by Jay Redman | Oct 5, 2021 | UK Updates
TITLE: UK Financial Institution Report: Three Major Things UK Financial Institutions have to Report
In the last year, UK banks have had to contemplate the economic impact of COVID-19 and various challenges stemming from Brexit. Regulatory reform, regulatory investigations, the cocktail of low-interest rates and high capital requirements have not positively impacted the UK companies.
After the 2008 Great Financial Crisis, a range of domestic and global norms were put into place to ensure that banks have sufficient capital to pay their short-term debt and cover their debt obligations over the long run.
There are several types of financial institutions, but this article will look at three things that banks have to report.
Despite leaving the EU, UK policymakers intend to make the United Kingdom an attractive destination for capital and investment. This means it must equally ensure its financial sector is safe using a range of metrics that will be analyzed in this article.
Within these metrics, we look at key items that UK banks must disclose to regulators, such as illiquid assets, debt holdings, and income-generating activity.
What are some UK Financial Institutions?
The United Kingdom has two main regulators, which are the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).
They are responsible for the soundness of the UK financial system, especially the banking sector, which is one of the largest contributors to the UK GDP.
The Financial Services and Markets Act gives these organizations the right to police institutions and ensure they do not pose a risk to the financial system.
Similarly, these sets of laws require banks to comply with the prudential regulatory Authority Handbook (PRA), the FCA handbook, and various other legislative requirements necessary for UK banks.
Capital Conservation Buffer
The capital conservation buffer is designed to ensure that banks are not the only solvent but that their capital is equally protected during a downturn.
During the 2008 Great Financial Crisis, the government across Europe and North America had to bail out banks. In order to avert such an outcome, all banks must have a capital conservation buffer, which protects their assets during a downturn and ensures they have sufficient capital.
The Capital Conservation Buffer requires banks and financial institutions to disclose the incomes, trading activity, and assets held across bonds, equities, commodities, real estate, and other derivatives. Strict reporting entails reporting on aspects of their balance sheets.
Liquidity Coverage Ratio
The liquidity coverage ratio, or LCR for short, refers to the amount of highly liquid assets held by a bank or financial institution.
It ensures that they have the ability to meet their short-term debts, and this ratio is used for generic stress testing to ensure that banks are resilient to unanticipated market-wide shocks.
This disclosure was put in place by the BASEL committee, ensuring that banks have the necessary capital to fund their payments or debts for over 30 days.
The liquidity coverage ratio can be seen as a buffer that protects banks and other financial institutions from undue stress.
Countercyclical Buffer
The countercyclical buffer is used by the Financial Policy Committee at the Bank of England (BoE) as a tool to adjust the resilience of the banking system to shocks.
In order to achieve this, commercial banks and financial institutions must disclose aspects of their balance sheets and income statements, such as the amounts of cash reserves they hold, the number of liquid investments they make, and their total debts at any given period.
The countercyclical buffer is necessary because it enables banks to cushion shocks or any losses they may incur during a downturn. It equally enhances the overall resilience and viability of the banking system in the UK.
In order to achieve this, the FPC identifies and monitors risks that are visible on banks’ balance sheets by either raising or reducing their capital requirements.
This approach equally reduces systemic risks within the financial system and enables effective monitoring of both debts, capital, and credit markets.
Laws governing financial sector disclosure
In 2020, for example, they tabled a proposal to reduce the requirements for small and large banks in order to stimulate credit to the financial sector. Although smaller banks are affected by higher capital requirements, it has an implication for their ability to give credit to the real economy.
For all the above reporting requirements, the Prudential Regulatory Authority collects real-time information on illiquid assets and one-way positions, which are usually used in the process of stress testing banks’ resilience to external or nationwide shocks.
Such information may be used, for example, to ascertain the capital adequacy of a bank or financial institution’s capital as required by Pillar 2.
Pillar II states that banks must submit information on market risk unless such data has already been submitted as part of the Standard Stress testing Programme.
It is important that disclosure of assets, income, and revenue-generating activity may all be part of the stress tests.
The reason for this is that regulators have to operate on supervisory judgment and a raft of information may be needed from banks to ensure they comply with banking standards and regulations.
Frequently Asked Questions
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What are high-level assets?
For an asset to be considered high-quality and liquid, it must pass a number of criteria. Specifically, it should be easily convertible to cash regardless of whether this is a level 1 asset, 2A, or 2B.
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What are high-level assets?
