VAT and the Single Market

Value Added Tax known as VAT is the UK version of sales tax.

Unlike in some other countries, it applies to the sale of goods and services.

The standard rate of VAT is 20%, but there are extensive rules about how VAT operates and some areas such as property and international trade are complex.

The rules are mostly based on legislation, though like any tax in the UK, court cases and tribunal decisions do play their part. Unlike other UK taxes because of the direct impact of sales tax on the value of sales and the resulting interplay across national borders, VAT legislation is heavily influenced by European Directives. The rules that apply to VAT and international trade vary depending on whether the supply is to a business or directly to the consumer. The place of supply being in the domestic market, within the EU, the European Single Market, or elsewher in the world outsidebthe EU has a bearing. There is a very comprehensive notice covering trade within the Single Market. this notice 725 has recently been rerreleased but with only minor changes.  HMRC Reference:Notice 725 (June 2013) - The Single Market

This notice explains the way VAT is charged and accounted for on movements of goods within the EC Single Market and how businesses should account for VAT on goods they buy from other EC Member States.

There are only limited changes from the previous version of the notice as follows;

- VAT registration numbers in other Member States. 

- Introduction of Croatia with effect from 1 July 2013, and

- changes to Ireland.

With the introduction of the Single Market, goods leaving the UK to go to other Member States are no longer called exports, but are referred to as dispatches or removals. The term 'export' is only used for goods leaving the UK to go to countries outside the EC. For information about exports, see HMRC Reference Notice 703 - VAT: Exports of goods from the UK

If you are involved in international trade and you are not sure of the rules, you should discuss your specific situation with an accountant or other VAT expert. 

If  you don't have one,why not try;
Business Orchard

Practical steps to tackle tax evasion ahead of G8

Several overseas territories along with the Cayman Islands and the Crown dependencies of Guernsey, Jersey and the Isle of Man have agreed to join and take an active part in the multilateral Automatic tax information exchange launched by UK, France, Germany, Italy and Spain. Joining the Multilateral Convention will allow more countries to quickly benefit from greater levels of tax information exchange. This will be particularly beneficial for developing countries as it allows them to sign up to one multilateral treaty rather than several bilateral arrangements. The action plans on beneficial ownership they have committed to produce will ensure much greater clarity about who really owns, controls, and benefits from companies.This follows an announcement from Prime Minister David Cameron on new rules to bring unprecedented transparency on company ownership, and will make it harder to launder money, evade and avoid tax, finance terrorism, bribe officials, hide stolen assets and evade financial sanctions.
The full statement was as follows: We, the Political Leaders of the Overseas Territories of Anguilla, Bermuda, British Virgin Islands, Gibraltar, Montserrat and Turks and Caicos, warmly welcome our meeting with the Prime Minister today to discuss Tax, Trade and Transparency, where we had a very clear agreement and constructive exchange of views on the practical steps needed to tackle the global problem of tax evasion and how the UK and the Overseas Territories will continue to apply our high standards of regulation to address this.

As part of our contribution to advancing this global agenda and to create a level playing field right across the world, different Overseas Territories at different times, and now unanimously, have reiterated and confirmed our agreement to the following three (3) important steps: 

• To play an active part in the new pilot initiative of multilateral automatic tax information exchange launched by the UK, France, Germany, Italy and Spain;
• To prepare national action plans on Beneficial Ownership to meet the FATF standards;
• To commit to joining the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.

It is our collective view that as we free up the world economy we must make sure openness delivers benefits for rich economies and developing countries alike and that we maintain confidence in the fairness and effectiveness of our tax systems and in the operation of global markets. Tackling tax evasion and fraud is a global responsibility in which we will continue to play our full part.

We welcome the Prime Minister’s willingness to work in partnership with us in seeking to achieve a step change in international standards and establishing a global level playing field through the UK’s G8 Presidency.

As part of our continuing commitment to tackling tax evasion and fraud, we have also undertaken to prepare Action Plans setting out the concrete steps, where needed, to fully implement the Financial Action Task Force standards to further increase our already high standards of transparency on beneficial ownership information and to ensure that this information is available to law enforcement and tax authorities in accordance with our established mutual legal assistance cooperation regimes.

 The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is an important global instrument, which builds upon our existing network of many bilateral agreements and other existing arrangements for exchanging information between tax authorities. The Convention offers an accessible route to increase the number of jurisdictions which will be able to benefit from information exchange. It is for this reason that we have committed to joining the Convention and have requested its extension to our jurisdictions as soon as possible, subject to our national procedures and the need for ensuring the achievement of a global level playing field.

 We are committed to continuing to play a leading role in delivering a fair, responsible and effectively regulated global business environment.

