Cashflow causing you a problem? Don’t go to the bank, go to the VATman!

Here are some timely tips for traders to ease cashflow difficulties

Delay and speed up!
Every 3 months, the VAT return falls due for payment, and when money is tight, this can cause great difficulty. Do you go to your bank and ask for an extension to your overdraft, (optimistic in these difficult times), or are there any other things you can do to improve your cashflow?

Sounds simple: The are 2 basic things you can do to improve your cashflow when accounting for VAT;


1.delay the payment of output VAT, and

2.speed up the reclaiming of input VAT.

Sounds simple, but how exactly can you do this?
Delay paying output VAT:

There are a number of things you can quite legally do to delay the payment of output VAT:


The first, and most important, is that businesses with a turnover under £1,350,000 per annum can go onto the Cash Accounting Scheme. You do not have to apply to use the scheme - if you are eligible you can just start using it. Using this scheme, you only need to account for output VAT after you have been paid. On the down side, you can only reclaim the VAT on purchases when you have paid for them. You can stay on cash accounting until your turnover goes over £1,600,000.

If you make continuous supplies of services (accountants, lawyers etc.) instead of issuing a tax invoice you can issue a request for payment. This does not create a tax point and you will only need to account for VAT when you are paid. Don’t forget to issue a proper tax invoice when you are paid. This gives you the cash flow advantage of Cash Accounting even if your turnover is above the limits.

You only have to account for VAT when a sales invoice is issued, not when it is produced. So, if you produce tax invoices on the last day of your VAT period and don’t post them until the next day, you can overstamp them with the correct issue date, and delay payment of the VAT by three months.

Under the tax point rules, you have to issue your invoice within 14 days of the basic tax point (date of supply). This creates an actual tax point on the date the invoice is issued, so if the 14 day period spans the end of a VAT quarter, you can defer paying the output tax by three months.

If you import goods, you could consider setting up a duty deferment account with HMRC. This could delay paying import VAT by up to 45 days.


Speed up input VAT repayment: How can I get back that VAT more quickly?


Input tax accruals - the right to claim back input VAT arises when the VAT was charged, the tax point. The vast majority of businesses post purchase invoices onto their accounting systems only once they have been approved for payment. Therefore, at the end a VAT period, there can be a number of invoices dated within the period which are not yet entered into the accounting system and the VAT not yet claimed. You can make a manual accrual of this input VAT without asking HMRC’s permission, but don’t forget to adjust it on your computer system at the end of the next period, or you’ll claim it twice!

Monitor aged debtors so that you can make a bad debt relief claim once a debt is six months past its due date for payment.

If you have a company that receives property rental income, you will normally bill it at the end of each calendar quarter. If this is the case, make sure your VAT returns end February, May, August and November as this will gain two months' use of the VAT before paying it to HMRC.

If you have a number of associated companies which make supplies to each other, or you have a parent company making management charges to its subsidiary, you could take a look at your VAT return staggers to make sure that you can claim back the input VAT in one company before you have to account for the output VAT in the other. If not, change your VAT return stagger.

Make sure you have claimed back all the VAT you possibly can - check that VAT has been claimed on petty cash, staff expenses, mileage allowances etc. If you have not, you can go back over the last three years and claim it all back.

http://www.tax-sorted.biz
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Thanks to Andrew Needham of VAT Solutions (UK) Ltd for this article

Annual investment allowance and tax credits

Business is poor, money is tight and even worse the firm’s van is on its last legs and without it you can’t trade. But is there a way you can afford a new van with some help from the Taxman?

Nothing for free
It’s an old adage that there’s no such thing as a free lunch. That may be so but you might be able to get a free van or other equipment for your business at the Taxman’s expense. Here’s how.

Case study
Miss X is a single mother who owns and operates a sandwich delivery business. The van she uses has become unreliable but she can’t afford to replace it. If the van completely fails, so will her business. How does she escape this dilemma?

Annual investment allowance
The new capital allowances rules, that came into effect in April 2008, allow a 100% deduction for the cost of plant and equipment used in a business on expenditure of up to £50,000 in one year. This is called the annual investment allowance (AIA).

Miss X’s van qualifies as equipment and is therefore subject to the usual rules: expenditure on a replacement would qualify

The full cost of the new van will be allowable as a deduction from Miss X’s taxable profit. Thus, if her profit ignoring the cost of the new van would have been £27,000, and the new van cost £18,000, her revised profit is £9,000.

Tip. If you can’t afford to buy the equipment outright, a hire purchase agreement could still allow a deduction from your taxable profit of the full value of the asset under the AIA rules.

Tax credits
Miss X’s profit for income tax has been radically reduced by the AIA on the new van. This has a dramatic effect on her eligibility for tax credits.

Miss X’s income has been more or less stable for a couple of years, around £27,000, and her accounting year ends on March 31. If she bought the new van for £18,000 in March 2009, she could claim the AIA deduction against her 2008/9 profit.

Miss X notifies the tax credits people by July 31 2009 of her much lower profit for 2008/9. As her tax credits award for that year was originally based on an income of around £27,000, she will now be owed a lump sum award of around £7,000

Disregarded income
The tax credit rules disregard an increase in income of up to £25,000, so Miss X’s 2009/10 tax credits will be based on the much lower 2008/9 profit figure, providing her profits don’t exceed £34,000 (£9,000 profit plus £25,000) for that year.

The final result
The cost of her new van (£18,000) has been paid for as follows:

• AIA relief on cost of new van - £5,040
• extra tax credits for 2008/9 - £7,000
• extra tax credits for 2009/10 - £7,000
• a total tax benefi ts package of £19,040.

Tip. The AIA applies to all equipment, not just vans. So if your profit is reduced as a result of an AIA claim, tell the tax credits people.

The next step
The annual investment allowance provides a 100% tax deduction for the cost of equipment. It will also reduce your profit for tax credit purposes and could increase your claim, so notify the tax credits people of your reduced income.

If you would like any help to see if you could benefit please contact me.

http://www.tax-sorted.biz
http://shaunstaxtips.blogspot.com
http://www.welovebookkeeping.co.uk