Tax Facts 2015/16
CONTENTS 1 2 Personal Taxation 4 Employee Taxation 6 Investment Reliefs 8 Capital Gains Tax (CGT) 9 Trusts 10 Tax Credits, Universal Credit and Child Benefit 11 National Insurance Contributions (NIC) 11 Inheritance Tax (IHT) 12 Business Tax 13 Corporation Tax 14 Property Taxes 15 Value Added Tax (VAT) 2 0 1 5 This booklet is prepared for guidance only. We recommend that you contact us for advice before acting on any information contained in the booklet and we cannot accept responsibility for any action taken without such advice. 2 TAX FACTS 0 6 1
2 PERSONAL TAXATION Main personal allowances 2015/16 2014/15 Personal income tax allowance (PA) a) 10,600 10,000 CGT annual exemption 11,100 11,000 Blind person s allowance 2,290 2,230 Marriage allowance b) 1,060 nil Age allowances Personal allowance (PA) Born 6.4.38-5.4.48 10,600 10,500 Born before 6.4.38 c) 10,660 10,660 Minimum age allowance 10,600 10,000 Married couple s allowance (MCA) 2015/16 2014/15 Born before 6.4.1935 8,355 8,165 Minimum c) 3,220 3,140 Income Limit d) 27,700 27,000 a) Allowance is reduced if adjusted net income (ANI) exceeds 100,000. ANI is total taxable income less qualifying pension contributions and Gift Aid donations. PA is reduced by 1 for every 2 of ANI over 100,000, so is nil when ANI is 121,200 or more. b) Married couples and civil partners born after 5 April 1935 can transfer this portion of their personal allowance to their spouse/ partner as long as the recipient is not taxed at more than 20%. c) Age allowances are reduced by 1 for every 2 by which ANI exceeds the income limit. PA is reduced first until it reaches the minimum; then MCA is reduced until it reaches the minimum. d) Amount depends on age of older spouse and is given at 10%. Income tax rates 2015/16 2014/15 Basic rate band (BRB) 31,785 31,865 Higher rate band 31,786-150,000 31,866-150,000 Additional rate over 150,000 over 150,000 2015/16 and 2014/15 Allocation of rate bands: other income savings dividends Basic 20% 20% 10% Higher 40% 40% 32.5% Additional 45% 45% 37.5%
If taxable general income is less than 5,000 (2014/15: 2,880), savings income is taxed at a starting rate of nil (2014/15: 10%) until total taxable income exceeds that limit. This starting rate band is part of the BRB. Extension of basic and higher rate bands Payments of gift aid donations or personal pension contributions increase the basic and higher rate bands by the grossed up equivalent of the payment. There are restrictions on the amount of tax relief for pension contributions (see Investment Reliefs). Filing of return and payment The 2015/16 personal tax return if a notice to file is issued is due by: 31 January 2017 (online) or 31 October 2016 (paper). Penalty for late return: 100 (even if no tax is due); further penalties for more than 3, 6 or 12 months late. The 2015/16 tax is payable under PAYE each month for tax on employment income, or deducted at source for the basic rate liability on savings and dividends. The balance of tax due under self assessment (SA) is payable as: payments on account by 31 January 2016 and 31 July 2016, based on 2014/15 SA income tax and NIC; and Any balance, plus any CGT, by 31 January 2017, with the first payment on account for 2016/17. Missing any payment date leads to interest; missing the balancing payment date by 30 days will lead to a 5% penalty. Further 5% penalties apply when the balancing payment is 6 months late and 12 months late. Main personal reliefs Rent-a-room exemption for letting out part of the taxpayer s only or main residence: gross income of 4,250pa. Gift aid: on a cash gift to charity, the charity can reclaim 20/80 (25%) of the donation from HMRC if the donor makes a declaration. The donor increases the basic rate band by the gross gift (i.e. donation x 100/80). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received. Also the Give As You Earn payroll giving scheme allows charitable gifts to be made from pre-tax pay, which reduces tax paid under PAYE. 3
