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Tax update – week ended 27 August 2010

3rd September 2010

VAT reclaims in time

A married couple opened a pub in County Durham, April 2004. They submitted VAT returns, paying sales tax (VAT) to the government every 3 months. However, they didn’t realise that they could reclaim the VAT on purchases – up until they de-registered for VAT in March 2006.

Somebody pointed out to them that they had lost out on a lot of VAT so in October 2006 the husband tried to reclaim the VAT he could have legitimately reclaimed earlier. HMRC waited a year before rejecting this.

By this time, the husband’s (newly appointed) accountant tried again in March 2008, but by this date the earliest invoices were over three years old. HMRC treated the resubmitted claim in March 2008 as a new claim and rejected a VAT refund for invoices prior to April 2005.

(The reason for this is that, until 1 April 2010 a VAT registered trader could only reclaim on invoices from the 3 previous years. But after that point the law changed and it became 4 years.)

The couple went to Tribunal – who treated the March 2008 claim as a continuation of the October 2006 claim – i.e. they could reclaim all of their VAT.

The judge stated that HMRC had acted ‘wholly unreasonably in acting in this manner’ and that the initial rejection was ‘quite unacceptable and oppressive’.

It is possible to challenge the HMRC view and worth speaking to a firm of accountants if you feel that a decision has been less than fair.

The Dixons (pub owners)

Updated time limits for VAT claims

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National Insurance Maxima

National insurance is an oft-underappreciated tax. An individual has to reach a certain limit (£97/week this year) to make the year qualify for his/her state pension. After this limit has passed, he/she gets no further benefit. In terms of qualifying, Employer’s nic contributions do not count!

If an individual pays nic (Class 1, 2 or 3) throughout the year, he/she tends to qualify for the minimum amount and that year counts towards his/her state pension. The maximum per week for class 1 at the 11% employee’s rate is £844 (this year). Thereafter it is 1%.

Where an individual is both self employed and employed (or has two or more employments) – and pays more than the personal annual maximum figure for the tax year he/she can reclaim the excess. This can be much more that you think – often thousands of pounds.

For Class 1 nic, write a letter to the appropriate group in the NIC Office. For Class 4 NICs complete form CA5610. The good news: you can go back as far as you want (i.e. no time limit like in the VAT case above)

If you expect an overpayment of nic, apply to defer the class 1 nic, (form CA 72A) or classes 2 & 4 NI (form CA 72B). It is not too late to submit either application.

Reclaiming overpaid NICs

HMRC form CA5610

Form CA72A

Form CA72B

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Delays in registering for tax
You need a completed 64-8 form (the green authorisation form) before HMRC will talk to your accountant on your behalf. To do this, your 10-digit UTR (unique taxpayer reference) is needed if you want to do son online (quick – takes around a week)

If you don’t have a UTR (e.g. if you were only employed until now), you must submit a paper form to the Central Agent Authorisation Team (CAAT), and wait up to six weeks!

The newly self-employed need to wait up to 8 weeks for a UTR in the first place due to current delays within HMRC. If the individual is not self-employed (but, say, has started receiving rental income) he/she must complete a paper form SA1 to register for self-assessment.

Online agent authorisation

64-8 delays

Registration online (self-employed)

Form SA1

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“This information is taken from Mark Lee’s weekly practical tax newsletter, published by the Tax Advice Network”