VAT Round Up

Annual accounting scheme

Changes have been made to the scheme so that businesses with annual taxable turnover of between £600,000 and £660,000 can now join. Businesses already using the scheme can continue to use it until their annual taxable turnover reaches £825,000.

The scheme allows businesses to make one VAT return a year, instead of the usual four. It is normally a condition of the scheme that a business must have been VAT registered for 12 months. However businesses with a taxable turnover up to £150,000 may join the scheme immediately.

Cash accounting scheme

The limits for eligibility to join the cash accounting scheme have been increased in line with those applying for the annual accounting scheme.

Measures have also been introduced to allow businesses to continue to apply the scheme to payments outstanding at the time of leaving for a further six months after leaving.

Flat rate scheme

The VAT flat rate scheme is designed to simplify VAT accounting for small businesses. It is open to businesses with a taxable turnover (excluding VAT) of up to £150,000. Instead of calculating the VAT as normal it is calculated as a percentage of total turnover, the percentage being determined according to business sector.

The government was concerned that the rate of take-up for eligible businesses had not been high and therefore some changes were made which took effect on 1 January 2004:

• lower rates for all sectors, with an average reduction of around 1%
• a further reduction of 1% off the normal flat rates for businesses in their first year of VAT registration
• telephone and email applications to make joining the scheme easier
• a revised table of flat rate sectors.

The new rates range from 2% to 13.5% (1% to 12.5% for new businesses) compared to previous rates of 5% to 14.5%.

Policy on staff hire

Over the last few months Customs has outlined its policy with regard to VAT on staff hire. This is an area of particular concern to the charitable and finance sectors which use temporary staff. If VAT were to be imposed on the salary element of any employment agency charge imposed on them this would represent a significant additional cost.

The possibility of such a VAT charge being imposed arises from a change in Department of Trade and Industry (DTI) regulations which take effect in July 2004. The effect of the regulations is likely to be that some employment agencies will become ‘principals’ rather than ‘agents’ when placing staff and so would need to impose VAT on the full charge including the salary element.