For an asset to be considered high-quality and liquid, it must pass a number of criteria. Specifically, it should be easily convertible to cash regardless of whether this is a level 1 asset, 2A, or 2B.
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Why was ringfencing implemented?
Ringfencing is u
by Jay Redman | Sep 30, 2021 | US Updates
Declaring Foreign Bank Accounts to HMRC: What income should you consider worth declaring to HMRC
If you are a citizen or foreigner that earns income in the United Kingdom (U.K.), you are required by law to disclose such income to HMRC. It is important to disclose this to avoid paying huge fines. In the event that you work in another country but reside in the U.K. either part-time or permanently, you are required to disclose your income to Her Majesty Revenues and Customs (HMRC).
In doing so, you will ensure that you pay the right amount of taxes and avoid any surprises on your tax bill or legal battles, which could be brought against you as a result.
In this article, we are going to look at the types of income you should declare to HMRC and when you ought to do so. We will equally include helpful links to enable you to make the right type of self-assessment and pay your dues to HMRC.
As a UK citizen or a foreigner, you may earn income from activities you carry out in the UK, UK businesses, or maybe selling goods and services to UK consumers.
As a result, you must declare your income to HMRC, but there is much confusion surrounding what types of income you should declare. There are notable differences between individuals or workers working for a company and registered automatically and those working for themselves.
Declaring income for full-time employees
If you are a full-time employee, you are automatically registered for National Insurance contributions, and your taxes are deducted by your company.
This is the most straightforward way to pay your income tax and disclose any income you may have in the UK. According to HMRC, the income tax you pay is based on your income. This means that people in different income brackets pay different taxes.
You have a personal allowance of up to £12,570, which means you pay 0% if you only earn £12,570 or less. If you earn between £12,571 – £50,270, you are required to pay 20% of your earnings.
Workers or employees who earn between £50,271 – £150,000, are required to pay 40%, while people earning over 150,000 pay 45% of their incomes.
Declaring incomes from investments
When you make investments in the UK, you are not automatically required to register your investments or disclose your earnings to HMRC.
For example, if you are a U.S. national who invests in a listed UK company, you will be required to pay taxes on the earnings from your investments in the U.S. and not in the UK. If you are a UK national or partly reside in the UK, you are obliged by HMRC to disclose the earnings from your investment.
All incomes earned from investment activity such as dividends from equities, bonds, commodities, currencies, or cryptocurrencies must be disclosed to HMRC.
Declaring income earned from gambling
If you earn income from gambling in any way, you are required to disclose this to HMRC, or you may be fined for failing to disclose such earnings. This is considered other income by HMRC, and it is not taxed similarly to dividends.
Disclosing income earned from inheritance
If you received an inheritance in the form of property or assets of any kind, you might begin making a regular income from this. HMRC requires that individuals disclose such income for them to be effectively taxed.
At first, the inheritance tax and subsequent tax could seem punitive, but individuals who own such investments or assets equally benefit from a tax allowance.
Disclosing income for self-employed people
As a self-employed person, you are required, by HMRC, to pay taxes as well as National Insurance on the income you earn. It is important to stay on top of all your records to decipher what you owe and need to pay.
This is not always straightforward as you could be employed in a job while working as a freelancer on another project. In such cases, HMRC will be taxing your second income at a slightly higher rate than your first income.
Declaring Foreign Bank Accounts: When should you register with HMRC?
You should register with HMRC by October 5th once the tax year ends. This should happen in the year when you become self-employed. For example, if you started working for yourself in June 2020, you are required to register with HMRC by 5th October 2021.
Remember that the tax year runs from April 5th to 6th April the following year. If you do not register on time, you may pay the penalty.
Frequently Asked Questions
How to Measure What to Pay HMRC as a Freelancer
The first step is for you to visit the HMRC website and use the tool that enables you to determine your status based on several questions. You can access this tool here and ensure you answer the questions correctly.
Do Self-employed individuals have a tax allowance?
If you are self-employed, you can benefit from the same tax allowance as someone who is employed in a regular 9-5 job. According to HMRC, the personal tax allowance is estimated at £12, 500 and this amount falls by £1 for every £2 over the £100,000 limit.
What if I am only residing in the UK for a few months a year?
If you reside in the UK only for a few days or months in the year, you will be required to use the split rule to determine what portion of your income will be paid in the UK. However, if you pay taxes in another country, you must notify HMRC.
