Read more about the government’s agenda to make tax simpler for businesses everywhere. It’s going to put a stop to VAT taking the biscuit.
Let’s say you own a company that makes gingerbread. Here’s an interesting fact:
If you create a gingerbread man or woman decorated with clothes, HMRC class it as a ‘confectionary item’, and therefore it’s liable for VAT costs of 20%. However, if you paint only a face on your gingerbread, it’s classed as a ‘biscuit’, and therefore the VAT rate is 0%.
So surely, if you’re looking to turn a profit this year, you’re going to go easy on the icing, and your business is going to be making a lot of naked gingerbread people.
Making things simpler
It’s this kind of complexity in the UK tax system that HMRC is hoping to cut down on. There are lots of future measures being planned, and last year, the Office of Tax Simplification (OTS) released a paper with different routes to making tax simpler.
Here are some of the things you might find interesting:
The VAT threshold of £85,000 might change
At the moment, people and businesses with an £85,000 turnover or less, aren’t liable for VAT. But this could change.
Some of the questions the report asks are: Do we need this threshold? Shouldn’t every business be VAT registered, no matter what its income is? Do we need to take this to consultation?
There are two likely outcomes: 1) The threshold could be scrapped altogether, which would mean lots more businesses would need to report 2) The threshold could be increased, which could be good news for people and some small businesses.
Taking the biscuit
The gingerbread example above is one of many food/VAT stories that the government need to crack down on. It’s one of the areas they’re looking to make much simpler for businesses in the food industry to understand.
Brexit and recent developments
The OTS report was published last November. And it states, “It is too early at this stage of the Brexit process to gauge the extent or timing of its impact on VAT.” Therefore, when it comes to Brexit, it makes lots of assumptions.
However, after Theresa May’s recent announcement which insisted the UK will leave the customs union, we thought it’d be worth us clearing a few things up and talking about the potential repercussions.
If we leave the customs union
It could mean businesses in the UK, who trade with businesses overseas in Europe, need to pay Import VAT. You’ll be able to claim this back as a business, but it could take two or three months to come through. Therefore, it might upset your business cash flow.
There’s also customs duty. This could be an extra fee incurred on all incoming items. In the future, it could cost you a lot of money to trade with countries in the EU.
We haven’t even mentioned the huge project which is Making Tax Digital, but there’ll be more on that to follow. If you have any questions about any of the above, and what it could mean for your business or personal finances, you can ask us anything here.