by Eunice | Oct 27, 2022 | European VAT
What to Watch for VAT-registered businesses
VAT is one of the most complicated taxes in the United Kingdom. If a company’s taxable turnover in the previous 12 months exceeds the VAT threshold, it must register and account for VAT. Not just limited firms, but also sole traders (i.e., the self-employed) and members of an ordinary partnership are included.
Because there are so many rules, regulations, and schemes, getting the appropriate advice from companies such as Sterlinx Global is critical. For the time being, what are the most important facts about VAT that small business owners should be aware of?
What is VAT anyways?
The word VAT, or Value Added Tax, is widely known within the European Union to refer to a percentage fee paid by customers when purchasing certain products and services. The UK has a VAT rate of 20% from January 2011. There are certain things to know about VAT for business.
Other countries call the same concept by various names. Australians, for example, have the Australian Goods and Services Tax (GST). We’ll stick to discussing VAT because we give accountancy services to UK firms.
When to charge customers VAT
A tax on consumer spending is known as VAT. It is assessed on products and services that are subject to VAT. When determining if something is subject to VAT, we must consider the following factors: Which rate of VAT should be applied to the transaction if it is subject to VAT? You may apply VAT under the following circumstances;
- If a transaction is: a supply of goods or services; in exchange for some sort of consideration (normally monetary);
- deemed to be made in the UK or the Isle of Man;
- made by a taxable person (a taxable person is an individual, firm, company, or other entity that is or is required to be registered for VAT);
- and undertaken in the course or furtherance of business, it is considered to be within the scope of VAT.
When to claim back VAT
To claim your returns, you must file a VAT return to HMRC every three months. You must also show the VAT you charged your consumers in addition to the VAT you paid. HMRC will require confirmation that you purchased the products and services and charged VAT on the ones you sold to ensure you’re being transparent.
What is VAT charged on?
Goods and services that are sold by VAT-registered businesses are subject to a VAT imposition unless otherwise stated by HMRC. To begin charging VAT for business, you must first register for VAT.
Current VAT rates in the UK (standard rate, reduced rate, zero rates)
There are three rates of VAT imposed by HMRC, and they may vary across different goods and services categories. The current rates of VAT include standard rates, reduced rates, and zero rates that cover specific products.
Standard Rates: Most goods and services are subject to the standard rate.
Reduced Rates: Some goods and services such as children’s car seats and home and energy are subject to 5% VAT.
Zero Rate: Zero-rated goods include goods and services such as most food and children’s clothes.
Flat Rate: You are required to pay a fixed rate of VAT to HMRC and keep the difference between what you charge to customers and what you pay HMRC. Furthermore, you cannot reclaim VAT, except for assets that cost over £2,000
What is exempt from VAT?
Insurance, finance, and credit are examples of exempt goods and services. This list equally includes training and education and fundraising activities by charities. Other exempt services include subscriptions to membership organisations, selling, leasing, and letting of commercial buildings.
However, this exemption can be waived by HMRC in some unique circumstances.
Frequently Asked Questions
When Should I register for VAT?
Businesses in the United Kingdom must register for VAT only if their yearly taxable turnover exceeds the VAT threshold in the previous 12 months or the next 30 days. The present VAT threshold of £85,000.
Do I have to register for VAT as a sole trader?
The answer is yes if your annual turnover exceeds the VAT level. For sole traders or partnerships, there are no particular exclusions from VAT registration. If their yearly sales reach the VAT threshold, sole traders, like limited corporations, must register for VAT. If your yearly turnover is less than the VAT threshold, you are not required to register for VAT, but you may do so voluntarily.
How do I register for VAT?
You can register for VAT via the GOV UK Website whether you are registering voluntarily or due to earnings having breached the threshold.
Conclusion
You must choose the road that you believe is right for you, as with all major decisions. We aim to convey the facts clearly and concisely so that you have the best chance of making the right decision for you and your company.
VAT can be complicated and cumbersome. Join us today at Sterlinx Global to ensure that you don’t have to worry about changing government policies and focus on what you love best, growing your business and servicing your customers.
by Eunice | Oct 23, 2022 | Business
Why Register Your Business
Some entrepreneurs find registering their company troublesome and costly, so they’d rather skip this step and start a business without being legal. However, taking the easy way will have serious repercussions.