4 EMPLOyEE TAXATION Tax rates and payment Employment income is charged to both income tax (as general income) and to Class 1 National Insurance Contributions. Tax and NIC are normally paid by the employer through the PAYE system, under which the notice of coding makes adjustments for tax reliefs due and some tax due on other income. An employee who has overpaid or underpaid tax at the end of the year should complete a tax return and settle the liability as described in Personal Taxation, or claim a repayment. If the tax underpaid is up to 3,000 and the 2014/15 tax return is submitted by 31 October 2015, or e-filed by 30 December 2015, the underpayment can be settled through PAYE for 2016/17 rather than being collected on 31 January 2016. Class 1 NIC rates 2015/16 Employers and employees both contribute at rates dependent on the level of earnings during a weekly, monthly or annual earnings period. week month year LEL: lower earnings limit 112 486 5,824 PT: primary threshold 155 672 8,060 ST: secondary threshold 156 676 8,112 UAP: upper accrual point 770 3,337 40,040 UST: upper secondary threshold 815 3,532 42,385 UEL: upper earnings limit 815 3,532 42,385 No NIC are payable by employee or employer on earnings up to the PT (employees) or ST (employer). No NIC are payable by the employer on earnings up to the UST for employees aged under 21 at the date of the payment. Earnings between the LEL and the PT must be reported by the employer, and the employee receives credit towards the State Pension, but no employee NIC are payable. Rates of NIC on earnings above the PT/ST depend on whether the employee is within the State Second Pension or is contracted out as a member of a salary-related pension scheme. Employee Employer In Out In Out PT/ST - UAP 12.0% 10.6% 13.8% 10.4% UAP - UEL 12.0% 12.0% 13.8% 13.8% Above UEL 2.0% 2.0% 13.8% 13.8% A person with more than one employment can defer the payment of some employee NIC until after the end of the tax
year. The total amount payable is then checked and limited such that the full 12% rate is only applied to income between the PT and the UEL. Many employers can claim an annual reduction in NIC of up to 2,000, regardless of the number of employees on the payroll. The employees NIC is unaffected. Employee benefits Employee benefits are usually valued at a cash equivalent and are then charged to income tax on the employee and Class 1A NIC (at 13.8%) on the employer. Employee contributions for private use usually reduce the taxable amount. The cash equivalent is generally based on the cost to the employer of providing the benefit, but the following are charged according to a statutory formula. Cars provided by the employer: a percentage of the original list price of the car, depending on the CO2 emissions rating of the car. g/km 5% of list price 0-50 9% of list price 51-75 13% of list price 76-94 14% of list price 95-99 1% addition for every extra 5g/km 100-209 max 37% benefit 210 and above For diesel cars add 3% (min. is 8%, max. still 37%, reached at 195g/km). Fuel provided by the employer for private use in a company car is charged without reduction for contributions unless all private fuel is paid for by the employee, in which case there is no benefit. To calculate the taxable amount, the percentage used to calculate car benefit is applied to a standard figure of 22,100. Vans provided by the employer for an employee s use are charged at a flat rate of 3,150. If fuel is provided as well, an additional 594 is charged. If private use of a van is restricted to home-to-work travel, there is no tax charge. The taxable benefit of using an electric van for private journeys is 630. Use of other assets is charged at 20% of the original cost of the assets to the employer, or the value when first made available to the employee. Loans of money that exceed 10,000 at any point in the tax year are charged on the excess of the official rate (3% from 6.4.2015) over any interest actually paid by the employee to the employer. 5
6 Main exempt benefits Many employee benefits are not charged to tax. A full list cannot be given here, but some of the principal ones are: providing one mobile phone, even with private use subsidised meals available to all employees in a staff restaurant or canteen (subject to conditions) the provision of green transport such as works buses or the use of a bicycle for commuting trivial benefits (e.g. flowers) worth up to 50 per employee pension contributions up to annual limit (see Investment Reliefs) payments of up to 5 a night for incidental overnight expenses when staying away ( 10 if abroad) Exempt mileage allowances: employee s own car First 10,000 business miles Extra miles Each passenger 45p 25p 5p If the business journey is completed on a motorcycle or pedal cycle the tax-free mileage rates are 24p and 20p per mile respectively. Exempt fuel-only allowances: company car The 45p mileage rate is for business use of an employee s own car. Where the employer provides the car, HMRC publish advisory mileage rates which are accepted as covering the cost of fuel for different engine sizes and fuel types. They change four times a year, so the current rates have to be checked at https://www.gov.uk/government/publications/advisory-fuel-rates/ current-rates. INvESTMENT RELIEFS The main tax incentives for investment are: income tax deduction for amounts invested the rebate is either at a fixed 30%/50% or at the taxpayer s marginal rate of tax (DED N in tables below) tax exemption on the income from the source (EXINC) tax exemption on gains arising (EXGAIN) deferral of reinvested capital gains until the new asset is sold (DEFER) ISA (Individual Savings Account) DED N EXINC EXGAIN DEFER No Yes Yes No Annual investment limit of 15,240 which can be in cash or stocks and shares. No restriction on withdrawal. No relief for losses. Junior ISA limit 4,080 for under-18s has different rules.
