Getting a £200 VAT penalty can be frustrating, especially if you’re not sure how it happened. From January 2023, HMRC introduced a new points-based penalty system for late VAT returns. So now, instead of immediately issuing fines, HMRC gives businesses penalty points when returns are submitted late. But once you collect enough points, you will start to get the £200 penalties. Every time a VAT return is filed late, your business receives one penalty point. There’s no grace period either- even if your return is just one day late, you’ll still get the point! This applies to all returns, including those showing no VAT to pay or even a repayment. The £200 fine only kicks in once you reach a specific threshold. For businesses submitting quarterly returns, the penalty arrives when you reach four points. For monthly returns, it’s five points, and for those using the annual accounting scheme, the penalty is issued once you reach two points.  If you believe there was a genuine reason for filing late, you can appeal the point or penalty. However, HMRC is quite strict about what counts as a reasonable excuse. You can’t just say that your bookkeeper forgot or was too busy! The good news is that penalty points don’t stay on your record forever. If you haven’t reached the penalty threshold, points automatically expire after two years. This happens without you needing to contact HMRC. You can check how many points you currently have by logging into your HMRC online account. The two-year countdown doesn’t start from the VAT period itself, but from the end of the month of the filing deadline. So if a return with a filing deadline of 7 February was submitted late, the point would expire two years after the end of that month, not the VAT period it relates to. If your business reaches the points threshold and receives the £200 penalty, things become stricter. After that, every additional late return will trigger another £200 fine. The only way to clear your points is to achieve what HMRC calls a “period of compliance.” This means submitting all future returns on time for a certain period. You must also make sure all VAT returns from the previous two years have been submitted. If any returns are still outstanding, your penalty points won’t reset even if you meet the compliance period. The new system is designed to encourage businesses to stay on top of their VAT deadlines, but repeated delays will quickly lead to fines! Give Rustrick Accountants a call on 01622 738165 and we can help you stay on top of these deadlines or appeal any penalties you may have received

If your business makes a mix of taxable sales (0%, 5% or 20% VAT) and exempt sales, you’re classed as “partly exempt” for VAT. That means you can’t reclaim VAT on costs that relate directly to your exempt income. But what about general expenses; things like accountancy fees, software, rent, or phone bills? These are usually shared across the business. HMRC calls the VAT on these costs “residual input tax”, and you have to split how much you can claim back. Most businesses do this using the standard method, which basically looks at the split between your taxable and exempt turnover. The higher your taxable sales compared to exempt sales, the more VAT you can recover! Did you know that if the amount of VAT relating to your exempt activity is below certain limits, you can still reclaim all of it?! One thing to remember is that you must do an annual partial exemption adjustment at the end of the VAT year. This final calculation overrides the estimates you made on your monthly or quarterly returns. When using the standard method, you shouldn’t include every type of income in the turnover calculation. Only income from your main trading activities counts. You should exclude things like: Sales of capital assets Bank interest or dividend income that’s just passive investment income Money received from issuing new shares in your company Another example is selling shares in another company. Even though this type of sale is technically VAT-exempt, it isn’t part of what your business normally does. Because of that, HMRC treats it as separate from your main trading activity, so the money from the sale is left out of your partial exemption turnover calculation. However, any professional fees directly linked to the share sale (like legal or advisory costs) usually can’t have their VAT reclaimed, because they relate directly to that exempt transaction. Not sure how to do an annual partial exemption adjustment or want help with the calculations? Just give us a shout on 01622 738165 and Rustrick Accountants can sort it out for you

