 20% in any other year) on the business element, and 10% on the reducing balance thereafter. However when the car comes to be sold then there is no longer a balancing allowance available for the full remaining cost; instead the business only gets 10% of the remaining balance after sale proceeds deduction - the rest is lost.

Consider providing employees with a car allowance rather than a car - it will usually turn out to be cheaper for all concerned (unless the car really is needed for business and has high mileage).

It does however indicate that at the very least HMRC will be expecting businesses to keep some basic records (a box of invoices and bank statements handed to your accountant at the end of the year is not likely to be acceptable), and these will likely include an analysed cash book, the ability to work out a statement of debtors and creditors, till reconciliations if the business deals in cash, a detailed VAT account if the business is VAT-registered, and a breakdown of capitalised items. Other records may be added depending on the type of business.

Paying yourself dividends is absolutely fine but you must ensure that you have post-tax reserves available at the time of payment - this means putting some accounts together.

In addition, in light of the Government’s stated intention to look carefully at the extent to which profits are extracted as dividend rather than salary, you should also:

- Ensure that the distribution is approved via a signed board minute (even if there is only one director / shareholder)

- Prepare a dividend voucher to evidence the payment, date & tax credit

This relief has been restricted as a result of FA 2008 to losses of not more than £25,000 per year or to losses incurred in businesses in which you work at least 10 hours per week. That is, large losses incurred in part-time businesses can no longer be offset against other income. Therefore if you are likely to fall into this category record the time spent on your business, including all the administration stuff, emails, phone calls, doing the books etc. - it all adds up and is useful ammunition if the taxman ever asks.

These payments enable employers to pay employees tax-free if they are passengers in a car being used on a business trip. Therefore if you have 3 employees going to the same meeting, instead of them driving separately and being paid up to 40p per mile you can get them to share, pay the driver up to 40 per mile and the passengers up to 5p per mile. This could reduce your travel costs significantly.

A full set of Q&A can be found on www.hmrc.gov.uk under the ‘VAT’ section but key points to note are:

- the rate of VAT to charge depends on the date of supply of the goods /services not the date of the invoice unless the invoice is issued within 14 days of the goods changing hands in which case the invoice date applies.

- If using accounting software you will need to change the VAT rate used by the system; usually this is something that can be done in the company preferences. If using an online ordering & invoicing system you will need to ensure that invoices raised on customers carry VAT at the new correct rate.

The deal is that you can claim VAT back on services received in the previous six months ( a service relates to anything where goods do not change hands - e.g. accountancy or training) or on goods received in the previous three years provided that the business still possesses them. This will tend to apply only to fixed assets or items still in stock. The business will need to have proper VAT receipts for these items and although VAT-registered suppliers are not obliged to provide VAT invoices to non-registered customers (though most will) there is a retrospective requirement to do so after registration.

This ‘one-off’ VAT win should be added to the business’s first VAT return as purchases.

However just as it is possible to claim VAT on goods purchased pre-registration so VAT becomes repayable on goods held at the time of deregistration. This includes goods for resale and assets used in the business. VAT of less than £1,000 is ignored so if the business holds VATable stock and assets of £6,666 or less (or £5,714  when the VAT rate reverts to 17.5%) no VAT becomes due.

If thinking of deregistering it therefore makes sense to run stocks down to a minimal level. In addition, if stock is damaged then it can be valued down for VAT purposes to the price expected to be payable for the goods in their current condition.

- The flat rate schemes works by levying VAT as % of business turnover (the exact % depends on the industry) and blocking input tax on purchases. This tends to work well for profitable businesses using a large number of unregistered suppliers and less well for businesses making losses or whose VAT position is neutral or in a refund position

- The annual accounting scheme requires a business to make monthly payments for nine months (months 3-11) of the year and a single VAT return plus balancing payment in month 12. This reduces the administration of 4 VAT returns but puts all the pain into a single month instead.

The cash accounting scheme allows businesses to account for VAT on the basis of cash received and paid - this is most suitable for businesses with credit customers who take a long time to pay.

Where a business spends less than £50,000 per annum on business capital items meeting HMRC definitions, it will now be acceptable to offset the full cost against profits arising in that same year. Capital Allowances on costs above this figure will be available but at a very low rate. At the end of the tax year and if close to the spend limit it is therefore worth considering whether it is feasible to defer expense into the following tax year.

This is in order to offset the effects of the abolition of the 10% tax band which took effect from the beginning of the tax year. Upper rate tax payers will not be affected by this change and most employees will receive a tax refund or pay a reduced amount of tax in their September salary. For taxpayers making payments on account it may be worth considering whether the increase in allowances will warrant a decrease in the payments on account for 2008/09, the first of which will be due on 31 January.