vct (venture Capital Trust) DED N EXINC EXGAIN DEFER 30% Yes Yes No Deduction relief is for subscription for new share capital in approved VCT a quoted company which invests mainly in small, unquoted trading companies. The income tax relief becomes permanent if the shares are held for 5 years. Income and gains (if any) are exempt immediately even for secondhand shares. No relief for losses. Maximum investment 200,000 pa. EIS (Enterprise Investment Scheme) DED N EXINC EXGAIN DEFER 30% No Yes Yes Relief is for subscription for new share capital in small, unquoted trading companies. The income tax relief becomes permanent, and gains are exempt, if the shares are held for 3 years. Capital losses are eligible for relief against income. Maximum investment 1m per tax year for DED N and EXGAIN; no limit on amount of investment for DEFER. Investments can be carried back for relief in the previous tax year, subject to the overall annual limit. Other conditions apply. SITR (Social Investment Tax Relief) DED N EXINC EXGAIN DEFER 30% No Yes Yes Relief is for subscription for new share or loan capital in social enterprises (e.g. charities, community interest companies). The income tax relief becomes permanent, and gains are exempt, if the investment is held for 3 years. Maximum investment is 1m per tax year for all tax reliefs. From 2015/16 investments can be carried back for relief in the previous tax year, subject to the overall annual limit. Other conditions apply. SEIS (Seed Enterprise Investment Scheme) DED N EXINC EXGAIN DEFER 50% No Yes No Similar to EIS, but the investment limit is 100,000 and company must be small and carry on a new trade. If gains are made on other assets, investment in SEIS shares allows exemption of half the gain effective relief at 9% or 14% on the full gain. Other conditions apply. PPP (Personal Pension Plan) DED N EXINC EXGAIN DEFER Marginal Yes Yes No Contributions to PPPs are paid net of basic rate tax. The policyholder pays 80% and HMRC pay 20%. Higher rate relief is 7
8 given by increasing the basic rate band in the tax computation more tax is paid at 20% and less at 40% or 45%. This relief can be given through the self-assessment system or by adjusting the PAYE code. Tax relief is due on an individual s gross contributions up to 3,600 ( 2,880 net), or 100% of earnings if higher, up to annual allowance of 40,000 pa. Higher contributions can be made by utilising unused annual allowance from any of the preceding three years. Employers can contribute up to 40,000 per annum to an employee s pension fund, less any contributions made by the individual. Excess contributions are taxed at the individual s marginal rate of income tax. The employer can enjoy tax relief on the cost of those pension contributions under the normal rules for business expenses. While the money is held within the pension fund, it is exempt from taxes on income and gains, so it grows faster than investments held directly by an individual. From 6 April 2015 investors in personal and other defined contribution pension schemes have the right to access all of their pension savings once they reach age 55. When the investor takes benefits from the pension scheme, under flexi-access drawdown up to 25% of the accumulated fund can be drawn as a tax-free lump sum. However the balance is taxed at the investor s marginal rate of tax that applies in the year those benefits are drawn. The capital value of all of someone s pension benefits is measured against a lifetime allowance when the first benefits are drawn ( 1.25m in 2015/16). If the lifetime allowance is exceeded, there is a clawback charge on the excess. CAPITAL GAINS TAX CGT is payable on capital gains made in the tax year, after deduction of capital losses, available reliefs and the annual exemption. The rate of CGT is 28%, unless the net gains can utilise the unused basic rate income tax band of the taxpayer, in which case the rate of CGT is 18%. Where entrepreneurs relief applies to the gain the rate of CGT is 10%. CGT is self assessed, reported and paid in conjunction with income tax details are given on the Personal Taxation page. When a chargeable asset is given away, the donor is treated as receiving the full market value and is liable for CGT accordingly. However, there is no charge on disposals between spouses or registered civil partners who are living together. On such disposals, the transferee takes over the transferor s CGT cost. Entrepreneurs Relief (ER) Gains made on disposal of the following assets may qualify for Entrepreneurs Relief if the asset/shares or options have been owned for at least a year:
