4 March 2024

‍Understanding the pros and consof the VAT Flat Rate Scheme for businesses

Value Added Tax (VAT) is a significantconsideration for businesses. It impacts your cash flow, the amount of adminwork needed, and even your overall profitability. One option available tobusinesses - with a VAT exclusive turnover of £150,000 or less - is the VATFlat Rate Scheme (FRS), which offers a simplified approach to VAT accounting.However, deciding whether to adopt this scheme requires careful considerationof its benefits and drawbacks.

The VAT Flat Rate Scheme operates by applyinga fixed percentage to your turnover to determine the VAT payable to HM Revenueand Customs (HMRC). This fixed rate varies depending on the industry sectorthat your business operates in. While this simplicity can be appealing, it'scrucial for businesses to evaluate whether this scheme aligns with theirspecific circumstances.

The advantages

One of the primary advantages of the VAT FlatRate Scheme is how simple it is to operate. Unlike traditional VAT accounting,where businesses need to track VAT on sales and purchases separately, FRSsimplifies this process by applying a flat rate to the total turnover. This cansave time and reduce the administrative burden, and if you run a smallerbusiness this can be a big help!

Businesses under the VAT Flat Rate Scheme canalso benefit from potentially paying less VAT to HMRC compared to the traditionalaccounting methods of accounting for VAT. The scheme allows for your businessto keep the difference between the VAT charged to customers and the VAT paid toHMRC, which can provide an additional margin for your business.

The disadvantages

However, while the VAT Flat Rate Schemeoffers simplicity and potential cost savings, it may not be suitable for allbusinesses. One of the notable drawbacks is the inability to reclaim VAT onpurchases, except for certain capital assets over £2,000. This means that ifyour business buys in a lot of supplies where you pay VAT on them, you may notbenefit from the scheme as much as others.

Additionally, the fixed rates provided byHMRC may not always accurately reflect your business's specific VAT position.While these rates are designed to approximate the average VAT payable fordifferent industries, businesses with atypical cost structures or profitmargins may find themselves disadvantaged by the scheme.

Furthermore, you need to consider the futuregrowth of your business and how this might impact your VAT liabilities underthe Flat Rate Scheme. As turnover increases, the fixed percentage applied toturnover may result in higher VAT payments compared to the traditional methodsof accounting for VAT. This could potentially erode the scheme's cost-savingbenefits.

Before deciding whether to adopt the VAT FlatRate Scheme, it is important that you carefully evaluate your current VATposition, including the proportion of VATable sales and purchases, as well asany potential future changes in turnover.

We have tools that can help youdecide whether joining or leaving the Flat Rate Scheme is a good choice foryour business. Please feel free to get in touch with us. We would be happy tohelp you!

Are you eligible for a £252saving on your tax bill?

With the tax year ending on 5 April, March isa good month to check whether sharing unused tax allowances with your partnercould save you some money.

HM Revenue and Customs (HMRC) say that Marchis the most popular month for Marriage Allowance applications. Almost 70,000couples applied in March last year. As there is also the option to backdatetheir claim for the previous 4 tax years, eligible couples who have notpreviously claimed could receive a lump sum payment of more than £1,000.

Marriage allowance allows individuals totransfer up to 10% of their tax-free Personal Allowance to their husband, wife,or civil partner. For the 2023/24 tax year, this means a maximum amount of £252could be available to those who qualify.

In order to benefit, either you or yourpartner must have an annual income of less than the Personal Allowance, whichis currently £12,570. And the higher earning partner’s income must be between£12,571 and £50,270. If you live in Scotland, the higher earning partner’sincome must be between £12,571 and £43,662.

To find out if you are eligible, you can useHMRC’s online calculator at https://www.tax.service.gov.uk/marriage-allowance-application/benefit-calculator

If you need any help working out whether youare eligible or in applying for the allowance, please do not hesitate tocontact us!

Additional protection nowavailable for UK food and drink sold in Japan

A total of 37 Geographical Indications (GIs) gainedformal protection last week as part of a deal agreed between Japan and the UK.

Iconic food products such as Cornish Pasties,Welsh Lamb, Scotch Beef, Cornish Clotted Cream, and Melton Mowbray Pork Pieswill all receive protection under the agreement. This means that UK businessesexporting these food and drink products to Japan will be protected against localand other businesses imitating these products in Japan.

Under the agreement, a number of Japaneseagricultural products and drinks will have their GIs protected in the UK.

For a full list of the protected foods anddrinks, please see: https://www.gov.uk/government/news/uk-businesses-welcome-protection-for-iconic-british-food-and-drink-in-japan

Financial handbook forindependent training providers released

David Withey, Chief Executive of theEducation and Skills Funding Agency (ESFA) has written to independent trainingproviders in receipt of direct funding from the Department for Education (DfE)or ESFA. The letter announces the publishing of a financial handbook forindependent training providers.

