Numerico Chartered Certified Accountants

Are you looking for ways to avoid and/or reduce the effect of the new 50% tax rate which will apply in 2010/11? 

A lot of business owners will be subject to the new 50% tax rate regime as of April 2010.  Is there anything that can be done to reduce the effect of it or avoid it? 

Here are some of the strategies that you could possibly apply.  Please note that every business is different, many factors have to be taken into consideration and you should always seek professional advice before taking action.  As always we would be happy to help with any accounting or tax issues and if you have any questions or would like to book a FREE initial consultation please feel free to contact us on 0203 2390468 or 07596 455210 or via email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it  

Accounting software

First of all make sure your accounting software can process VAT invoices during the transitional period when you may be issuing and receiving invoices at either the 15% or 17.5% VAT rate. You might need to contact your software provider or you might be able to do that yourself.  Most software packages will have a built-in capability to deal with the changes.

VAT on deposits
If you receive a deposit before 1^st January 2010 for goods or services that will be supplied on or after that date, the 15% will apply to the deposit and 17.5% to the balance.  This could complicate matters if you don’t issue the invoice until the goods/services are provided in which case you would need to show two rates on this invoice. However you have an option to charge 17.5% on the deposit which will simplify matters if your customer can reclaim the VAT.

VAT on advance invoices
One solution for those who cannot recover all or any of the VAT they are charged is to pay in advance for supplies. Generally speaking, if a VAT invoice is issued after 31 December, and it relates partly to supplies that took place before that date, then it will be necessary to divide the amount payable into the supplies before 31 December (15% rate) and those that took place after that date (17.5% rate). 

If the invoice is issued before 31 December, however, even if it relates partly to supplies that will take place after that date, the whole lot can be charged at the 15% rate.

It is not quite as simple as that, of course.  To prevent abuse of the prepayment scheme, there are four situations in which you must apportion a prepayment between the two rates of VAT.  This applies in each of the following cases:

• If you are “connected” with the customer – for example, if the invoice is from a partnership to a company controlled by the partners.
• If the value of the supplies concerned is greater than £100,000.
• If you lend the customer the money to make the prepayment to you.
• If the invoice is not due for payment within six months of the date it is issued.

Many transactions will not fall foul of these rules, however, and there may well be scope to improve your business’ cash flow while saving your customers some VAT.  I would like to point out though that the rules for the time of supply are quite complex and if in doubt please seek professional advice. 

Celebrating New Year in a restaurant?

Let’s say it is 2am on New Year’s Day 2010. You have celebrated the New Year at a local restaurant that has stayed open until the early hours for its annual New Year party. With possibly more than the regulation four units of alcohol inside you, you have to cope with paying the bill.

You definitely remember ordering a magnum of champagne, but did you order it before or after midnight?  The waiter is sure it was after midnight (17.5% VAT), and you are equally sure it was before (15% VAT). 

Even HMRC have taken pity on us poor revellers, and to avoid situations like this, they have stated that businesses like pubs, clubs, and restaurants (which account for VAT based on the point of sale) can continue to use the 15% rate for supplies made after midnight on 31 December until they close at the end of the session (or until 6 am on 1 January).

So it will not matter exactly when you ordered that champagne! 

Pre-Budget Report 2009: key points

Tax changes

• VAT is to revert to 17.5% as of 31 December 2009, but no other VAT measures are planned
• Employer and employee national insurance contributions to rise by further 0.5% as from April 2011 (up by 1% on 2009/10), however the threshold for NI payments is to be increased so that those earning less than £20,000 will not face extra charges
• As from April 2012, the point at which 40% income tax becomes payable is to be frozen for a year
• The Income tax personal allowances and tax thresholds are not increased
• Increase in small company corporation tax to be deferred, so that it remains at 21 per cent until April 2011
• One-off 50% tax on bank bonuses over £25,000
• Individual inheritance tax threshold has been frozen at £325,000 for the next year 
• New 50p a month tax on landline phones to pay for superfast broadband
• Child and disability benefit to rise by 1.5% in 2010