a business or an interest in a business business assets sold within 3 years of the business ceasing shares in a trading company of which the individual is an officer or employee and holds at least 5% of the share capital, or acquired the shares under an EMI scheme assets used by a company and sold at the same time as the company s shares An individual can claim ER on qualifying disposals until the lifetime total of such gains reaches 10m. Other major CGT reliefs Certain types of asset are exempt from CGT, including chattels (tangible movable property) which are bought and sold for less than 6,000 and cars. The taxpayer s only or main home will be exempt for the periods the taxpayer lives there, or is deemed to live there, plus the last 18 months of ownership. A taxpayer with more than one home can elect (within 2 years of acquiring the second or subsequent home) to choose which home is to be exempt. There are different requirements if the home is in a country where the taxpayer is not resident for tax purposes. An investment property which is rented out and has never been occupied by the owner can never be exempt from CGT. Gifts to charity are not charged to CGT, and gifts of quoted shares and land also enjoy an income tax relief (see Personal Taxation). Deferral of gains is allowed on some types of reinvestment, such as subscription for new EIS shares (see Investment Reliefs). There is no CGT on gains accrued to the date of a taxpayer s death. Instead, the value of the estate may be subject to IHT (see Inheritance Tax). TRuSTS Trusts are liable to income tax on income and CGT on gains for each tax year. The trustees are responsible for filing self assessment tax returns by the normal date (31 January 2017 for 2015/16) and paying the tax on the normal dates (payments on account of income tax on 31 January and 31 July 2016, and the balance of income tax and the whole of the CGT on 31 January 2017). The tax rates applicable to trusts are: Life interest *Discretionary Rate on dividend income 10% 37.5% Rate on other income 20% 45% Rate on capital gains 28% 28% CGT annual exemption 5,550 5,550 9
10 *Discretionary trusts pay tax at the lower rates on income used to pay trust expenses and on another 1,000 of income. Discretionary trusts for vulnerable beneficiaries (such as disabled people) may reduce their effective tax rates if an election is made. Beneficiaries of life interest trusts are treated as entitled to the income of the trustees, and pay tax on it in the year it arises to the trust, with a credit for tax paid by the trustees. Beneficiaries of discretionary trusts pay tax on income distributed to them by the trustees, which is treated as paid with a tax credit of 9/11 of the cash received. If the tax credit on either type of trust exceeds the beneficiary s tax liability, the excess can normally be reclaimed by the beneficiary (unless credits on dividends in a life interest trust). The CGT annual exemption is divided between trusts established by the same settlor since 6.6.1978, to a minimum of 1,110. Trustees are also liable to pay inheritance tax in a variety of circumstances, and they should make sure that they have appropriate professional advice to enable them to fulfil all their legal and fiscal responsibilities in what is a very complex area of taxation. TAX CREdITS, universal CREdIT ANd ChILd BENEFIT Tax Credits and Universal Credit provide state support to people with children and workers on low incomes. The credits are paid to those who claim them, and are not an adjustment in the tax computation. Working Tax Credit (WTC) is paid to workers on low incomes. The full entitlement is given for an income of only 6,420, and it is tapered away as a couple s joint income increases above that. Child Tax Credit (CTC) is paid to the main carer for children up to 16 years old, or up to 18 in full-time education. Entitlement is built up of elements for each child ( 2,780), and for the family ( 545). CTC is tapered away at 41p for every 1 by which the couple s combined income exceeds 16,105. Tax Credit awards are made provisionally for the coming year based on a previous year s income (2014/15 for 2015/16 claims), and may be revised up or down after the tax year-end if income has changed significantly. However, increases in income will be disregarded if they are up to 5,000. Tax Credits claimants are gradually being transferred to Universal Credit, which also covers housing benefit. Universal Credit awards can be adjusted monthly based on the claimant s income as reported under RTI. Child Benefit is completely separate from and paid in addition to CTC. A family claims child benefit once per child irrespective