The financial handbook describes a mix ofrequirements, best practice and discretionary elements that are tiereddepending on the organisation’s level of funding.

It covers many aspects of financialmanagement and governance. For many independent training providers, these procedureswill already be part of their good financial management. However, there may besome new requirements that need to be adjusted for, such as those involvinginternal review and audit.

The financial handbook comes into effect on 1August 2024, which allows a few months to make any needed adjustments. Certainparts of the handbook will be phased in over a longer 2-to-3 year timescale.

The financial handbook can be viewed here: https://www.gov.uk/guidance/financial-handbook-for-independent-training-providers

A webinar that introduces the handbook can beviewed on YouTube at: https://www.youtube.com/watch?v=xyR99SnvkJE

If you need any help reviewing orimplementing financial systems, please get in touch with us. We would be veryhappy to help you!

Director of care home investment schemefraud banned

Robin Forster, the director of two companiesinvolved in operating an unauthorised care home investment scheme has beenbanned from being a company director for 14 years.

A total of £57 million had been taken frominvestors and put at risk in the unauthorised scheme. Based in the north-eastof England, Qualia Care Properties Ltd and Qualia Care Developments Ltd offeredinvestors the opportunity to invest in care homes. Investors bought a long-termlease on a care home room. The care home was run by a third company, QualiaCare Ltd, who sublet the room back to the other 2 companies.

Investors were promised returns of between8-10% of the purchase price. However, the Financial Conduct Authority (FCA)successfully argued in court that the scheme was unlawful and amounted to anunauthorised collective investment scheme. The court also agreed that MrForster had made false and misleading statements to investors since thepromised returns were never likely to be achievable or the scheme itselfsustainable.

The FCA is currently seeking to recover the£57 million lost by investors.

To compound matters, during the four days leadingup to the two companies going administration, Mr Forster arranged for more than£2 million to be transferred out of the companies into a connected company.This was despite the fact that monies were owed to creditors.

Both factors – running the unauthorisedscheme, and depriving creditors of more than £2 million – contributed to the14-year ban.

News like this serves as a good reminder thatas far as investment returns go, if it sounds too good to be true, it probablyis!

See: https://www.gov.uk/government/news/director-of-unlawful-care-home-investment-scheme-banned-for-14-years

Addressing loneliness among youngemployees

The UK government has launched a campaign to addressthe stigma around loneliness with young people. Research shows that 16-to-24year olds are the loneliest age group, but are also the least likely to takeaction to help themselves. Many also hide feelings of loneliness out of worryover being judged.

Loneliness among young people can also havean effect on a business. Loneliness in the workplace can significantly affectthe performance of employees. Feelings of isolation can lead to decreasedmotivation, engagement, and productivity.

Loneliness may also contribute to higherlevels of stress and anxiety, that knock on to work quality and overall jobsatisfaction. Therefore, providing an environment that nurtures the mentalhealth and performance of young people may not just be good for them, but alsogood for your business.

It may therefore be worth considering whetheryour business can take any proactive steps. For instance, could the steps belowhelp in your business?

1. Encourage social interaction: Team building activities,mentorship programs, and regular social events can all help to buildcamaraderie. Creating opportunities for collaboration and relationship buildingcan help young employees feel more connected to their colleagues.

2. Prioritise open communication: Encourage managers to check inregularly with their team members and build a supportive environment whereemployees feel comfortable expressing their feelings and concerns, whether it’sabout work-related challenges or personal struggles.

3. Promote work-life balance: Striking a balance between work andpersonal life is essential for maintaining overall wellbeing. Could you offerflexible work arrangements, such as remote work options or flexible hours, toaccommodate the different needs of young employees? Encouraging them toprioritize self-care and allocate time for activities outside of work can bringthem joy and fulfilment that will positively affect their approach to work.

4. Provide mental health support: Loneliness is a normal part oflife, so why not encourage employees to talk about it? Offering access tomental health resources and support services may be helpful. Educate employeesabout the resources available and ensure that they feel there is no stigma to seekinghelp for mental health issues.

5. Lead by example: Your leadership can make a big difference. Bydemonstrating genuine care and concern for team members you set a positive tonefor the workplace and encourage others to do the same.

By taking proactive measures to addressloneliness and support the wellbeing of young employees, businesses can createa more positive and fulfilling work environment where all team members feelvalued, connected, and supported in their personal and professional growth.

Making Tax Digital: New policypaper published

A new policy paper has been released by HMRevenue and Customs (HMRC) on Making Tax Digital for Income Tax Self Assessmentfor sole traders and landlords.

The new tax information and impact notesupersedes the previous one and incorporates the changes in scope and timelinesannounced in December 2022, and other policy amendments and improvements madein the Autumn Statement 2023.