One big question often comes up when planning a community building: can you save VAT on the construction costs? Unfortunately, the rules are quite strict, and in many cases the answer is no- but there are a few things worth understanding before the project begins! First, if you buy building materials directly from a supplier, such as a builders’ merchant, there’s no VAT relief available; it will be charged at the standard 20% VAT rate. The only time VAT zero-rating might apply is when construction services are provided by a builder, and the materials are included as part of that builder’s work. Zero-rating for construction mainly applies to new dwellings or buildings used for specific charitable purposes. For example, buildings used for residential care or buildings used for a relevant charitable purpose (such as a new place of worship) can qualify. In these situations, builders can apply zero VAT to their construction services, as long as the organisation provides a certificate confirming how the building will be used. A relevant charitable purpose means the building must be used by a charity for non-business or charitable activities. If a charity builds something for a business activity, for example, a shop selling donated goods, the construction work is usually standard-rated for VAT. However, there is a small allowance: if the business use of the building is no more than 5% of the total use, the project can still qualify for zero-rating. This allows charities to run small income-generating activities, like a café or bookshop, without losing the VAT benefit. If your organisation can obtain charitable status from HMRC, it may then qualify for the zero-rating rules, provided the building is used for charitable or non-business activities. Achieving charity recognition can involve meeting several requirements, such as demonstrating a recognised charitable purpose and showing that the organisation benefits the public. You can also consider using a “design and build” contract for the project. When professional services like architecture or design are supplied separately, they are normally standard-rated for VAT. But if they are included within a single design-and-build construction contract, they can sometimes be treated as part of the overall building work and follow the same VAT treatment.  If the building’s use changes within ten years, for example if it’s sold or used for business activities, HMRC may apply a self-supply charge. This could mean that you have to repay some of the VAT savings from the original construction! Thinking of starting a big project and want it to be as tax-efficient as possible? Get in contact today by calling 01622 738165 and we will be happy to help you out

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Hitting the £100,000 income milestone is exciting, but in the UK, it can also trigger one of the harshest tax pitfalls; the £100K tax trap. Without careful planning, income between £100,000 and £125,140 can be effectively taxed at 60%, thanks to the gradual loss of your Personal Allowance! Everyone gets a tax-free Personal Allowance each year, but once your Adjusted Net Income (ANI) exceeds £100,000, HMRC starts withdrawing it. For every £2 you earn above the threshold, £1 of allowance disappears. By £125,140, it’s gone completely. ANI includes salary, bonuses, dividends, rental income, taxable benefits, and pension income, minus certain deductions such as gross pension contributions, Gift Aid donations, and trading losses. These deductions are where the smart planning comes in. Pension contributions are the most powerful tool to reduce ANI. Salary sacrifice strengthens this approach; your employer should pay into your pension instead of giving you salary, reducing taxable income and both employee and employer National Insurance contributions. You can also use unused pension allowances from the previous three tax years for one-off large contributions. Gift Aid can also reduce ANI. HMRC grosses up donations (e.g., a £12,000 donation counts as £15,000 for tax purposes), which may restore your Personal Allowance and extend the basic rate band. So how do you beat the trap? You need a structured approach; Project your total income for the year. Calculate ANI and see how far over £100,000 it is. Use pensions, salary sacrifice, and Gift Aid to bring ANI down. Review and adjust annually. The £100K tax trap can hit unexpectedly from bonuses, dividends, or profit shares, but it’s manageable. Pension contributions remain the most effective way to restore lost allowances and reduce tax. With careful planning, you can protect your income, make full use of reliefs, and keep more of what you earn. Give Rustrick Accountants a call on 01622 738165 today and we will start planning for you, so all you have to do is enjoy the benefits

Big changes are coming for employers reporting benefits in kind. Right now, you can choose to either payroll benefits through PAYE or report them on a P11D at the end of the tax year. From 6 April 2027, payrolling will become mandatory for most benefits, and this is going to impact how you run payroll. Under the current system, if you use a P11D, HMRC adjusts employees’ PAYE codes to collect the tax due, including an estimate of the benefit value for future years. From 2027, the cash equivalent of benefits will instead be treated like extra salary, spread out in installments across the year. Employees won’t pay Class 1 National Insurance on these benefits, just income tax, which may be preferable for them because their tax will be calculated accurately and in real time. For employers, there are some practical considerations. The good news: you won’t need to process P11Ds anymore. The downside: Class 1A National Insurance will be payable via payroll in real time instead of at the end of the year. For the first year of implementation (2027/28), you’ll need to pay Class 1A NI for both 2026/27 and 2027/28, so cash flow planning is important! You’ll need systems in place to calculate benefits as they occur, including adjustments for things like company car changes or employees joining or leaving during the year. Give Rustrick Accountants a call on 01622 738165 and we will make sure you are fully prepared for this change