For starters, the HM Revenue and Customs (HMRC) will impose a penalty called ‘failure to notify‘. It is a percentage of potential lost revenue (PLR) or the tax amount resulting from not informing the government while doing business. Not only will you be fined, but you’ll also settle the tax due.
Secondly, you cannot open a UK bank account for your business. Having a separate company account is advisable to better monitor cash inflows and outflows.
Lastly, being unregistered makes your business look unprofessional and untrustworthy. Customers will likely be less confident in transacting with you, doubting your company’s legitimacy and reputation.
Minimum Requirements for Establishing a UK Company
Company formation for non-UK residents is straightforward—the government minimized bureaucratic barriers that deter entrepreneurs, especially outside the UK, from venturing into business. The basic requirements are as follows:
Shareholder
If you decide to set up a limited company instead of a sole trader or partnership, you must have at least one shareholder. They should be a natural person and aged over 16.
Director
A company’s director can be the same as its shareholder. Moreover, appointing one is enough. While they don’t need to be based in the UK, their addresses are publicly disclosed.
Registered Office Address
This must be located in the UK since this is where official correspondence from the Companies House and HMRC will be delivered.
How to Set Up Your Company as a Non-UK Resident
Here’s what you need to do when establishing an enterprise in the UK without living or being physically present there.
1. Choose the Right Company Structure
Business structure can be sole trader, partnership, or limited company, each with its pros and cons. But when you’re a non-UK resident, the most effective way to register your business is as a limited company.
Under this business structure, your personal assets are protected against liability during unfortunate events since the company is a separate legal entity. Moreover, you can better manage your taxes by receiving income as dividends if you’re the sole shareholder.
2. Decide on a Name
In choosing a name for your private limited company, there are a few rules to mind:
- It should end with ‘limited’ or ‘Ltd.’ unless exempt;
- It should not include restricted or sensitive words or expressions;
- It must not be offensive or contain words constituting or suggesting offense;
- It must not have certain characters, symbols, signs, and punctuation; and
- It should not be similar to another company’s name.
Check out the more comprehensive guideline for naming your new enterprise. Search the Companies House register to check your proposed name’s availability.
Keep your company name short, easy to spell, and related to your line of business. Consider looking up your competitors’ names to see what works.
3. Prepare the Documents
Before your company can be incorporated, you must have the following documents ready:
Form IN01
This is an application form to register a company in the UK and can be accomplished online or on paper. The form IN01 asks for details about the new enterprise, its shareholders, directors, and officers.
Consider working with a trusted formation company like Sterlinx Global to ensure you’ve correctly accomplished the form.
Memorandum of Association
It is a legal document containing the company name and its subscribers, signed by the initial shareholders agreeing to establish the enterprise and take at least one share.
Following company registration, the memorandum can no longer be revised.
Articles of Association
This document outlines the rules for managing the company as agreed by all shareholders and directors. Consider adopting standard or model articles established under the Companies Act 2006.
4. Register Your UK Company
One of the hurdles in company formation for non-UK residents is how to register their enterprise. You have two options—file it yourself at the Companies House website or seek assistance from a professional.
Of the two, it’s more efficient to consider the latter. Look for an experienced third-party agent like Sterlinx Global to ensure all your bases are covered. Besides ensuring your application is successful, they also offer a virtual UK office address to protect your privacy.
5. Keep Copies of Your Registration Documents
Once registration is complete, you’ll receive a unique company number along with your constitutional documents such as share certificates, memorandum and articles of association, and certificate of incorporation.
If the application was made online, you would have a set of digital copies. Download and save in secure, accessible file storage, but you can also print these.
Banking for Non-UK Business Owners
A significant advantage of establishing a UK company is opening a bank account in the UK. While it isn’t a requirement for doing business, having one allows for faster and smoother processing of transactions. It is also highly recommended to make accounting easier.