Conclusion
If you are a UK citizen or live temporarily in the UK, you must disclose your earnings and incomes to HMRC, regardless of the source. This will ensure that you pay the right amount of tax, benefit from the right allowances and avoid paying huge fines.
If you need professional help to handle your taxes, check out Sterlinx Global.
by Jay Redman | Sep 25, 2021 | European VAT
TITLE: VAT Sales vs. Non-VAT Sales: How to Account for Them Separately
What is Value-Added Tax (VAT)?
A value-added tax is a consumption tax that is imposed on a good or service whenever value is added at each stage of the production process until the final product is sold. VAT is collected by the seller or business when the good is sold and then paid to Her Majesty’s Revenue and Customs (HMRC).
However, some products such as children’s clothes are exempt from the 20% VAT tax rate, while some institutions such as charities pay reduced rates for electricity consumption and other items. As a result of this, businesses can make two types of sales, namely VAT sales, and non-VAT sales.
What are VAT sales?
VAT is a business tax that is charged on goods and services and imposed by HMRC. All businesses that currently have an annual VAT turnover of over £85,000 are required to pay VAT to HMRC.
It is an indirect tax that businesses are required to collect on behalf of the government or they risk paying huge fines. While businesses charge VAT at 20%, they equally pay VAT on goods and services that are consumed by their business.
For example, as an E-commerce business selling on Amazon, you may pay VAT on the packaging or branded logos, while the goods you sell on the platform equally have a VAT tax worth 20% of the product consumed.
To fully comply with HMRC requirements, the seller must separately state VAT and include a registration number in all invoices. However, in most jurisdictions, VAT is included in the final price.
What are non-VAT sales?
According to HMRC, some goods are considered zero-rated, which means that you may still tax VAT to consumers, but the HMRC requires this rate to be zero.
As a business in the UK, you are still required to record zero-rated products in your accounts, and you must equally report them on the company’s VAT return.
Examples of zero-rated goods include books and newspapers, children’s clothes and shoes, and motorcycle helmets. Additionally, most goods exported from the UK to other foreign countries are exempt from VAT. This is designed to support exports and keep a favorable current account.
How do you account for VAT sales and non-VAT sales separately?
When a company or business entity is purchasing a good or service from you or your company, you are required to charge VAT.
However, in the case where you are selling to a charity or items such as aids for disabled people or advertising and items for the collection of donations, you can include this in your invoice and report it as a zero-rated item.
The most credible way of reporting for both VAT sales and non-VAT sales separately is by simply including it in your invoice.
Things to do when charging VAT on your sales
It is important to know the correct VAT rate for you to charge it correctly to your consumers and equally reclaim the VAT you pay on your purchases. Regardless of whether a transaction is charged at the standard rate, the reduced rate, or the zero rate, you must ensure you do the following.
Firstly, ensure you charge the right VAT rate on all the goods and services solely by your company.
If you’re a fashion E-commerce business that sells children’s clothes and apparel to consumers across the UK, you must remember to charge the reduced rate in order to fully comply with the HMRC guidelines.
VAT-inclusive Prices
If a single price is shown that includes or excludes VAT, you are required to work out the VAT according to HMRC guidelines.
For you to correctly work out the price, including the standard VAT, multiply the price and exclude the VAT by 1.2%. Multiply the price by excluding the VAT by 1.05% to correctly determine the price of items that are sold at reduced rates.
VAT-exclusive Prices
To work out how to exclude VAT from a sale, divide the price of the good or service by 1.2%. For reduced-VAT items such as children’s clothes, you are required to divide the price, including VAT, by 1.05. This will ensure you charge the right amount of VAT.
Frequently Asked Questions
What about VAT exceptions for gift and link savers?
You are not required to charge VAT on gifts given to the same person if the 12-month value is less than £50. Similarly, you are not required to pay VAT on things such as free samples, provided they meet certain conditions.
How do I charge VAT to charities?
You are not required to charge VAT to charities as a VAT-registered business. However, it is your responsibility to check if a charity is eligible before disclosing any sale as a zero-rated purchase.
Should I include VAT on my invoice?
It is important to always include VAT on your invoice as a business. This will ensure you disclose the right amount of VAT charged to HMRC as evidence and get the correct VAT return on goods and services that you buy from individuals or companies.
