Question.

Answer.

It is quite possible for a business to be in the position of having to pay over VAT to HMRC while not having received payment from its customers.  Bad debt relief allows businesses that have made supplies on which they have accounted for and paid VAT, but for which they have not received payment from their customers, to claim a refund of the VAT from HM Revenue & Customs. In order to make a claim a business must satisfy several conditions however.  Firstly, the goods and services must have been supplied or delivered and the VAT in question must have been accounted for and paid.  It is only possible to claim back the VAT if six months has elapsed since the date of supply or, if later, the date the customer was due to pay you.  It is also important that all or part of the outstanding amount must have been written off in the business accounting records as a bad debt.  A claim is made by entering the appropriate amount in Box 4 of the VAT return for the period in which entitlement to the claim arises, or any permissible later period.

Businesses making bad debt relief claims must keep records for four years from the date of the claim to show the time and nature of supply, the customer’s name and the amount which remains unpaid. Normally a VAT invoice will show this.  The tax authorities will often request this information before approving the repayment of VAT.

Where a customer has not paid a supplier within six months of the date of the supply, or if later, the date payment is due, VAT previously claimed as input tax must be repaid. This puts a burden on all VAT registered traders to monitor their transactions to anticipate whether they need to reverse any input tax recovered on goods received from their suppliers.

Question.

Living in Northern Ireland and owning a house in the South of Ireland classes you as a non-resident landlord in Ireland, for tax purposes.  This means that unless you formally appoint a collection agent in Ireland to collect rents on your behalf, your tenants are required to withhold 20% income tax on the gross rents they pay to you and remit this withheld tax to the Revenue Commissioners on your behalf. You will get a credit for any tax withheld by your tenants when you file your Irish tax return.  Nevertheless, this can be an onerous administrative requirement for the tenants.

Perhaps a more favourable alternative which you might want to consider is appointing a collection agent in Ireland who will become registered for taxes in Ireland on your behalf and will file an annual tax return in respect of your Irish rental income.  If a collection agent is appointed, the rents can be received gross from the tenants, without the tenants having to deduct income tax from the rent and make submissions to the Revenue Commissioners.  The same tax return filing deadlines will apply to the collection agent, as apply to you.  However, if your only source of Irish income is rental income, you can avoid the requirement to file a tax return yourself if the collection agent is filing a tax return on your behalf.

As well as having to file an Irish tax return and pay tax on your Irish rental receipts, you will also have to pay a one off charge which is known as the Non-Principal Private Residence charge.  This is a €200 charge and is payable if you owned the property on the 31 March 2013.  The deadline for payment of this charge is 30^th June 2013.  The NPPR applies for 2013, after which it will be abolished.

• Financial Reporting Standard FRS 102 and its impact on NI Businesses
• Legitimate Ways Of Reducing Corporation Tax
  

Question.

Having decided to sell your business the initial decision which must be taken is whether you will sell the assets of your company and then wind the company up or alternatively sell the shares in your company.  The advantages and disadvantages of each option need to be considered at the outset.  Vendors often prefer to dispose of shares and regularly this is not favoured by the purchaser, necessitating skilful negotiation on both sides to agree on a deal which satisfies everyone.

From your perspective, as a vendor, there can be very significant tax benefits to selling the ‘shares’ of your business as opposed to selling the ‘assets’ of your business.  The proceeds of a share sale are paid directly to you and consequently there is the possibility of mitigating any gain arising by claiming Entrepreneurs Relief which may reduce your tax exposure to rates as low as 10%.  This assumes of course that the various conditions for Entrepreneurs Relief are fulfilled.  Having sold the shares of your business you then have no further on-going responsibilities in respect of the Company.  However, there is likely to be a significant due-diligence process by the purchaser and you may be required to indemnify the purchaser against any unforeseen liabilities which relate to your period of ownership.

There is often more flexibility on a ‘share sale’ as this option facilitates share swaps, loan notes or corporate bonds as an alternative to cash consideration.  Also, if your company has valuable properties or other assets which are subject to stamp duty, you may be in a better negotiating position with the purchaser if you sell the shares of the business.  This is because stamp duty is levied at only ½% on an acquisition of shares in comparison to rates as high as 4% on the disposal of assets.