 We express the hope that the UK Prime Minister will succeed at Lough Erne in securing a new global standard and all Leaders will commit to move together on this common agenda designed to secure more economic growth.

As part of our contribution to advancing this global agenda and to create a level playing field right across the world, different Overseas Territories at different times, and now unanimously, have reiterated and confirmed our agreement to the following three (3) important steps: 

• To play an active part in the new pilot initiative of multilateral automatic tax information exchange launched by the UK, France, Germany, Italy and Spain;
• To prepare national action plans on Beneficial Ownership to meet the FATF standards;
• To commit to joining the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.

It is our collective view that as we free up the world economy we must make sure openness delivers benefits for rich economies and developing countries alike and that we maintain confidence in the fairness and effectiveness of our tax systems and in the operation of global markets. Tackling tax evasion and fraud is a global responsibility in which we will continue to play our full part.

We welcome the Prime Minister’s willingness to work in partnership with us in seeking to achieve a step change in international standards and establishing a global level playing field through the UK’s G8 Presidency.

As part of our continuing commitment to tackling tax evasion and fraud, we have also undertaken to prepare Action Plans setting out the concrete steps, where needed, to fully implement the Financial Action Task Force standards to further increase our already high standards of transparency on beneficial ownership information and to ensure that this information is available to law enforcement and tax authorities in accordance with our established mutual legal assistance cooperation regimes.

 The Multilateral Convention on Mutual Administrative Assistance in Tax Matters is an important global instrument, which builds upon our existing network of many bilateral agreements and other existing arrangements for exchanging information between tax authorities. The Convention offers an accessible route to increase the number of jurisdictions which will be able to benefit from information exchange. It is for this reason that we have committed to joining the Convention and have requested its extension to our jurisdictions as soon as possible, subject to our national procedures and the need for ensuring the achievement of a global level playing field.

 We are committed to continuing to play a leading role in delivering a fair, responsible and effectively regulated global business environment.

 We express the hope that the UK Prime Minister will succeed at Lough Erne in securing a new global standard and all Leaders will commit to move together on this common agenda designed to secure more economic growth.

HMRC revised toolkits to help minimise common errors

HMRC has published the updated Business Profits and Capital v Revenue Toolkits to assist agents when completing their clients' 2012-13 returns. These can be useful to individuals who have an understanding of the tax rules and wish to prepare their own tax returns. Links are provided here and they should should be read in conjunction with the essential information reproduced below.

If in any doubt contact an accountant to assist you.

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Business Orchard

Individuals, business and corporations

• Business Profits (PDF 181K)
• Capital Allowances for Plant and Machinery (PDF 255K)
• Capital Gains Tax for Land and Buildings (PDF 243K)
• Capital Gains Tax for Shares (PDF 191K)
• Capital v Revenue Expenditure (PDF 147K)
• Chargeable Gains for Companies (PDF 221K)
• Company Losses (PDF 152K)
• Directors' Loan Accounts (PDF 120K)
• Expenses and Benefits from Employment (PDF 207K)
• Income Tax Losses (PDF 127K)
• National Insurance Contributions and Statutory Payments (PDF 250K)
• Private and Personal Expenditure (PDF 247K)
• Property Rental (PDF 209K)
• Small Profits Rate and Marginal Relief (PDF 112K)
• VAT Input Tax (PDF 182K)
• VAT Output Tax (PDF 208K)
• VAT Partial Exemption (PDF 155K)

Trusts and Estates

• Capital Gains Tax for Trusts and Estates (supplement) (PDF 215K)
• Inheritance Tax (PDF 180K)
• Trusts and Estates (PDF 223K)

Toolkits to help reduce errors - essential information
These toolkits are aimed at helping and supporting tax agents and advisers. They are part of HM Revenue & Customs' (HMRC's) wider approach to improving tax compliance, which is focused on help and support to ensure that returns are correct.

The toolkits have been developed with the benefit of input from agents and their representatives, including the Compliance Reform Forum. However, the content is based on HMRC's view of how tax law should be applied.

Read more about the Compliance Reform Forum

The application of these toolkits to specific cases will depend on the law at the relevant time and on the precise facts.

Overview

Each toolkit has three key elements:

• A checklist - to help you to address the areas of possible error that HMRC identifies as key.
• Explanatory notes - which identify the underlying types of error, how to mitigate those errors and a brief outline of the tax treatment. HMRC recommends that you review these notes, even if you are confident about answering the questions in the checklist.
• Cross references - linking to the relevant guidance available online, so you can easily find more detailed guidance if required.

By being more open on the errors that HMRC sees in returns, and suggesting the steps that you can take to reduce those errors, the toolkits will help you to assure the completeness and accuracy of your clients’ returns.

