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Budget 2014

Here's where you'll find a range of small easily accessible articles giving you the salient points of the budget. Its not absolutely everything that was said but its what affects most people most of the time.

Budget 2014: VAT

There were a few major changes for Vat registered businesses in the budget:

Standard rate of VAT remains unchanged at 20% but the threshold, the point at which you must register increases by £2000 to £81,000 from 1st April 2014.

Remember that the VAT threshold is the total of the LAST 12 months sales not the last accounting or business year’s sales. Its easy to get caught out with this and face penalties for late registration. You must submit your application for registration within 30 days of reaching the threshold. There are some other important things you need to know about VAT registration – this is just ONE of the rules.

VAT & Prompt payment discounts

For many years it has been the rule that if you offered your customer a discount for paying within a set period of time e.g. 14 days, that the amount of VAT you charged on the invoice was based on the discounted price and not the full price, regardless of whether or not the customer took advantage of the discount terms.

The budget set out the intention of HMRC to have the VAT charged on the actual amount paid as of 1st April 2015.

Here’s a simple example;

The invoice value of the goods from ABC Co Ltd is £1000. The normal amount of VAT on this would be £1000 x 20% = £200.

ABC Co Ltd offers its customers a 5% discount if the invoice is paid within 30 days. So the amount of VAT shown on the invoice is actually £1000 less 5% discount = £950 x 20% = £190.

This could prove complicated for the supplier who will not know at the start of the process how much VAT to declare and the customer will potentially need to pay the full £1200 instead of £1190 as now if they take a second longer than 30 days to pay.

Electronically Supplied Services

The single European market continues to force changes to our UK VAT system. The place of supply rules are changing once again and from 1st January 2015 (that’s just 9 months away) businesses providing electronically supplied services such as Telephone, Internet, Online libraries, Downloadable Apps, music and e-learning facilities will be required to account for VAT on such services at the rate applicable in the place where the Customer is.

This only applies to B2C transactions (business to consumer NOT business to business).

This means potentially that a business based in the UK selling to individuals in 10 different member states could at worst have to register for VAT in each of those states. Alternatively you could signup for the Mini One Stop Shop service to be offered by HMRC from October 2014 allowing you to record and pay your EU VAT in one place.

Impact on business administration is potentially significant for these global businesses and will need some clever behind the scenes calculations to choose the correct VAT rate and get the pricing right.

E.g. in Luxembourg the VAT rate is 15% - currently the lowest in the EU but is rising in January 2015 to 17% and in Hungary, the VAT rate is 27% which is the highest. VAT inclusive pricing that works across the whole of the EU and potentially the rest of the world becomes a challenge!

One Liners….

Profit making Higher education providers will probably be treated as VAT exempt from April 2015 in line with universities etc

VAT on Pension fund management charges will be fully recoverable subject to the usual rules

Budget 2014: Annual Investment Allowances

After reducing the annual allowance to just £250k, this is set to rise to £500k from 1st April or 6th April depending on the business structure you are operating.

There is very little time to do any planning for this change except that if you intend purchasing a large asset or piece of equipment (or a number of them), wait till after 6th April so that you don’t fall foul of any apportionment rules.