VAT & the new budget

The budget has been set for the 22nd June and it seems that we may be set for some changes to all taxes. I don't think many will be surprised if VAT is raised to 20%, causing another headache for businesses in dealing with their accounting and software issues.

The areas mentioned below, we believe, will still be in force post budget but nothing is certain.

With effect from 1 April 2010 HMRC now have a single consistent system of time limits for assessments and claims.  The new assessment time limits are:

• Normal time limits - four years
• Careless behaviour - six years (four years for VAT)
• Deliberate behaviour - twenty years

from the end of the relevant tax period.

HMRC have released VAT information sheet 04/10 which provides guidance on two changes to simplify the de minimis rules which were effective 1 April 2010. 

The rules may help to simplify the production of the monthly or quarterly VAT returns but I would add a note of caution that you should not ignore your cumulative partial exemption position throughout the year.  With a little bit of planning you can alter the timing of certain projects to enable full recovery of VAT, you only need to be £1 over the annual limit and you will lose the ability to recover any of your VAT in respect of exempt activities for that year.

From April 2010, if you have an annual VAT exclusive turnover of £100,000 or more you will have to do your VAT returns online and pay your VAT electronically. Also, if you register for VAT from 1 April 2010 onwards, you will have to file online from the start, whatever your business turnover.

Filing online does have some advantages. It is a secure process, provides automatic calculations and can help to reduce errors. Furthermore, it is available 24 hours a day, seven days a week, so you can submit your return at a time that suits you.

There is no longer a PAYE paper filing option for companies with fewer than 50 employees.

Employers must register with HMRC to file online, while smaller businesses can use HMRC's free software to file their employee data securely online.

From April 2010, the tax office has also introduced new penalties for late payment of PAYE. This includes income tax, national insurance contributions, student loan deductions and construction industry scheme deductions.

A new late payment penalty will be charged from May 2010 onwards. However, HMRC will not be sending out penalty notices for tax year 2010-11 until April 2011.  Practically,  this means that you could go for a whole year and be unaware that the late payment has attracted a penalty. Penalties will apply if payment is only one day late, but there will be no penalty if only one payment is late any tax year.

The amount of the penalty depends on whether payment is due monthly, quarterly or annually and could be from 1% to 4% of the late amount depending on how many times a payment for a period is made late.

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