Conclusion
As a business in the UK, you are required to charge and disclose the amount of VAT you collect from your customers to HMRC. Whether you are selling VAT-rated goods or zero-rated products, it is essential to maintain accurate records and include VAT information on all invoices to ensure full compliance with HMRC regulations.
by Jay Redman | Sep 20, 2021 | European VAT
TITLE: Charity Tax: Do Charities Pay VAT? 5 Myths About Donations
COVID-19 caused the number of charity donations in the United Kingdom (UK) to rise quickly, and some people want to donate but wonder if charities are exempt from charity VAT.
The number of charity donations rose between January and June 2020 to £5.4 billion in the UK. When compared to the same period in 2019, charity donations rose by £800 million. This is a staggering sum considering COVID-19 caused lockdowns and people to stay at home.
There are a number of reasons why people want to give to charity. Sometimes, people donate part of their estate or income to support a cause or a museum they regularly visit, such as the Victoria and Albert Museum.
However, others might give a charity donation to cancer research or charities responsible for Homelessness, such as “Center Point” or the Salvations’ army.
Regardless of why you or your organization want to donate, some people have reservations that their donations might be getting taxed. But it’s not straightforward.
In this article, we look at some of the common misconceptions regarding charities, charity VAT, and VAT payments. This will ensure that you are equipped to plan any donations you envisage and properly understand the tax implications of your gift to a charity.
Also, check out Sterlinx Global if you need professional help with your VAT.
What is a Charity Donation?
A charitable donation can be defined as a gift in cash or property that is made to a not-for-profit organization in order to help them achieve its goals and objectives. The donor does not get anything in return from such a gift.
However, charitable donations that are made to individuals are not tax-deductible as they are not registered with Her Majesty’s Revenues and Customs (HMRC).
In the UK, if you give £1, it will only cost you 80 cents as HMRC allows you to the remaining 20 percent from your personal income allowance.
There are some common misconceptions about VAT payments for charities and what activities are taxable by HMRC. Below are five myths about charity donations, VAT payments, and deductibles from personal income tax allowance.
Myth 1: Charity donations to individuals are tax-deductible
There are cases when you may want to give to an individual due to reasons you and them care about. It is important to remember that such gifts are not tax-deductible as the individual is not registered with HMRC as a charity.
As a result, any donations or physical gifts cannot be deducted from your income tax bill. It is preferable to donate to an institution registered with HMRC as a charity to ensure that you enjoy the tax allowances and other benefits associated with charitable donations.
Myth 2: You can claim tax relief on UK charity donations even if you are a foreigner
If you donate to a UK charity and live in another country, you cannot claim any tax relief in the UK. The reason for this is straightforward. If you are not registered as a UK taxpayer with HMRC, they cannot make any deductions to your income.
Is it important to be registered with HMRC to claim back taxes on charity donations? Register for a personal tax account here if you want to make a charitable donation to a UK charity. This will ensure that you pay less tax to HMRC upon donating to charity.
Myth 3: Charities do not need to register for charity VAT
This is a misconception amongst some people. All UK charities must register for VAT with HMRC if their taxable turnover or sales is more than £85,000.
After registering for a VAT account, charities are required to send a VAT return every three months. Some charities equally sign-up for VAT to claim back VAT on their supplies even if their taxable turnover is below the £85,000 threshold.
Myth 4: You cannot reclaim VAT on charitable activities outside the UK
If you are a charity that has activities or supplies goods and products outside the UK, you can disclose this to HMRC as a zero-rated business activity. For such activities, you will pay 0% VAT and HMRC allows you to reclaim back any associated costs.
For example, charities such as US AID with activities across Asia and Africa can reclaim back VAT on the cost associated with getting food supplies or other items to think tanks and individuals in these countries.
Myth 5: Charity donations are not different for married couples
If you are a couple, your tax allowance on your income may increase if your donations are made through Gift Aid and claiming a married couple’s allowance.
To benefit from this, you and your spouse must fill out a Self-Assessment form and HMRC will use this to adjust any married couples’ allowance automatically.
In the UK, there are plenty of incentives to give as a married couple as you can deduct this from your personal allowance and equally benefit from higher savings on investments if you are giving the proceeds of dividends from equity, bonds, or commodities.
Frequently Asked Questions
What is outside the scope of VAT for charities?
HMRC does not require you to pay VAT on any income made from business activities. For example, if you are a charity that sends people on the streets to ask for donations, all these donations will not be taxed by HMRC.
Can Charities Charge VAT?
Charities can charge VAT on sales of goods such as T-shirts, tote bags, or tickets. These business activities are not considered by HMRC to be zero-rated. This is considered a business activity, and so HMRC requires such charities to charge VAT.
Can Charities get VAT relief for their purchases?