Use of the toolkits is voluntary and you can use them in whatever way best suits you and your clients.

Examples of how the toolkits are used include:

• as a straightforward checklist
• to complement or check and refresh your existing processes
• as a training aid for your staff

It should not be necessary for you to refer to all of the toolkits, only those that are relevant to your clients' circumstances and the return being completed.

Scope

Each toolkit is focused on errors which HMRC finds commonly occur. They are not comprehensive statements of all types of error that may arise in any particular return. For areas not dealt with in the toolkits you should refer to the full HMRC guidance.

Find HMRC reference material and publications

Each toolkit will be updated each year to reflect any changes arising from the relevant Finance Act, where applicable, and released for use with that year’s returns.

Where there are changes to legislation, the toolkits provide a brief summary of those changes. The types of error that may arise from new legislation will not be immediately apparent, but if HMRC encounters particular areas of common error, they will seek to address these errors by releasing an updated version.

HMRC's guidance is updated regularly. There will however be occasions when the draft guidance has not yet been published. Where that is the case, the toolkits provide a link to the latest publication available on the HMRC website.

The toolkits do not cover tax avoidance or deliberate attempts to evade tax, which are outside the scope of the toolkits and are subject to HMRC's normal compliance procedures.

Taking reasonable care

Under the penalty legislation, there will not be a penalty for an error in a return or other document where the person has taken reasonable care that the return or document is accurate. As part of their efforts to take reasonable care, a person may seek professional advice and may appoint an agent to help them.

Where a person appoints an agent, this does not relieve them of their responsibility for their tax affairs. They still have a duty to take reasonable care, within their ability and competence, and this includes the person taking reasonable care to avoid inaccuracy by their agent.

Further guidance on reasonable care

The aim of these toolkits is to highlight errors which HMRC finds commonly occur and to help you avoid inaccuracies in your clients' returns that may otherwise lead to penalties. Their use remains entirely voluntary. Whether reasonable care has been taken in any particular case will be a question of fact and will not depend on whether a toolkit has or has not been used.

Further guidance on penalties where an agent is acting

Find more information on understanding penalties

Top

How to start your own internet business

There's more to it than putting up a site and waiting for the orders, says Esther Shaw in The Independent

If you've ever had an idea for a product or service that you think could net you a fortune, you may well have considered setting up an internet business with the aim of sitting back and watching the money roll in.After all, in 2006, consumers spent £30.2bn on online goods and services, according to IMRG, the industry body for global e-retailing. Over the past 10 years, the growth of the internet has resulted in the high-profile successes of many internet-related businesses. Just a few weeks ago, for example, price comparison service Moneysupermarket.com became the second-biggest internet float in the world since the dot.com implosion, after that industry behemoth, Google.The internet has certainly revolutionized the way we live our lives, and offers a place where individuals can compete with global organisations. But just how easy is it to get started?

Your business plan
The starting point for any new venture is to create a business plan, says Tony Cohen, the head of entrepreneurial business at Deloitte.

"You need to know your target market, know your competition, attract funding, secure good resources, build consumer loyalty – especially blogger coverage – and forge alliances with strategic partners," he says. "Preparation and research are key."

Jeffrey Macklin from FDUK, a company that provides part-time finance directors to start-up businesses, says the objective of the business plan is to tell a simple yet compelling story that leaves the reader wanting to meet the management team and find out more about the proposition. "It should be as succinct and accessible as possible, and around 20 pages at most," he says.

Finding a market

One of the most important elements of setting up an online business is finding out if there is a market for your idea.

"It's all about finding a niche," says William Berry, a self-made internet millionaire. "Hampers, for example, are a niche of food retailing, but there are already market leaders in this area, so you either need to aim for a niche which doesn't already have a market leader, or attempt to become even more niche – by offering Christmas hampers, say. "

Financing

There are many different financing options available to aspiring entrepreneurs. For many businesses, raising funds may involve several sources.

Bank finance in the form of a loan or overdraft is usually cheaper than selling shares or equity in your business, says Macklin. But he adds that equity investment is ideal for those businesses that do not want to increase their level of borrowing, or are unable to provide the necessary security.

If you're considering equity investment, two options are so-called " business angels" and venture capitalists. Business angels are wealthy individuals who look to invest in growing companies wanting to raise between £10,000 and £250,00. They will also offer contacts and advice. Venture capitalists will only invest – usually a minimum of £2m – if they can see a significant return in three years, say.

For internet start-ups with a sound business proposition but without the necessary security to obtain conventional lending, the Small Firms Loan Guarantee is another option, according to Steve Jennings, director of business banking at Alliance & Leicester Commercial Bank. He says cash-flow analysis is vital.

