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Vat Registration

Businesses become liable for vat when sales reach the vat threshold set on 1st April 2007 at £64,000 p.a. regardless of whether that business has registered for vat purposes. Businesses whose customers are vat registered should consider opting for voluntary vat registration as sales would not be affected by vat registration and registering would permit that business to also reclaim vat input tax on purchases. Businesses with mainly non vat registered customers may wish to delay vat registration until the point is reached at which liability to vat tax becomes inevitable. Consideration should be given to maintaining sales below the vat threshold provided this does not result in a significant loss of profit. When the vat threshold of £64,000 p.a. is exceeded Customs & Excise should be advised. It may be possible to delay vat registration if sales breached the vat threshold due to an abnormal sales period that may not necessarily be repeated in the foreseeable future.

Having reached the point of vat registration consideration should be given to the various vat schemes which are available to either simplify the vat calculation or smooth the vat tax liability.

Choose the right vat scheme for your business

Unless a vat scheme is adopted then the standard inputs and outputs vat scheme would be applied. This involves charging all customers vat on sales known as output vat and paying this amount to the Vat office each quarter. Vat Registered businesses can also deduct from the vat liability the input vat on purchases that suppliers have charged the business. It is important to ensure all sales and purchase invoices are retained and an audit trail from the individual transactions to the vat tax liability is maintained as Customs & Excise do inspect vat records, the frequency of those visits, often once every three years can increase dramatically if the vat records are considered inadequate. Accounting Software can provide a solution to record keeping and DIY Accounting produce automated vat calculations from the basic data entry of sales and purchases on excel spreadsheets.

Vat Schemes

Vat Flat Rate Scheme

The vat flat rate scheme can be adopted by businesses that have an annual turnover excluding vat of under £150,000 p.a.

Instead of paying the difference between vat on sales and vat on purchases businesses that have adopted a vat flat rate scheme pay vat at a percentage of sales in line with the average for that trade sector. Vat is not reclaimable on purchases under the flat rate scheme. The Customs & Excise website contains details of the vat flat rate percentages for each sector.

Customers are charged vat at the normal vat rate, 17.5% if standard rated goods. The actual vat payable is then calculated at the appropriate percentage of the total sales figure including vat. An adjustment to the accounts would then be required to adjust for the difference between the vat paid and the amount payable if an inputs and outputs basis had been used. DIY Accounting software automates this flat rate calculation by automatically calculating the vat on sales at the flat rate and expensing the vat input to the purchase accounts.

Businesses in their first year of vat registration also receive a 1% reduction in the vat flat rate for their trade sector which can save tax.

Annual Vat Accounting Scheme

Not suitable if you receive repayments of vat, the annual accounting scheme is based upon an annual estimate of the vat bill which is then paid in monthly or quarterly instalments throughout the year with the balance payable or received at the end of the year when the annual vat return has been submitted.

The vat threshold for this scheme is businesses with a sales turnover not expected to exceed £1.25m.
The main benefit of the annual accounting scheme is to smooth the vat payments over the year.
Vat Cash Accounting Scheme

Under the vat cash accounting scheme the vat return and liability to pay vat is based upon the date sales were received and the date purchases were paid rather than the invoice tax points.

The vat threshold for the cash accounting scheme is businesses with a sales turnover excluding vat of under £1.35m.which can be extended for existing users to a turnover of £1.6m and left in place for up to 6 months after the vat threshold has been breached. Accounting for vat using the Cash Accounting Scheme may require businesses to record sales and purchases on cash received and paid basis and adjust accounting records for accruals. Alternatively, sales and purchases can be entered into the Accounting records based upon the invoice tax points and a quarterly adjustment made for debtors and creditors at the beginning and end of each quarter. Such accounting adjustments would not be suitable for everyone.

Vat Retail Schemes

Retailers selling to the general public may not easily be able to produce vat sales invoices to individual customers and there are various vat retail schemes available on the Customs & Excise website that retailers can adopt.

The main benefits of the vat retail schemes are to dispense with every customer being issued a vat invoice unless requested.

Vat retail schemes can be used in conjunction with both flat rate schemes and the annual vat accounting scheme.

THE POSITION OF ACCOUNTANT IN YOUR FINANCIAL LIFE

In the view of most people, the accountant is just someone filling out tax returns. This is really a narrowing of the potential help your accountant can give you.