However, there can also be disadvantages for a vendor on the disposal of shares.  A sale of shares does not allow you to retain any of the assets of the business unless they are extracted from the company prior to sale, which may be expensive.  Also, a purchaser wanting to benefit from the rules which permit tax relief on the amortisation of goodwill acquired from an unconnected third party may pay a premium for the assets of your business rather than your shares.

Specialist advice should be sought to determine whether an asset sale or share sale best suits your particular circumstances

Question.

Answer.

R&D tax relief allows companies to claim additional tax savings on the research costs they incur.  The enhanced relief reduces a company’s tax bill or provides the company with cash, if the company is loss making.

R&D tax credits were introduced in 2000 for small and medium-sized companies (SME’s).  An SME is a company which has fewer than 500 employees and either a turnover of less than €100m or a balance sheet of less than €86m.  When you’re considering these limits you may need to include any company that has a shareholding of 25 per cent in your company and any company your company holds a 25 per cent share in.  During the last 10 years the R&D tax credits available to UK companies are estimated to have supported over £50bn of R&D activity.  SME’s are now permitted to claim an additional 125% tax deduction for qualifying R&D expenditure.  This means that an SME paying tax at the small company tax rate will enjoy a tax saving of 45pence for every pound spent on R&D, from April 2012.  Alternatively, if the company is loss making, then the losses attributable to the R&D costs can be surrendered for a cash refund from HMRC.

Therefore, if your company spends, say, £100,000 on qualifying research and development in 2012, it can claim a tax deduction of £225,000 against profits in its 2012 tax computation which is a tax saving of £25,000.

However, many companies miss out on claiming the full R&D relief because they have received an R&D grant as it is often not possible to claim both R&D tax relief at 225% and an R&D grant on the same project.

Before making a grant claim, it is therefore very important that you review the impact the receipt of a grant might have on your company’s R&D claim.  It is sometimes more beneficial to forfeit a grant and benefit from enhanced R&D tax relief.  On other occasions, however, it is better to claim the grant if the cash-flow benefit of the grant exceeds the R&D tax relief forfeited.   If a grant has been awarded which is ‘notified state aid’, none of the R&D costs will qualify for 225% tax relief of the grant is claimed.  However, the company may still be able to claim relief for the project at a tax relief rate of 130%.  If a grant has been awarded which is not ‘notified state aid’ any grant received should be deducted from the qualifying R&D expenditure and relief at 225% claimed on the net cost.  The costs excluded from the 225% relief in this scenario may however qualify for 130% tax relief.  Most Invest NI grants are ‘notified’ state aid grants.

I would like to reassure the members of PDCU that their money is safe.  As PDCU was authorised by the PRA, your deposits are protected by the Financial Services Compensation Scheme (FSCS).  The FSCS aims to pay compensation claims within 7 days of declaring default, you do not need to do anything further, the FSCS will send the payment directly to you. 

If you had a loan with PDCU you are still under a legal obligation to repay your loan on the terms and conditions originally agreed. 

Alison Burnside

LIQUIDATOR

For further information Alison Burnside can be contacted on 07919894731.

Question.

Answer.

For online filing of VAT returns the submission and payment deadline is one month and seven days after the end of the tax period.  Late submissions or late payments of VAT are classed as ‘defaults’ by HM Revenue & Customs.  However, HMRC will consider if you have had any defaults in the previous 12 months to determine whether they will issue you with a surcharge.  Surcharges are given as a percentage of the late VAT liability.  

If this is your first late return it is unlikely that you will be issued with a penalty, however, you may receive a surcharge period notification which lasts 12 months.  This means that if you are late again with your vat returns, or a vat payment, within that 12 month period the default surcharge period will be extended a further 12 months and you may also be charged a penalty.  A default surcharge, when levied, will apply at rates from 2% for the first default, increasing to 5%, 10% and 15% for further defaults within this period.  There are also de-minimus rules which are applied when surcharges are being calculated by HMRC.

HMRC’s Online Services were unavailable on Thursday 4^th April and Friday 5^th April, which was the last two working days prior to your VAT return due submission date, which was Sunday 7^th April 2013.  Many businesses were unable to file their vat returns on the last two working days of the financial tax year.  However, HMRC online VAT filing system was available again on the evening of Saturday 6^th April.  It may be the case that you reply on a tax agent to submit your returns and the return was not submitted on time because your agent does not work on a Saturday or Sunday.