Charities can get reduced VAT for some purchases but they are required to pay VAT on all standard-rated goods and services in the UK. Charities pay 5% of fuel and electricity if they are used for charitable activities such as home shelters.
by Jay Redman | Aug 9, 2021 | European VAT
TITLE: How To Register For VAT: 7 Super Tips on How to Register for VAT
If you’re a business buying or selling in the United Kingdom, you have likely paid or received VAT (Value Added Tax). This is a tax that is levied on most products and services sold in the United Kingdom. Unless you’ve registered with HMRC to do so, you don’t charge VAT to your consumers when you make sales. As a business, you may be required to register for VAT by HMRC for any number of reasons and you may equally do this for due diligence. In this article, we will look at how to register for VAT and seven tips to remember during and after the process of registering for your VAT number.
As an entrepreneur or business, it is important to have all the necessary information to make the right decision about tax compliance. This article is useful for businesses and entrepreneurs that are looking for a fool-proof way to think about their taxes.
How to Register for VAT
Most enterprises, including partnerships and groups of corporations filing under one VAT number, can register online.
You’ll be able to register for VAT and create a VAT online account (also known as a “Government Gateway account”) by doing so. This is required to submit VAT returns to Her Majesty’s Revenue and Customs (HMRC).
Using an Agent
You can hire an accountant (or agent) to handle your VAT returns and dealings with HMRC. You can sign up for a VAT online account (choose option ‘VAT submit returns’) once you have your VAT number from HMRC.
When you Cannot Register Online
You are required to apply for VAT via post if:
- You are looking to apply for what is called a “registration exception”
- You are set to join the flat rate scheme in the agriculture sector
- You are registering separate business units of a corporate body under separate VAT numbers. For example, if your umbrella company sells both hardware and software to customers.
Getting your Certificate
After applying, your VAT registration certificate should arrive within 30 working days, but it may take longer. It will be sent to your VAT online account, which you may access from anywhere, or by mail if you’re registered using an agent or can’t register online.
Seven Super Tips for VAT Application
1. Only Apply if Required
If your yearly taxable sales exceed £85,000, or if they are expected to exceed that threshold in the next 30 days, you must register for a VAT number. This is referred to as mandatory registration.
You may want to register before you meet the criteria in some circumstances. This is known as voluntary registration, and it can benefit your cash flow by allowing your company to receive input VAT back on its expenses.
2) What is the Quickest way to Apply for VAT?
The majority of people do their VAT registration online. If HMRC approves your registration application, they will issue you a certificate that includes your company’s unique VAT reference number.
3) Reclaim some of the VAT you’re Charged on Goods and Services
Your company will also be entitled to reclaim a portion of the VAT charged by its suppliers.
Keep in mind that you won’t be able to reclaim VAT on some purchases, such as entertaining anyone other than employees. Input VAT refers to VAT that can be reclaimed.
4) Managing the Transition
When you request to be registered for VAT as of a given date, there will almost always be a gap between that date you applied and the delivery of your certificate and VAT registration number.
You’ll have to charge output VAT on any sales made after your registration date, but you won’t be able to issue official VAT invoices until your VAT registration number comes.
5) HMRC will ask you for Access Codes
Businesses and organizations that utilize HMRC services will soon be asked to sign in using an access code.
If you have not yet received access codes, you can learn more about the upcoming changes. Your Government Gateway user ID and password should not be shared with anyone else.
6) Remember that VAT Flat Rate Scheme
The difference between the VAT a business charges customers and the VAT a business pays on its purchases is usually the amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC).
7) Reclaim VAT on items that cost more than 2,000 pounds.
The flat rate scheme allows you to pay a fixed VAT rate to HMRC and you can only reclaim VAT on certain capital assets over £2000. For start-ups this means that laptops and office equipment could be exempt from tax even if this might not be explicitly stated in the budget.
Frequently Asked Questions
Where Can I get more information about the VAT Flat rate?
If you want to get advice on whether or not you may be suitable for a flat rate, be sure to talk to an accountant or tax advisor. Remember that to join the scheme, your VAT turnover must be £150,000 or less, excluding VAT.
What information does HMRC need for my VAT application
New enterprises that have not yet filed a tax return must provide HMRC with the names and addresses of all directors and shareholders. As a new corporation, you must explain why you feel your company is based in the United Kingdom.
How can I register by post?
If you need to register by post, you can contact HMRC directly for the application forms and instructions required for postal VAT registration.