Like company formation for non-UK residents, you may want to seek assistance from an agency to simplify the process. They will provide banking support to ensure a seamless experience.
by Eunice | Oct 19, 2022 | E-Commerce
10 Things eBay Accountants Will Tell You About Having an Online Store
Operating a store on an online platform like eBay is an excellent source of income. While it offers perks that come with being an e-commerce business owner, it isn’t all play. Here are ten facts eBay accountants will tell you about running one.
Have an amazing product you want to sell on eBay? Running an online store is a great money-making venture, albeit challenging. Not everyone finds success on this platform, especially if one is ill-prepared for it. Learn the key insights about operating an eBay store to get it off the ground and stay above it.
1. Business License Is Optional in the UK
You don’t have to be registered to operate an e-commerce business in the UK. While you can begin selling immediately to UK-based customers, this isn’t the case in the US. You have to get a business license to operate, along with a seller’s permit or sales tax license.
As the rules apply differently depending on your customer’s geographic location, consult an accountant or Sterlinx Global to avoid costly oversights.
2. It’s Better to Set Up a Company
A business license is optional, but establishing a company for your eBay store offers many advantages. A legal entity like a limited company ensures your business and personal finances are separate. When an enterprise fails, your assets won’t be used to settle outstanding company-related obligations.
Moreover, a company makes it easier to open a business bank account and avail of loans—both can help run your online store more smoothly.
3. You Must Pay Taxes
Even though you don’t need to register your eBay store, you still have to pay taxes or face hefty penalties for non-compliance.
In the UK, you must register your business with the HM Revenue and Customs (HMRC). You should do this within three months of starting your eBay store operations. A ‘failure to notify’ may result in substantial charges.
If your failure to notify wasn’t deliberate, ask a UK accountant to know your next step, including informing HMRC of a reasonable excuse to avoid steep fines.
4. VAT Isn’t the Only Tax You’re Paying
Value-added tax or VAT is added to most goods sold by VAT-registered businesses. Generally, only those with sales of £85,000 annually are required to charge VAT and remit it to HMRC. But even if you fall below the taxable threshold, better register for VAT early on so you won’t have to when your turnover exceeds the cap.
Depending on how you’ve set up your eBay store, you may have to pay the following to HMRC as well:
- Corporation Tax
- Income Tax
- National Insurance
- PAYE
If you’re selling to US customers, you have to pay sales tax instead of VAT in the UK and other EU countries. When you’re unsure of the taxes you need to settle, work with experienced eBay accountants.
5. Timely Filing of Returns Is Important
In addition to knowing the taxes you need to pay as an online seller, keeping track of when these are due is essential. For instance, you must file a VAT return every quarter.
An alternative to quarterly filings is yearly under the VAT Annual Accounting Scheme. You have to submit only one VAT return but subject to certain conditions. The same frequency applies to corporation tax.
Sometimes, the HMRC may ask you to file returns monthly. This happens if you have repeatedly failed to submit on time. Speak to a tax adviser or accountant to determine the right filing frequency for you.
6. Know the Applicable Rules to Your eBay Store
Online selling becomes more complicated when your buyers are outside the UK. You have to know the rules for VAT payments and exportation, especially with the UK out of the EU.
There are duties and restrictions for moving goods outside of the UK, so research what applies to your products and target market. Begin your research with the appropriate government resources, but talk to eBay accountants to ensure compliance.
7. Accurate Recordkeeping Is Vital
Maintaining correct records accurately shows your eBay store’s financial condition. Moreover, it helps with tax management and planning.
It’s best to know the basics of bookkeeping and accounting so you can handle these tasks yourself. At the minimum, note your daily sales, expenses, and cash movement. Avoid delaying doing your books to track transactions better.
Always keep receipts, invoices, bills, and other pertinent documents for at least six years before throwing them out. You’ll have records in case the HMRC conducts a compliance check.
8. Sales Shouldn’t Be Your Only KPI
Total turnover from your eBay store is only one of the many performance indicators you must monitor. You have to monitor the cost of goods sold and expenses to determine if you’re making a profit.
Besides earnings, it’s essential to keep an eye on your cash flows—how much money you have on hand, where funds are tied up, and what needs to be paid. It’s a common misconception that a sale is equivalent to cash—it isn’t, especially when you offer credit or it takes time for customer payments to clear.