"A common error businesses make is to ask for too little financial support in the hope of getting at least some of the funding they need," he says. "But this is potentially a recipe for disaster."

Your website

Websites will set you back varying amounts. "The cost is relative," says Berry. "While a basic one could cost as little as £500, a really good one that dominates the market could cost up to £20,000."

If building your own website is not an option, try searching for web designers online, or ask friends and colleagues for recommendations, says Nick James, a small-business consultant and the founder of Nick-James.com, an online club for entrepreneurs. Keep the site clean and simple: people will buy from you if they trust the site and can find what they want.

"Make sure you update your website's content constantly, as innovation, imagination and invention are essential if you are going to succeed in the longer term," he says. "Also make it easy for people to get in touch: your business needs to present a human face."

Marketing

One area where internet businesses often fail is marketing, according to Lisa Richards, a partner at accountants Smith Cooper.

"Too many people fall into the trap of developing their product or service and then expecting orders to come racing in," Richards says. "But with no 'shop window' through which to promote yourself, how are potential customers going to find you?"

Sites such as Google AdWords can be a cost-effective way of advertising, she says. These operate on a "pay per click" basis, so you only pay when someone clicks through to your website.

James also recommends emailing your friends and family with details of your site. "Look out for chatrooms and discussion forums, and let people know you're there," he adds. "Network with others and get referrals."

You may want to get a company to do search engine optimization (SEO) for you to ensure that you catch any potential customers searching for your type of product on the likes of Yahoo! and Google. "But try to get them to work on the results," says Berry. "SEO isn't that important if you have spent money effectively on online ads. A lot of people try to get to the top of search engines – and there can only be one."

Customer transactions

Make it fast and easy for customers to order, as a site with a difficult sales process is likely to lose customers, says James. "Fulfil every order as fast as you possibly can," he adds.

Websites should be easy to navigate so users don't get frustrated and leave without making a purchase. Security should also be a priority, and potential customers should be assured their details will be kept safe.

"How you treat customers matters," says James. "Talk to them as often as possible and help them to get to know you and build confidence in you and the services you provide. Ask them what they want from you and react to what they tell you."

Start small and have patience

Don't give up your day job too soon, as it will take time for your internet venture to grow – and in the meantime there may not be much incoming revenue. As a budding online entrepreneur, you'll need lots of energy, enthusiasm, determination and passion; but you also need to be realistic. "Success on the web is rare," warns Cohen. "While many businesses are launched, few make a profit, and most will never see a return on investment. That said, while starting up an internet business can be one of the toughest things you ever do, it can also be the most rewarding."

From baby steps to big success - A matter of development

Julie White, 38, of Milton Keynes, set up her own internet business, Truly Madly Baby, in 2005 after she had given birth to her son, Samuel.

The business has been a great success, and Julie can now boast a six-figure turnover.

It was after starting out working for Ann Summers as a party planner for home events that Julie identified a gap in the market for a "buy in your own home" service for baby products and accessories.

"I looked at what else was out there, and the types of products I might be able to sell, and then I got started designing my own online model," Julie says.

A few weeks after she started the company, she appeared on Dragons' Den, the popular BBC reality TV programme for budding entrepreneurs.

After making a strong pitch, she received two offers from the dragons. But in the end, she decided to turn both of them down.

Instead, Julie opted to go with a different backer, who offered her a £75,000 investment. After that, the business took off.

"I had experience of accounting and customer service from my previous career," she says. "But it was a very steep learning curve – and I made some mistakes along the way, but nothing too detrimental to the business. Overall, it's been a very positive experience."

Julie now has four employees on the payrole and some 260 consultants who co-ordinate the parties.

"There are now plans to extend into Europe," she says. "My advice to anyone thinking of setting up their own business is that if you believe it's good enough then you have to go for it."

Graham Hobson is the founder of the online digital printing website PhotoBox, which now has 2 million members.

He started it in 2000 after he noticed the lack of online storing and printing websites in the UK, compared to the vast number of similar sites in the US.

"I'd always worked in technology but I'm an accidental entrepreneur," he says. "I wrote a business plan, got financial backing and a partner to join me in the business."

Graham gave up his day job in 1999. The first three years, he admits, were "painfully slow."

"We expected it all to happen quickly, but in reality, it was about steady growth," he says. "We were naive about marketing in the beginning and had to learn a lot of lessons."

Viral marketing has helped PhotoBox, and last year it merged with Photoways, a French firm.

"If you want to set up an internet business, you have to convince all the people around you it's a good idea," Graham says. "Put in your own time and energy, but other people's money – and take as much advice from other people as you can."