of income. However, for high income families, the child benefit is clawed back at the rate of 1% for every 100 of the highest earner s adjusted net income over 50,000. Where adjusted net income exceeds 60,000 for the tax year, 100% of the child benefit is clawed back through the tax system. The family may elect not to receive child benefit to avoid this tax charge. The Tax and Universal Credits systems are very complicated. The GOV.UK website has further information: https://www.gov. uk/browse/benefits NATIONAL INSuRANCE CONTRIBuTIONS For employees NIC, see Employee Taxation page. Self employed people pay NIC on their profits alongside the self-assessed income tax at these rates: Class 2 NIC at 2.80 pw if profits for the year are 5,965 or more; and Class 4 NIC at 9% of taxable profits between 8,060 and 42,385. Profits over 42,385 are charged at 2%. Anyone not in work who wants to maintain state pension rights may pay Class 3 voluntary NIC at 14.10 pw. From 12 October 2015 to 5 April 2017 those who reach state retirement age before 6 April 2016 can top-up their state pension entitlement by paying voluntary amounts of Class 3A NIC. Annual limits Someone who is both employed and self employed may pay Class 1, Class 2 and Class 4 NIC. However, for 2015/16 and later years, both Class 2 and Class 4 NIC are collected through self-assessment. If the taxpayer has paid more than the annual limit of NIC for the year, Class 4 NIC will be charged at 2% rather than 9% for the year. INhERITANCE TAX Payment Inheritance Tax (IHT) on a deceased s estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but tax on the estate must be paid before probate is granted, and this may necessitate earlier settlement. Tax on some property (e.g. real estate) can be paid by instalments. IHT on chargeable lifetime gifts (e.g. to most trusts) is payable on the later of six months after the month of transfer or 30 April in the next tax year. Rates The nil rate band for cumulative chargeable transfers in the last seven years is 325,000 (frozen until 6 April 2018). If one person in a married couple/civil partnership did not use their full nil rate band on death, the unused proportion increases the nil band of the survivor on their death. 11
12 Gifts above that are charged at the following rates: Chargeable legacies on death - 40% Gifts within 7 years of death - 40%, with reductions if made over 3 years before death Lifetime chargeable gifts - 20% if the donee pays the tax, 25% if the donor pays. Major reliefs Lifetime gifts between individuals are left out of account while the donor survives ( potentially exempt transfers ). They are only charged to IHT if the donor dies within 7 years of the gift. The following transfers are exempt from IHT: the first 3,000 gifted in a tax year (unused limit may be carried forward for one year) small gifts of up to 250 per recipient in a year unlimited regular gifts out of surplus income gifts between spouses/civil partners, unless the donor is domiciled in the UK and the recipient is not (then limited to 325,000) gifts in consideration of marriage 5,000 from a parent, 2,500 from a grandparent/party to the marriage, 1,000 from others Most business and agricultural property enjoys a 100% relief once it has been owned for two years. Some types of property are relieved only at 50%, and it is important to meet all the conditions. Relief for gifts to charity Gifts or legacies to charity are not charged to IHT. If 10% of the relevant value of an individual s estate on death is left to charity, IHT on the rest is charged at only 36%. BuSINESS TAX Businesses in general pay PAYE in respect of their employees salaries, and VAT on turnover if they are required or choose to be registered for that tax. Sole traders, and partners in business partnerships, pay income tax and NIC on their share of the business profits. Companies pay Corporation Tax on all their profits (which include capital gains). Capital allowances Neither capital expenditure nor depreciation is generally allowed as an expense. Instead, many classes of capital expenditure qualify for a capital allowance, which may spread the cost over several years, and which is not related to the accounting depreciation.
