VAT threshold Increase from April 2024

In the Spring Budget, the chancellor increased the VAT registration threshold from a turnover of £85,000 to £90,000.

Lots of small businesses would have been jumping for joy. In fact, the Federation of Small Businesses (FSB), urged the Chancellor to increase the threshold to £100,000.

A small business would most probably like to stay below the threshold for the following reasons:

• the inability to pass on the cost of VAT to their customers;

• fear of additional admin burden; cashflow impact

However, one could argue that they are actually limiting their expansion, thereby not providing jobs for people or they may be closing for periods of time to limit income. There is a significant bunching of businesses with turnover just below the threshold.

Let’s take a look at the positives for a higher threshold:

• Support for small businesses: One of the primary benefits of the VAT threshold is its support for small businesses. The threshold exempts businesses with turnover below £90,000 from registering for VAT, providing relief from admin burdens and compliance costs (such as employing a bookkeeper or investing in software). This encourages entrepreneurship and fosters growth within the small business sector.

• Cash flow relief: For businesses hovering around the VAT threshold, not being required to register can provide significant cash flow relief. Without the need to charge VAT on their goods or services, these businesses can keep their prices competitive, attracting more customers and potentially expanding their market share.

• Administrative simplification: VAT registration entails a range of administrative responsibilities, including record-keeping, filing VAT returns, and compliance with VAT regulations. By exempting smaller businesses from these obligations, the threshold simplifies administrative procedures, allowing entrepreneurs to focus more on their core operations rather than bureaucratic tasks.

• Encouraging growth: The threshold creates an incentive for businesses to grow beyond the limit by providing a milestone to aim for. Crossing the threshold signifies expansion and success.

On the flip side, we have the negatives:

• Distortionary effects: While the higher VAT threshold benefits small businesses, it can also distort competition within certain industries (think hairdressers, cafes). Businesses operating just below the threshold may have a competitive advantage over those above it, as they can offer lower prices by not charging VAT. This can create an uneven playing field and stifle market competition.

• Threshold cliff effect: The cliff effect refers to the sudden jump in costs and administrative burdens once a business exceeds the VAT threshold. This can act as a disincentive for businesses to grow beyond the threshold, as the additional costs may outweigh the benefits of expansion. As a result, some businesses may artificially limit their turnover to remain below the threshold, hampering their potential to grow.

• Staying compliant: Businesses must monitor their turnover closely to ensure compliance with the threshold (it’s on a 12 month rolling period), and ensure the often complex rules for VAT are followed.. This complexity can be daunting for start-ups and small businesses, leading to errors and unintentional non-compliance.

• Revenue Loss for the Government: Exempting businesses below the VAT threshold from registration means foregoing potential tax revenue for the government.

Not so simple is it? That’s why I don’t ever want to be chancellor - someone will always benefit and someone will always suffer.

Tax return - early or late?

Many accountants will start to contact their clients soon about submitting their tax return. ‘Why so early?’ I hear you cry?

I’m going to let you into a little secret…this is LATE.

The tax year runs from 06 April to 05 April every year. The tax return for that tax year is due for submission and payment by 31st January. At the time of writing, the current tax year finished 180 days ago. That is half way through the tax year (roughly). If you have a bookkeeper, your 5 April figures would have been ready a long while ago. So why wait?

Here are the reasons that people wait to submit their tax return for the full 300 days they are allowed:

1. They think that if they owe tax they will have to pay it the day they submit. This isn’t true – you still have until 31 January to pay it – wouldn’t you like to know 300 days in advance of any money you owe so that if you haven’t already budgeted for it you can start to put money away?

2. They think that it’s not important. It really is – you might need to apply for a mortgage, student finance for you or your offspring, apply for a business loan – all of these will need a submitted tax return

3. They hate HMRC – HMRC doesn’t have feelings – it doesn’t care if you submit early or on deadline date

So try to find a bookkeeper or accountant that prides themselves on having tax returns completed and submitted as soon as possible – you will thank them for it when you are sitting in your car in January listening to the radio adverts reminding you to submit and you are feeling smug that it’s already done.

New rules - how do you keep up?

This weekend was the Netball World Cup Final. I’ve been a keen netball player since 1992. I love it. I play in two local leagues. As England were in the final - for the first time ever - my netball Whatsapp groups were busy with chatter. I noticed that some of the passes between the player were very short - almost handing the ball to each other. Last season you had to have the distance between a pass that would enable a person to get in between to intercept it. The rule was changed this year that the distance would allow only a hand. So we moved from a person, to a hand. Quite a change. I had to google the rule change. Only a few people on the Whatsapp group knew about the rule.

This got me thinking about why we pay umpires to officiate our games - they have to keep up to date with rule changes.

This is exactly the same for business. If you employ a bookkeeper who is regulated by the AAT, IAB or ICB, those bookkeepers are mandated to keep up to date with legislation changes. If you do your own bookkeeping, on top of running your business, my guess is that you’ll be doing it in the evening, or at the weekend and that your main priority will be raising sales invoices and credit control.