The best way to understand the role of the accountant is to understand the nature of accountancy. Accountancy does not involve the creation of something new and unique. It would not be considered an artistic field. What accountancy involves is the determination of reality. It examines the real situation that exists. For example, if an accountant is doing an inventory of the total number of widgets in your warehouse for an audit, they will arrive at the exact numbers that are there. If that number does not match the number you would like it to be is not the concern of the accountant. It is the real situation with which they are concerned.

This is where too many people go astray. They are expecting the accountant to give them answers and what they are going to get is information. This is not to say that the accountant with their experience and training cannot answer questions about options. They can be a good source of counsel, but they are not the decision makers. The accountant license requirements are very specific about Profession Ethics and this is for good cause.

The Certified Public Account has followed a program of education, experience, and examination to become certified. Along the way, they have come to understand ethics and they are subject to several legal penalties for malpractice. Although, they can offer guidance and advice that can be helpful, they can't take the responsibility for the ultimate decisions that impact your life. The client should not ask them to do this nor expect it of them. Decisions about such critical matters are always left to the clients with the accountant providing advice and information.

The area of taxation has become so complex. The accountant has a role in the preparation of tax reports and can set up tax shelters. The tax implications of just about every major financial management decision that you make will have an impact on your future. An accountant who can keep you abreast of these implications is extremely valuable. Never overlook the tax role of your accountant.

Many people view the role of the accountant as something for richer Men and bigger business. This is a mistake. The most important financial decisions are the ones that impact you and your own personal situation. Long term management and such things as taxation and estate planning are not for the very rich only. The role of the Certified Public Accountant is to be the accountant of the public.

ACCOUNTANT OVERVIEW

Taxes can be insanely confusing, so it is vital that you get all the help you can. An accountant is a good choice in most cases. Here is why.

Accountancy is the measurement of financial information. It also deals with the concept of assurance of accuracy with this financial information. To put this in more simple terms, accountancy is the method by which we compile and transmit an accurate picture of a given financial situation. If you were to count the money in your pocket, making sure you had included every penny and then made a record of the total that was accurate and reflected the exact amount counted, you would have done accountancy on the status on your cash in hand.

Most people are familiar with the accountant. They view him as a person who does their taxes or works in the accounting department at their job. The image of the accountant in popular culture is of someone with a calculator in their hand; thick glasses from studying rows of figure; and a rather disciplined respect for accuracy in everything. Although, the calculator and thick glasses are a mistake, the respect for accuracy is much closer to the truth.

Accountants work in both the public and the private sector. They are involved in many aspects of financial management beyond the accounting departments of business. They include tax specialists and top executives in the business sector. The field is fairly extensive and growing larger. The advent of the computer and its ability to process and store information has changed the field of accounting greatly in some ways. In other ways, the basic principles of accounting and accountancy have been unchanged since early history.

There has always existed a need to generate accurate pictures of financial situations and conditions. The dual entry bookkeeping methods still used as the basis of business accounting may have been developed and used since biblical times. It is important to understand that the accountant does not create the business situation. Their role is to present it in a manner that represents it reality at any given time. It is like taking a snapshot of a particular situation at a particular moment in time.

The field of accounting is growing and the opportunities within are greater now than at any time in history. The world is merging into a massive global economy and accurate and trustworthy accountancy of this new financial mega structure is critical. Auditing and accountancy creates information that gives managers the knowledge that they need to make current decisions and future plans. Too many view accountants as only dealing in the past. They are really the ones who give us the information we need to plan for the future.

BACK TAX DEBT

Many taxpayers owe back tax. If you are one of them, maybe you are thinking if you ignore this problem, it will go away. Maybe you are afraid that if you do something it will create even more problems. We know that IRS Problems can be scary. This is a serious matter. You must deal with this immediately so you are not assessed with even more debt with the addition of the interest and penalty charges. Let our firm help you reduce and/or solve your IRS Problems. Do not wait another day. Start the process now so you and your family can start a new chapter in your lives.

To help you understand how to deal with back taxes, it is important to know what tactics the IRS uses. These tactics include written or face-to-face audits, federal tax liens, wage garnishments or levies, seizures of property and bank accounts, and even the possibility of jail.

Did you know that you can negotiate with the IRS? Negotiate you say? Yes, you can negotiate with the IRS. Negotiating with the IRS may help to reduce the amount you owe. If this figure can be reduced to a size that you can afford to pay, your IRS Problems are gone. Among the options we can consider are Offer in Compromise, installment agreement, wage garnishment release, currently not collectible status, bank levy release, and innocent spouse relief if applicable.