13 The major categories of capital allowance in 2015/16 are: Plant and machinery approved energy or water saving plant 100% low emission cars (rating up to 75g/km) 100% first 500,000 expenditure per year (AIA) 100% writing down allowance (reducing balance) on general pool 18% writing down allowance (reducing balance) on special rate pool* 8% research and development: capital equipment 100% know-how and patent rights (not corporation tax) 25% * The special rate pool contains cars with CO2 ratings above 130g/km, long life assets, plant integral to buildings and thermal insulation. The general pool contains other plant including lower emission cars. The AIA (Annual Investment Allowance) is scheduled to reduce to 25,000 on 1 January 2016, but this is likely to be reviewed in late 2015. Transitional rules apply where a period of account straddles the change of the AIA limit. Cash accounting Unincorporated businesses with turnover below the VAT registration threshold can choose to calculate taxable profits on a cash basis income received and expenditure paid, rather than invoiced or accrued. Use of the cash basis can continue even if turnover grows, until it reaches twice the VAT registration threshold ( 164,000 for 2015/16). Flat rate expenses Unincorporated businesses can also choose to use flat rate deductions for motoring expenses and the cost of working from home, instead of calculating the business proportion of actual expenditure. These two options may simplify calculations but will also change the amount of tax payable. CORPORATION TAX Rates From 1 April 2015 Corporation Tax (CT) is charged at 20% for all companies, except where there are special rates for companies in the oil and gas industry. Payment and filing Most companies must settle their CT liability 9 months and a day after the end of the accounting period. Large companies or groups generally make 4 quarterly payments on account of CT starting 6.5 months after the start of a 12 month accounting period, with interest running on any balance due until final settlement of the period s liability. All companies file CT returns 12 months after the end of the accounting period.
