VAT registration thresholds

HMRC’s VAT Notice 700/1: should I be registered for VAT? has recently been updated. The update reflects the fact that the taxable turnover threshold, that determines whether businesses should be registered for VAT has been frozen at £85,000 from 1 April 2019. In addition, the taxable turnover threshold that determines whether businesses can apply for deregistration remains at £83,000.

It was confirmed as part of the Autumn Budget 2018 measures that the taxable turnover registration and deregistration thresholds will be frozen at the current rates until 31 March 2022.

Businesses are required to register for VAT if they meet either of the following two conditions:

  1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
  2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

The registration and deregistration threshold for relevant acquisitions from other EU Member States is also £85,000.

Corporation Tax for non-resident companies

Non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency.

If the non-resident company is deemed liable to pay Corporation Tax, then its chargeable profits are:

  • any trading income arising directly or indirectly through or from the permanent establishment/branch or agency,
  • any income from property or rights used by, or held by or for, the permanent establishment/branch or agency except dividends or other distributions received from companies resident in the UK, and
  • chargeable gains falling within TCGA92/S10B.

There are, however, some differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

  • is not liable to account for ACT on distributions made before to 6 April 1999,
  • cannot have 'franked investment income',
  • cannot have surplus franked investment income for the purposes of ICTA88/S242,
  • cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement.

VAT and transfer of business as a going concern

The transfer of a business as a going concern (TOGC) rules concern the VAT liability on the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

However, where the sale of a business includes assets and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT and no VAT is chargeable on the sale.

HMRC lists the following conditions necessary for a TOGC as follows:

  • The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
  • The purchaser intends to use the assets to carry on the same kind of business as the seller.
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  • Where only part of a business is sold it must be capable of separate operation.
  • There must not be a series of immediately consecutive transfers.
  • There are further conditions in relation to transactions involving land.

The TOGC rules can be complex and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory, which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

Dealing with property income losses

Where a property business makes a loss, the loss can usually be carried forward and set against future rental business profits.

HMRC’s guidance is clear that any losses made in one rental business, cannot be carried across to any other rental business the customer carries on at the same time in a different legal capacity.

There is no special claim required to carry forward the losses and the losses can be carried forward indefinitely until full relief for the losses can be given.

Under some limited circumstances, the property losses can be set against general income of the same year or the following year. However, where a property business claims loss relief against general income, they must take the full amount of the loss available up to the amount of their general income.

There are exceptions to the loss relief rules for properties that are let on uncommercial terms (for example, at a nominal rent to a relative).

How to register as self-employed

Are you self-employed?

HMRC’s guidance says that you are probably self-employed if you:

  • run your business for yourself and take responsibility for its success or failure;
  • have several customers at the same time;
  • can decide how, where and when you do your work;
  • can hire other people at your own expense to help you or to do the work for you;
  • provide the main items of equipment to do your work;
  • are responsible for finishing any unsatisfactory work in your own time;
  • charge an agreed fixed price for your work;
  • sell goods or services to make a profit (including through websites or apps).

Your legal obligations if you become self-employed

You will need to register as self-employed if you earned more than £1,000 from self-employment between 6 April 2018 and 5 April 2019. If this is the first time that you are required to submit a tax return, you must register by the 5 October in your business’s second tax year. This is not a deadline to ignore as there are penalties for late notification.

The newly self-employed must also register:

  • to pay Class 2 & Class 4 National Insurance contributions (NICs) if applicable, and
  • you should monitor your turnover as registration for VAT will be necessary if sales exceed £85,000 over the preceeding twelve months or if you expect it to exceed this limit in the next three months.

If you are concerned that you may need to register as self-employed, and are uncertain what to do, please call, we can take care of the formalities for you.

Maternity pay explained

How much maternity leave can you take?

If you work as an employee and become pregnant you are eligible to take up to 52 weeks of statutory maternity leave. This is made up of 26 weeks of ordinary maternity leave plus an extra 26 weeks of additional maternity leave. If you give the correct notice period to your employer this means you are entitled to take a full year's leave.

Statutory maternity leave is available to all employees and it doesn’t matter how many hours you work or how long you have worked for your employer.

When are you entitled to Statutory Maternity Pay? 

There are additional criteria that must be fulfilled if you want to claim statutory maternity pay (SMP). SMP is a weekly payment from your employer made over a 39-week period.

SMP is payable at

  • 90% of the employee’s average weekly earnings (AWE) for the first 6 weeks with no upper limit;
  • £148.68 (for 2019-20) or 90% of their AWE (whichever is lower) for the remaining 33 weeks.

The SMP is available to employees if:

  • They are on the payroll in the 'qualifying week' – the 15th week before the expected week of childbirth.
  • Provide the correct notice period to their employer.
  • Provide proof they are pregnant.
  • They have been working continuously for the same employer for at least 26 weeks up to any day in the qualifying week.
  • They earned at least £118 a week (gross) in the 'relevant period'. The relevant period is usually the 8-week period preceding the 15th week before the baby is due, known as the qualifying week.