9. Create a Budget and Stick with It
Budgeting is important to running an eBay store since you want to know if you’ll have enough funds to keep your business afloat.
Forecast your overhead costs and expenses to estimate your break-even sales without factoring in receivables. Your future turnover should be sufficient to cover these payables. Alternatively, find a way to reduce non-essential spending.
Sometimes, you can reach this target through marketing campaigns—just ensure you won’t overspend for these endeavours.
10. Working with a Professional Simplifies Things
Many bookkeeping and accounting tools are available to help e-commerce business owners with these tasks. In selecting the best software for you, know the features that cater to your needs.
Further, simplify these tasks by hiring eBay accountants since they specialize in handling financial records and reports of online selling businesses. Consult a professional for your accounting needs.
by Eunice | Oct 18, 2022 | UK Updates
For your UK Tax: Keep business and personal expenses separately
There are several strategies that you may use to enhance record-keeping. For example, you should keep your business and private expenses separately and/or use separate bank accounts where possible.
Furthermore, asking for invoices is a common practice that is important for record-keeping and transparency as it enables faster filing of VAT returns and can serve as proof to companies that are suspected of VAT fraud. Furthermore, this can be added to an electronic filing system to ensure that you have access to all your files.
For example, it is important to keep your business and private expenses separately and/or use separate bank accounts. Additional due diligence, such as asking for VAT from your suppliers and double-checking amounts, is useful for businesses and sole traders to ensure accountability and governance on the part of such businesses.
This will prevent you from overpaying taxes or underpaying and risking a fine.
Separate business and personal expenses
Always separate personal purchases from business purchases. If you buy something from a supplier, they should issue an invoice and use these for tax and VAT purposes. This will avoid misreporting and ensuing fines from HMRC.
Remember that any shortfalls in filing your taxes will result in huge fines. This could ultimately impact the functioning of the firm in question and cause a significant short-term loss in profits. Rather than bill customers, you should bill them from the company as this will be accurately reflected in VAT claims or other tax allowances that may result.
Always Ask for VAT invoices from your suppliers
To reclaim VAT, always ask for invoices from your suppliers and ensure they are VAT registered. In line with best practices, you should submit your invoices at the appropriate time to prevent errors in the filing of VAT returns.
A supplier invoice is important as it breaks down the transaction into components that can be easily verifiable during tax payments. It equally ensures that both sides are aware of the cost that went into producing a particular product or service.
Double-check invoices for accuracy
Double-check all invoices to ensure that they are accurate and have all the relevant information. Ensure that all the correct amounts are put in the invoice to avoid any complications that may arise.
Ensure you have a verifiable and transparent record-keeping system
Organise your invoices to easily track them
Always create a separate purchase invoice folder that contains different folders created based on months and years. By separating invoices into separate folders, you will avoid errors and create a transparent and easily discernible filing system.
Ensuring that the folder is designed to properly report all invoices and purchases over the year will ensure that you accurately report your expenses and invoices to customers.
Bill clients upon completion to avoid mistakes
Each time you receive an invoice, be sure to save it right away. By using an automated invoicing system and scheduling your invoices, you will lessen errors and improve transparency across the board.
Such an approach will ensure that your bookkeeper or accountant correctly identifies invoices and checks all the backlogs of events that need clarifications.
Record-keeping versus bookkeeping
Record-keeping is different from bookkeeping. By using a bookkeeper, you will ensure all your ledgers and journals are correctly done. Your responsibility is to ensure that all business transactions are in one place.
As pointed out earlier, it is important to ensure that your files are organised and easily traceable by the accountant and/or bookkeeper.
Share all information with your bookkeeper
Be sure to share all relevant information with your bookkeeper to ensure they prepare your books accurately. This is important for accountants as it is easier for them to prepare yearly accounts and claim back VAT.
Always remember that any bookkeeping records will be reflected in your VAT tax returns. An incomplete declaration will get you into problems with HMRC and the fines could range from 20 to 70% of the owed tax.
Frequently Asked Questions
How long should I keep tax records and bank statements?
To properly report and handle your VAT, keep a record of your tax record as well as bank records for a minimum of three years. You may equally use electronic filing to record information properly.