Making Tax Digital for Income Tax SelfAssessment (MTD for ITSA) revolves around requiring businesses and landlords tokeep digital records and update HMRC each quarter using compatible software.

The policy paper outlines that MTD for ITSAwill be introduced for sole traders and landlords in two phases:

· For those with qualifying income over £50,000, from April 2026.

· For those with qualifying income over £30,000, from April 2027.

The government plans to introduce MTD forITSA for partnerships at a future time.

The government feel that MTD for ITSA willreduce tax errors, but if the introduction of MTD for ITSA affects you then itmay mean making adjustments to the way you currently handle your accountingrecords. It may also mean keeping more up-to-date with bookkeeping because ofthe requirement to submit quarterly returns.

As your business advisers, we will be intouch with you well in advance of any changes coming into force. We will behappy to help you with advice on accounting systems or any training that youmight need.

See: https://www.gov.uk/government/publications/extension-of-making-tax-digital-for-income-tax-self-assessment-to-sole-traders-and-landlords/making-tax-digital-for-income-tax-self-assessment-for-sole-traders-and-landlords

Customer service at HM Revenueand Customs reaches new low

According to MPs, phone line waiting timesfor HM Revenue and Customs (HMRC) continue to worsen. A committee found thatnearly two-thirds of callers had to wait more than 10 minutes to speak to an adviser.

The Public Accounts Committee’s report saysthat in the year to April 2023, the average wait for a call to HMRC to beanswered was 16 minutes and 24 seconds. This compares to 12 minutes and 22seconds the year before.

63% of callers waited more than 10 minutes,increasing from 46% the previous year. This proportion has increased each yearsince 2018-19.

HMRC’s hold music holds the dubious honour ofbeing among the most streamed!

The issue shows no sign of an easyresolution. HMRC is focusing its attention on digital services such as its appand online services to deal with enquiries.

HMRC have said they received more than threemillion calls on resetting online passwords, getting tax codes, and checkingNational Insurance numbers, many of which could have been handled using theirdigital services instead of calling.

The take home seems to be that if you need tocall HMRC, it may be best to do so from an easy chair with a coffee in hand!

See: https://www.bbc.co.uk/news/business-68413088

Cyber security: Evolving tacticsfrom Russian state-linked cyber actors

The UK’s National Cyber Security Centre havehighlighted the evolving tactics of Russian state-linked cyber actors.

NCSC has noted that malicious cyber actorslinked to Russia’s Foreign Intelligence Service (SVR) have expanded theirtargeting from governmental, think tank, healthcare and energy organisations toinclude aviation, education, law enforcement, local and state councils,government financial departments and military organisations.

Traditionally, SVR actors have exploitedsoftware vulnerabilities to access information held by organisations in these sectors.However, because of the increasing move to cloud-based infrastructure, thesetraditional approaches are now less effective.

Therefore, NCSC report that tactics haveevolved to try and gain access to these cloud-based systems. But since accessto cloud-based systems is far more reliant on gaining initial access to the cloudprovider, a good baseline of cyber security fundamentals can help to preventsuccessful attacks.

· Use of multi-factor authentication, or 2-step verification, andstrong unique passwords are good ways to mitigate and defend against this typeof malicious cyber activity.

· Making sure that user and system accounts are disabled whenemployees leave is also key, as dormant or inactive accounts are often involvedin a successful cyber attack.

Additional information and mitigationstrategies are set out in NCSC’s advisory, which can be found here: https://www.ncsc.gov.uk/news/svr-cyber-actors-adapt-tactics-for-initial-cloud-access

Are you ready? Carers Leave Actcomes into force from 6 April 2024

The Carer’s Leave Act comes into force on 6April 2024, which will affect all employers in the UK.

If an employee has a dependent with:

· An illness or injury (mental or physical) that means they areexpected to need care for more than 3 months, or

· A disability that’s defined as such by the Equality Act 2010, or

· Care needs because of their old age,

Then the Act gives them the right to unpaidleave to give or arrange care.

The dependent can be anyone who relies onthem for care and not just a family member.

The entitlement to carer’s leave exists froman employee’s first day of work, and their holiday and returning to their jobrights, as well as other employment rights, are protected during the leave.

Employees can take up to one week (pro ratedfor part-timers) of leave every 12 months, and this can leave can be taken in ablock or split into individual or half days throughout the year.

The leave entitlement is per employee and notper dependent. Employees who need leave to look after their child can take upto 18 weeks, but this is separate to carer’s leave.

Employees are required to give notice whenthey want leave, and the Act sets out minimum notice periods. The request doesnot have to be in writing, and employees don’t have to provide evidence of thecare needs.

The Act also sets out when an employer candelay carer’s leave.

For more information, see: https://www.gov.uk/carers-leave