Tax Point of a Transaction for VAT
Q: I have recently registered for VAT and I am getting slightly confused regarding when my supplies and purchases take place in regards to VAT quarters. Could you please explain to me when a transaction takes place for VAT purposes?
A: The date when a transaction takes place for VAT is called its tax point. It is not always the date the supply is actually made. It is vital that you apply the correct tax point to a transaction to ensure that the VAT is declared on the right VAT return and at the correct rate.
The basic tax point is the date at which the goods are made available to the client (or for services the date they are performed). If a VAT invoice is issued before this date, the date of the invoice becomes the tax point. Similarly, if payment is received before the goods are supplied/ work is done, then the date of payment becomes the tax point.
The date a VAT invoice is issued will also become the tax point if it is issued between 1 to 14 days after the supply takes place. If an invoice is issued 15 days or more after, then the date of supply remains the tax point.
It is possible to raise a pro-forma invoice for goods which you have not yet supplied or received payment for. A pro-forma invoice is not a VAT invoice, but it does enable the business to raise a sales document. No VAT is due on this document and it must be clearly display a message such as 'This is not a VAT invoice'
Share Transfer Procedure
Q: I am a shareholder and director of a close limited company. There are four shareholders, each owning a 25% share in the company. One of the shareholders wishes to pursue other ventures and wishes to transfer his share holding equally among the remaining 3 shareholders. Could you please explain the process and any tax implications?
A: The first thing you must do is check the company's articles of association to ensure that a share transfer of this type is allowed. When Table A model articles have been adopted, share transfers are permitted.
An ordinary resolution must be passed by the board of directors either at a general meeting or by written resolution.
The stock transfer form J10 should be filled in and sent to HM Revenue & Customs for 'stamping' if the consideration for the transferred shares is over £1,000. If the consideration is over £1,000 stamp duty will be payable to HM Revenue & Customs at a rate of 0.5%.
A share certificate should be issued to the new shareholder(s) stating the company name, location of registered office, company registration number, shareholders name, share holding details and signatures.
The company's internal books and registers should be updated and Companies House must be informed of the transfer on the next annual return.
Loans from directors
Q: I am a director and owner of a limited company that I have loaned money to. Can I charge the company interest on this loan?
A: The short answer is yes you can. The interest charge in the company accounts will be an allowable expense for Corporation Tax purposes. However this does mean that the interest received by you will be subject to income tax.
When companies pay interest to an individual they must deduct basic rate tax at 20% in the same way that a bank deducts tax on the interest it pays to savers. The company must also complete form CT61 every quarter to record the interest paid and tax deducted. This form must be submitted to HM Revenue & Customs along with payment of the tax deducted. For example, if a company makes an interest payment of £100 then the director will physically receive £80 and the company will pay the remaining £20 to HM Revenue & Customs. If you are a lower rate tax payer then there will be no further tax on this interest, however there will be additional tax to pay when you complete your tax return if your income is in the higher brackets.
TaxAssist in Grantham specialises in managing tax and accountancy affairs for small business owners and can be contacted by phone or email
Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.