How to keep paperwork in order
Establish a clear and logical filing system for hard and soft copies to easily retrieve your tax and other VAT information such as invoices. You may equally use a digital and cloud storage system and save each file by month, quarter and year. This will ensure that you always know where to find a particular invoice for a client.
What invoices should I retain?
In line with the U.K. tax system, you should retain all invoices related to your business transactions and expenses.
by Eunice | Oct 10, 2022 | USA Accounting
How Tax Works for Non-U.S. Citizens
As a U.S.-based business or entity, you must comply with specific state legislation on taxes and import duties. Admittedly, foreigners are subject to U.S. tax if they trade or engage in other businesses in the U.S. If your business is not engaged in a trade or business in the U.S (ETOB), you are not liable to income tax.
In this article, we look at the different forms of taxes and income tax that are imposed on non-U.S. directors. You can leverage the resources at Sterlinx Global to better understand how to approach taxation in the U.S and ensure you abide by state regulations.
What Charges do you pay as a non-U.S. Foreign Director?
A company does NOT need to pay Income Tax in the USA if you are not a resident of the USA. If you are a non-resident in the U.S., you are not required to pay income taxes.
However, for Amazon business owners, you must pay a 3% import duty charge through a local shipping agent that acts as your representative.
Standard rates applied across the U.S.
However, there is no standard rate or national sales tax in the U.S. Sales tax varies by state and could range from 2.9% to 7.25% in various states. In addition to the standard rate imposed by the state, an additional tax could equally range from 1 – 5%.
Sales Tax for Amazon Businesses
Regarding sales tax, if you use the Amazon FBA in any state, you are required to register and have an accountant declare your sales taxes in each state and pay these separately. However, this only qualifies as sales tax.
Suppose you opt to sell your products via a fulfilment centre in a particular state that does not require the payment of certain taxes. However, whenever the fulfilment centre ships the products, they will be subject to state sales tax. As such, you will need to pay and declare sales tax.
For example, you may use a fulfilment centre from Delaware, which has no sales tax attached. However, if you ship this product from Delaware to California, the product will be subject to sales tax in California.
Paying VAT in the U.S.
VAT is zero-rated for sellers that are not located in the U.S. However, Amazon will reduce the selling price to the customer to deduct VAT.
U.S. Business Owned by Non-U.S. Business Owner
Income Tax and Import Duties
As a non-U.S. director who sells in the U.S., you are required to pay income tax based on your earnings in the U.S. However, you are subject to import duty rates based on the location of your business.
For example, there is a 4% tax on all imported items for personal or business use in U.S. territories such as Puerto Rico. As such, import duties may vary based on the territories where goods are traded across the U.S.
Sales Tax and VAT
The Sales Tax & VAT will be charged and paid like any US-owners if a business is established in the U.S. However, this may differ from one state to another, so you should rely on expert advice from Sterlinx Global to keep your tax affairs in order.
Frequently Asked Questions About How Tax Works for a Foreign Director Owning a USA LLC for Amazon Business
Who is required to register for sales and use taxes?
Every person or entity engaged in the sale of tangible items at retail or furnishing services must register with the state to obtain a sales tax licence, permit, or certificate. However, what counts as engaging in business may vary from one state to another.
What documents are you required to submit for sales and tax registrations?
Sellers, vendors, and retailers must register in various states by registering with the relevant state tax authority website or filling out the relevant form with the state tax authority. Each state has unique registration requirements and requires different documents for registration.
How often should you submit your tax returns?
Tax returns must be filed annually, semi-annually, quarterly, or monthly depending on the state requirements. Filing frequency is contingent on the sales volume and the amount of tax collected during the period. However, monthly filing is required by most states.
Taxation for non-U.S. directors differs from one state to another
As a non-U.S. foreign director, you are required to pay income tax in the U.S. and the sale of goods and services is liable to a sales tax. However, the requirements may differ from one state to another. Amazon business tax can seem daunting, but Sterlinx Global can help you navigate the complex U.S. tax environment as a seller. For more information on how to prepare for your Amazon Business in the U.S. contact one of our expert advisors at Sterlinx Global.