14 Special rules for corporation tax Capital expenditure by companies on intangible assets, including goodwill, know-how and patent rights, is in general relieved for tax according to the accounting treatment (i.e. by way of depreciation or amortisation). Companies which carry out R&D work can claim enhanced deductions for qualifying costs of 30% for large companies or 130% for small and medium sized companies. Alternatively, a large company can claim a taxable R&D credit equivalent to 11% of qualifying expenditure, which is offset against its CT liability. Companies in the creative industries can claim enhanced deductions for certain costs associated with producing highend or children s TV programmes, video games or theatre productions. Companies which generate profits from exploiting patents can pay a reduce rate of CT on that patent income. Trading companies do not pay tax on disposals out of substantial shareholdings in other trading companies, that have been held for at least 12 months. PROPERTy TAXES Annual Tax on Enveloped dwellings (ATEd) From 1 April 2013 the ATED applies to high value residential properties owned via a corporate structure, unless the property is used for a qualifying purpose. From 1 April 2015 the tax applies to properties valued at 1m or more (previously 2m or more). There are many reliefs that can remove or reduce the charge, but in order to claim a relief, an ATED return must be submitted. The 2015/16 ATED return and tax due must generally reach HMRC by 30 April 2015. Property value Annual charge to 31.3.16 31.3.15 1m 2m 7,000 N/A 2m 5m 23,350 15,400 5m 10m 54,450 35,900 10m 20m 109,050 71,850 20m + 218,200 143,750 Stamp duty Land Tax (SdLT) Residential property Purchase price SDLT rate on the band* Up to 125,000 Nil 125,001 250,000 2% 250,001 925,000 5% 925,001 1.5m 10% 1.5m + 12%
15 *A rate of 15% may apply to the total purchase price where the property is valued above 500,000 and purchased by a non-natural person (e.g. a company). Commercial property Purchase price SDLT rate on total price Up to 150,000 Nil 150,001 to 250,000 1% 250,001 to 500,000 3% 500,000 + 4% Land and Buildings Transaction Tax (LBTT) From 1 April 2015, SDLT is replaced in Scotland by LBTT. Like SDLT, it is payable by the purchaser. Residential property Purchase price Rate on band Up to 145,000 Nil 145,001-250,000 2% 250,001-325,000 5% 325,001-750,000 10% 750,000 + 12% Commercial property Purchase price Rate on band Up to 150,000 Nil 150,001-350,000 3% 350,000 + 4.5% Stamp duty on shares No duty if consideration does not exceed 1,000, otherwise 0.5% of total consideration, rounded up to the nearest 5. Gifts, legacies and other gratuitous transfers are generally not liable to duty at all. Purchases of marketable securities are instead subject to 0.5% Stamp Duty Reserve Tax (SDRT), unless exempted (e.g. purchases of gilts). value AddEd TAX Rates of tax The standard rate of VAT is 20%, or 1/6 of the consideration received for making a supply. A lower rate of 5% (or 1/21 of the gross receipt) applies to some supplies such as domestic fuel and power, installation of energy
16 saving materials in houses, and some conversions of residential property. A zero rate applies to a range of supplies including most food, hard-copy books, new houses, and children s clothes. Certain other supplies are exempt, which means no tax is charged to the customer, but the supplier cannot recover VAT on costs. These include many land-related supplies, insurance, finance, education, health and welfare, and non-profit sports clubs. If you supply automated digital or broadcasting services to nonbusinesses in other EU countries you must charge VAT at the rate that applies where the customer belongs. The overseas VAT must be charged on any amount of sales, even if you are not VAT-registered in the UK. You must also register for VAT in the customer s country or register through HMRC s VAT-MOSS system. Thresholds An unregistered business must register if it has made 82,000 of taxable supplies in the last 12 months, up to any month end, or if it expects to make 82,000 of taxable supplies in the next 30 days alone. A registered business can deregister if it can satisfy HMRC that taxable supplies in the next year will not exceed 80,000. Small businesses with taxable turnover of up to 150,000 can opt to use the flat-rate scheme (FRS). If using FRS, the VAT paid by the business is a fixed percentage (based on business category) of FRS turnover rather than the net of output tax over input tax. Input tax is usually not recoverable. Small businesses with taxable turnover of up to 1.35m can enter the cash accounting scheme (only paying VAT to HMRC when customers have paid). The annual accounting scheme (filing a single VAT return each year instead of one every three months) is also available with turnover up to 1.35m. Scale charge for private use of fuel paid for by business Where a business buys car fuel and allows it to be used for private motoring, it has to account for output tax on the supply. There is a scale rate based on the CO2 emissions rating of the car. A tool on the GOV.UK website can be used to work out the VAT due (https://www.gov.uk/fuel-scale-charge). Returns and payments Most VAT returns are prepared for three-month periods, and must be filed electronically. Payment must also be made electronically, and both the return and payment must be received by HMRC within 7 days of the end of the month following the return period.