The maternity allowance is a financial benefit for pregnant women who are self-employed, who are working but do not qualify for the SMP or who have recently stopped working. Your employer is free to offer you additional benefits which includes higher maternity payments, however this is at their discretion and not legally required.

More about Debt Relief Orders

Last week we posted that it is over 10 years since Debt Relief Orders (DROs) were first introduced in April 2009. This week we have fleshed out the details of who can claim and some of the restrictions that apply.

What is a DRO?

A DRO is a special way of dealing with debts available to those with minimal assets and low income. If an application for a DRO is accepted, you will make payments over a specified period (usually 12 months) after which any remaining debts will be written off.

There are special rules that exclude any debts that were fraudulently obtained, continue to be repayable, and if your circumstances change (for the better) the DRO can be revoked.

To be eligible for a DRO, you must meet these criteria:

  • you owe £20,000 or less
  • you have less than £50 to spend each month, after paying tax, National Insurance and normal household expenses
  • you've lived or worked in England or Wales in the last 3 years
  • your assets aren’t worth more than £1000 in total
  • you've not had a DRO in the last 6 years

When you can't apply for a DRO

Eligibility may also be affected if you are involved in bankruptcy proceedings or any other formal insolvency procedure. An application for a DRO must be made using an authorised debt adviser. There are also minimal costs you would have to meet when making an application.

There are certain debts that are not covered by a DRO and there are also restrictions on what you can do during the specified DRO period: for example, restrictions on obtaining credit of more than £500 without informing the lender about your DRO. A DRO will usually stay on your credit reference file for 6 years from the date it was granted.

The VAT concept of business

The VAT system is policed by HMRC and there can be heavy penalties for breaches of the legislation.

There are four conditions that must be satisfied in order for an activity to be within the scope of UK VAT.

These conditions are that the activity:

  1. is a supply of goods or services
  2. that the supply takes place in the UK
  3. is made by a taxable person
  4. is made in the course or furtherance of any business carried on or to be carried on by that person

The fourth point above is a condition that needs to be considered when deciding whether an activity is within the scope of VAT. This concept of business is one of the less well-known rules. However, it is an important condition that decides if a business must charge VAT on their sales, known as output VAT and on its ability to recover VAT, known as input tax.

The VAT concept of business is taken to be the same as the concept of 'economic activity' set out in European legislation. Therefore, if an activity falls within EU definition of economic activity it must be business in the UK. Both of these definitions are wide and, in some cases, have needed to be interpreted by the courts.

What is domicile?

Domicile is a general legal concept which in basic terms is taken to mean the country where you permanently belong. However, determining domicile status can be complex. In fact, HMRC guidance states that domicile cannot be defined precisely, but the concept rests on various basic principles.

  • Every individual must have a domicile at all times. The law ascribes a domicile to those individuals it regards as lacking capacity to choose one.
  • An individual cannot have more than one domicile at the same time for the same purpose.
  • An existing domicile is presumed to continue until it is proven that a new domicile has been acquired.

Your first domicile, known as a domicile of origin, is based on that of your parents, usually your father. Your domicile will only change if you acquire a new domicile of choice. To do this, you usually have to move to another country and establish a permanent intention to remain there.

Although domicile can change, there is generally a presumption in favour of the continuation of an existing domicile. To change a domicile, lots of factors are taken into account for example, the location family, property and business interests. This issues that need to be considered are one of the primary reasons that many of these complex cases end up with the courts having to determine the issue.

It is also possible in certain circumstances for an individual to have two domiciles although this is unusual. There is also a concept in the UK of deemed domicile – under new rules introduced from 6 April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

Outline of special rules for use of vouchers and credit tokens

HMRC’s Employment Income Manual is clear that there are special rules when an employee receives goods or services by reason of their employment, that the employee does not pay for in full. The first step should always be to consider whether a voucher or credit-token was used to obtain them.

Any non-cash vouchers, for example gift vouchers or credit tokens from shops, or electronic cards (equivalent to vouchers) given to a director or employee that can only be exchanged for goods or services may be chargeable as benefits.

The chargeable amount is generally the cost to the employer of providing the voucher or card less any amount made good by the director or employee. Non-cash vouchers also include items such as book tokens or tickets, that cannot be exchanged for cash.

The value of the vouchers and credit tokens should be added to the director’s or employee’s gross pay and Class 1 NICs operated unless a specific exemption applies.

The underlying legislation in Part 3 Chapter 4 ITEPA 2003:

  • covers all employees (including for 2015/16 and earlier, those in lower paid employment)
  • applies to vouchers and credit-tokens provided by third parties as well as those provided by employers
  • charges a benefit in respect of vouchers or credit-tokens provided for, or received by, a relation of the employee.