VAT is supposed to be simple. We all know, it often isn’t! A recent case raised an interesting question: can you reclaim VAT on the costs of running a free seminar? HMRC argued that the VAT couldn’t be reclaimed because the seminar was free. Their logic was that since there was no payment from attendees, there was no VAT-able supply of goods or services. No VAT-able supply, they said, means no input tax to reclaim. But things aren’t quite that straightforward! HMRC guidance often suggests that input tax must relate to the specific business you normally carry on. However, the legislation actually says VAT can be treated as input tax if it relates to purchases intended for use in any business activity you carry on, or plan to carry on. Of course, there are some common situations where VAT can’t be recovered. These include purchases linked to exempt supplies like most business entertainment, certain second-hand goods schemes, cars available for private use, or items bought for non-business purposes.  This is where the “direct link” test comes in. Courts have confirmed that for VAT to be recoverable, there must be a clear, direct, and immediate link between the cost and a VAT-able business activity. At first glance, a free seminar might not seem to meet that test. But if the real purpose of the seminar was marketing and promoting the business, then the link is still there. It’s effectively an advertising expense! So, even if a purchase isn’t directly tied to a VAT-able sale, you may still recover the VAT if there’s a clear connection to your business activities! Still a bit confused or want some help with a specific situation you are in? Give Rustrick Accountants a call on 01622 738165 and we can answer and advise you today!

Heads up if you’re a sole trader or property business owner with a combined gross income over £50,000 in 2024/25; HMRC is rolling out letters about Making Tax Digital for Income Tax (MTD IT), and you could be affected from April 2026.  The letters are being sent in batches. If you submitted your 2024/25 tax return between 1 September and 30 November 2025, your letter should already be on its way. Returns submitted after 1 December 2025 will receive letters in March 2026, meaning if you submitted late, you might get notice just as the MTD IT deadline is approaching. If you’re one of the 1 million taxpayers who hasn’t yet submitted your 2024/25 tax return, you may not get a prompt from HMRC at all. And if your accountant files your returns, they won’t necessarily get a separate letter either. Don’t wait for the letter. If you meet the income threshold, sign up for MTD IT now to avoid last-minute stress and ensure you’re compliant by April 2026! Need help? Call 01622 738165 and the friendly Rustrick Accountants team will help you out

Investing in a company that fails is never fun, especially when your shares are now basically worth nothing and nobody’s willing to buy them! But the good news is you don’t have to sell your shares to get some tax relief on your bad investment! If your shares have become negligible in value, HMRC allows you to make a “negligible value claim”. This means you can treat the shares as if you sold them and immediately re-acquired them, crystallising a capital loss even though you still own the shares. You can make this claim on your self-assessment tax return or by writing directly to HMRC. There’s even a published list of eligible quoted shares to check if yours qualify! Timing your claim can make a real difference. You can choose the tax year in which the capital loss is recognised. For instance, if your shares became worthless a few years ago, you could claim the loss now or wait until the next tax year. Watch out though, if the company is dissolved, the shares no longer exist, so a negligible value claim isn’t possible. You can also backdate your claim. If your shares were worthless in earlier tax years, you can treat it as a loss up to two years prior to the tax year in which you make the claim. This can be particularly valuable if you had capital gains in those earlier years. If the shares were unquoted (purchased directly from the company) and the company qualified as a trading company, the rules get even better. In this case, the loss can be offset against income instead of just capital gains. Since income tax rates are generally higher than capital gains rates, this could mean an even bigger refund. Once claimed, the loss can be applied to the current tax year or the previous one.  Have you got a dead investment that you want to turn into a refund today? Give Rustrick Accountants a call on 01622 738165 and we can help you out!