Do you know how to classify capital expenditure and the changes in rules around what is allowed and isn’t? Did you know that the minimum wage changed in April? Do you know the changes to self assessment which could affect your year end date?

Guess what? I do. And if I don’t know now, I will know at 2:45pm today because I am attending a webinar today run by Croneri called ‘Finance Act - Capital Allowances’. This is part of my CPD (continuing personal development) which I do as part of my trading licence.

Doing your own basic bookkeeping is fine - of course it is, but you could be missing out on valuable tax savings. Lots of bookkeepers and accountants now run ‘Power Hours’ where you may be able to pay a one off fee to have someone check over your work. Even better would be to invest in a bookkeeper each month and spend your evenings watching the netball instead.

procrastination - lazy or a warning sign?

Recently I have been having some trouble concentrating. Some of my clients have become very busy and taken more of my time. Usually I’m very good at juggling multiple jobs and am very efficient. A co-worker once called me “the machine”.

However, I noticed that I was starting to procrastinate. Putting off making calls that were necessary and cherry picking the jobs I wanted to do.

Procrastination is not a sign of laziness. A quick search on the internet returns the following explanations of each term:

Laziness is about not being willing to put in the work and energy needed to do something.

Procrastination is about feeling unable to put in the work, despite really wanting to.

Procrastinators often have very high standards for themselves and ambitious goals they want to achieve.

So how do you combat this feeling of being stuck?

Firstly, I recognised the need to take a break. Luckily I had a friend that I could visit somewhere warm and is someone that is happy to relax and chat for a weekend. Or we could just be silent: whatever I needed. So I took myself away for the situation for a few days. This felt a little counter intuitive since I had so much work on. But miraculously I didn’t think about work at all during the time away.

Then I got together some self help techniques.

• Make lists. Listing all the things you need to do can be scary because the list can be long. However I then ranked each task in order of importance, so I’ve no excuse but to tackle the hard bits first

• Take a walk. Sometimes walking for 20 minutes is all you need to reset. Even better if you can get somewhere green. Nature has a magical effect on the stressed brain (that’s not based on any science I know of, that’s just me)

• Use the Pomodoro technique. Set a timer for 20 minutes and do ONLY the task that you’ve set yourself. No distractions. After the 20 minutes, get up, walk away and do something else - make a cuppa, read, just get away from the work. Then come back and do another 20 minutes

• Have a clean desk area and floor area. I tend to pile up things on my desk - files on the floor. Clear the decks! It makes you feel much happier

• Drink lots of water. Keep the brain happy

• Be realistic. Can you really tick off 35 items on a list in a day?

  Repeat the prioritising steps every morning and you almost reset yourself every day.

  It’s a work in progress, but recognising when your procrastinating is actually a warning sign that you could be heading for burnout it is very important.

  Hugs

VAT penalties - what you need to know

Things are a changing at HMRC in the world of VAT penalties.

The new regime is actually quite fair, in that it gives you a few chances before you get fined.

I am not a fan of missing HMRC deadlines, but sometimes these things are out of our control, and at least if it is entirely out of character for you, you won’t incur a fine in the first instance.

The new method is for VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT return late. This includes nil or repayment returns (harsh, but true).

Each late return picks up a penalty point as per the table below. So you can actually miss 5 monthly returns before you pick up any points.

When you meet the threshold you then get a £200 penalty. Each subsequent late return has a £200 fine attached.

The interest on the VAT would also be due as follows:

It’s actually quite a fair process.

Penalty points expire after 24 months if you don’t reach the threshold, but if you are at the threshold then HMRC will ask for further compliance before wiping them off.

I think, if you are the point of missing that many VAT returns or payments, it would be time to get some advice from an accountant.

Don’t miss the deadlines folks, HMRC do offer help if you can’t pay, but missing the deadlines and ignoring them never was, and still isn’t, a good idea.

New Year, New Intentions

It’s the start of a new calendar year. 2023. Sounds nice doesn’t it?

What are your intentions for 2023? Do you write a list of hardcore resolutions, or do you just ignore the change and carry on as usual?

I like a fresh start, but I am also well aware that setting unrealistic goals makes you feel like a failure when you can’t stick to them.

Here is what I do - make a ‘more and less’ list. What do you want more of in your life and what less of?

I put mine in a list and this year decided to make it into something I can visualise and stick on the wall.

Personal More

• Naps

• Theatre

• Travel

• Family time

• Reading

• Exercise

Personal Less

• Saying yes to things I don’t want to do

• Being with people that don’t bring joy, or appreciate me

• Spreading myself too thinly

Work More (and I don’t mean work more)

• Clients that value my work - no more people quibbling over my bills or moaning that I nag them or not giving me what I need to do my work for them

• Time away from my desk

Work Less ( always a good idea)

• Clients that don’t pay on time - it’s just rude and shows they don’t value me

• Clients that pass on their stress - gone are the days where I will take on last minute panic jobs because the client can’t manage their time

• Saying yes, when I mean no - I’ve caused myself a lot of stress in 2022 by taking on too much out of loyalty. It’s not fair on me, or my other clients

I will let you know how I get on making the list a reality