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Andrew Needham, Director of VAT Solutions (UK) Ltd, highlights practical points on VAT payments and VAT on accountancy fees.

Andrew Needham

HMRC to change the date for when a cheque payment is deemed to be received

The introduction of online filing and electronic payment of tax returns and payments, which, for VAT, is scheduled to be phased in from 2010, means HMRC will also realign the effective date for acceptance of payments received by cheque. New regulations will be issued in draft in the Finance Act 2007 and will be subject to consultation. The proposal is that the payments received by cheque will only be effective from the date the funds are cleared into HMRC’s account.  This will give a cashflow disadvantage to businesses paying by cheque, as they will have to send their returns in earlier and make sure that the cheque has cleared by the end of the month, not just that the return has to be there by the end of the month. Businesses adversely affected should contribute to the consultation.

This measure is among a number proposed by the recent Lord Carter review on electronic filing. It is intended to encourage electronic filing of both tax returns and accompanying payments. At present, the receipt of returns and payment is deemed to be the date of receipt by HMRC. The new rules will improve cash flow for HMRC but, implemented effectively, should also make filing simpler for businesses submitting online.  If you pay online, you will still have the cashflow advantage of paying up to seven days after the due date.

Can you reclaim the VAT on accountancy bills relating to personal tax advice?

This is a question often asked by sole traders, partners, and even directors of OMBs, with the answer being “yes” if you can get your tax adviser or accountant to bill you in a manner that will be acceptable to HMRC.

HMRC accept that accountancy fees for a sole trader, partnership, or OMB normally relate to a number of services (e.g. general accountancy advice, VAT advice and income tax advice).  Although the income tax advice is, in reality, the responsibility of the sole trader/partner and not strictly a business expense, to avoid lengthy disputes, HMRC policy allows such fees to be recovered in full. 

The only exception to this is where the accountant’s fees clearly state that they relate to personal taxation matters, or where they are billed separately. So, in order to ensure full VAT recovery on these costs, firstly make sure that your accountant does not bill you separately for them, and secondly, make sure that the wording on the fee note is vague and general in nature. For example: “Preparation of accounts and general professional advice for the period ….” should work just fine.