These steps will help you get your back tax debt in order:

• Get all your tax documents together: tax forms, W2s, etc.
• Prepare your tax returns: either by yourself or with the help of a tax professional
• Protect your refunds: yes, you might have a refund waiting for you
• Pay your tax debts in full: create a plan to accomplish this
• Plan ahead for next year: find strategies to reduce your taxes for next year

It is important to remember that when filing back taxes that you have to file on paper and they need to be mailed to the IRS. You cannot file electronically. If you have multiple years to file, mail each year in a separate envelope and send them Certified Mail. This will give you proof that they were received by the IRS. You can also hand deliver your tax returns. This is especially important if there is a time factor. If you take along copies of the first page of each return, you can ask that they be stamped as received so you have evidence of receipt.

WILL I GET AUDITED ?

It's the dread of every US taxpayer - the IRS audit. Most of citizens only have a vague idea of what an audit is and how to prepare for it. Everyone has heard nightmarish stories of audits - lost receipts, probing questions about deductions taken years ago, and, the worst, owing huge sums of back taxes. The audit has been called the financial equivalent of a rectal examine.

The odds of being audited by the Internal Revenue Service are really quite slim. Of 131 million returns received by the IRS for the 12 month period ending October 2005, only 1,216 were audited. But it's a perpetual possibility for which everyone must be prepared.

Many taxpayers take the standard deductions and will never have to worry with the years of old receipts and financial records from the past. In fact if the IRS decides to take a look at the tax history of a citizen who has only taken standard deductions, chances are she will never know that she was investigated. The IRS agents will simply look at her past returns, see that she took the standard deductions, and move on to the next taxpayer.

But anyone that claims deductions beyond the standard deductions should be prepared to defend their tax return. Self-employed worker, small business owners, anyone claiming investment losses or virtually any other financial circumstance beyond the usual salary minus standard deduction scenario should be prepared.
Taking deductions or claiming that certain expenditures are business expenses reduce the total taxes owed. The IRS expects make taxpayers to make such claims. Deciding what is a legitimate deduction or business expense is left largely up to the taxpayer and her advisors. Deciding whether to accept them is up to the IRS and, in the case of an audit, the auditing agent. Therefore surviving an audit depends on being prepared to defend the deductions taken.

Good record keeping is the key to being prepared. Save all receipts and keep them in an orderly way so that if an audit ever happens locating them will be easy. Keep records of all transactions that affect each year's taxes - both income and deductions. Make sure that all transactions are clear, traceable and can be explained. Maintaining honest and straightforward financial records will offer most taxpayers the ability to survive an audit.

CONSEQUENCES OF NOT FILLING A TAX RETURN - WILL I GO TO JAIL ?

You will have instant IRS Problems if you do not file a tax return. The Tax Code has specific time lines or statutes of limitations set out that allow the IRS to pursue nonfilers.

Criminal: Criminal charges can be brought against you only within six years of the date that the tax return was due.

Civil: There are no deadlines but civil penalties can be imposed. The penalties and interest can be assessed on the taxes you owe forever.

IRS policy: The IRS does not usually pursue a nonfiler after six years from the filing due date.

If you owe taxes and do not file a tax return, it is a crime. You can be fined up to $25,000 per year and/or sentenced to one year in prison for each unfiled year.

If you file your tax return and it states that you owe taxes and do not pay them, there is no criminal penalty. Your unpaid taxes will be assessed penalties and also accrue interest though.

Ways the IRS pursues nonfilers include:

• The Computerized Information Returns Program (IRP). This program matches information documents against tax returns you have filed. If there is no information found indicating that you filed a tax return, the IRS initiates a Taxpayer Delinquency Investigation (TDI). You will receive notices from the IRS, then phone contacts or more letters, and finally a revenue officer might start looking for you.

• The IRS has four different ways to notify nonfilers. If you do not respond to one method, the other methods will be tried. o Written request from the Service Center. You will receive three notices within a 16 week period. o Phone call or letter from a taxpayer service representative. At this time, you will be given a deadline to file your tax returns.o Call or visit from a revenue agent or officer. You will be given a deadline to file your returns with the officer or they will offer to help you prepare your returns. (If you still do not file your returns, the IRS can legally prepare them for you.)o Visit from a special agent. If this happens, it means you are subject to a criminal investigation.