Tax Questions and Answers
I am VAT registered and account for VAT on my sales when I raise an invoice. I have just found out one of my customers is going out of business and I don’t think I will get paid. How can I reclaim the sales VAT I have already paid to HMRC?
It is possible to reclaim sales VAT through a mechanism known as bad debt relief. To qualify for bad debt relief you have to meet the following conditions.
• The VAT has already been paid to HMRC. If you operate the cash accounting basis then sales VAT is only accounted for when you receive money from customers. Accordingly, businesses using cash accounting will never be eligible for bad debt relief.
• The debt must not have been assigned to anyone else, such as a factoring company.
• You must write off the debt as bad in your accounting records. This provides evidence that you believe you will no longer receive the amount due.
• The sales price must not be more than the usual price for the goods or services supplied.
• The debt must be at least 6 months overdue. This 6-month period runs from either the invoice due date or the date the good or services were supplied, whichever was later.
The amount you can claim is the sales VAT on the unpaid invoices. Where your sales are all standard-rated for VAT then this will simply be one sixth of the balance written off. Where your sales have a mixture of VAT rates applied to them, you will need to check the actual VAT amounts on the invoices that you are writing off. If you later receive a payment from a customer for whom you have claimed bad debt relief, you will need to account for VAT on the amount received in a similar fashion.
There is a matching provision when a business fails to pay its suppliers within 6 months. For this the only criteria are that the payment is 6 months overdue and that the input tax has been claimed on a VAT return. Any input VAT on unpaid purchases meeting these criteria will need to be reversed on the next VAT return.
I am not currently working and am worried that my National Insurance record for the State Pension will have gaps in it. Is there any way of getting credits to keep my record up to date?
To get the UK State Pension you need qualifying years based on your National Insurance record. You need a minimum of 10 qualifying years to get any State Pension at all, and you will need 35 qualifying years to get the full State Pension. Qualifying years are usually obtained through paying National Insurance from working, either in employment or as a self-employed individual. If you are unsure of your current position, then you can get a State Pension forecast online. (gov.uk/check-state-pension)
However, there are several ways of getting automatic credits for National Insurance purposes even when you are not working. The following will automatically qualify for credits.
• You are looking for work and receiving Jobseeker’s Allowance
• You receive Universal Credit
• You are ill or disabled and receiving Employment and Support Allowance, Unemployability Supplement or Unemployability Allowance
• You are a parent registered for Child Benefit, even if you have elected not to receive any actual payment
• You are a carer who is either receiving Carer’s Allowance or receiving Income Support and providing regular and substantial care.
• You are over 18 and have been sent on a government-approved training course lasting up to a year by Jobcentre Plus
There are several other situations where you may be able to apply for National Insurance credits. Details of these, along with how and where to apply, can be found here. (tinyurl.com/NICredits)
If you do not qualify for National Insurance credits, you can make voluntary payments to keep your record up to date. (tinyurl.com/VoluntaryNI).
I am approaching State Pension age but I plan to continue working. Will I still need to pay National Insurance Contributions?
If you continue in employment after State Pension age you will no longer have to pay National Insurance Contributions. If you are self-employed then the flat rate Class 2 National Insurance Contributions will also cease immediately. Self-employed people will still pay the profit-based Class 4 National Insurance Contributions in the tax year they reach State Pension age, but these will also cease in the subsequent years.
Employed individuals will need to present their employer with proof of age, such as a birth certificate or passport. If you do not wish to show these documents to your employer, you can apply to HMRC for a letter confirming the position. You will need to write to them explaining why you do not want your employer to see these documents. The address to write to is
National Insurance and Contributions and Employers Office HM Revenue and Customs BX9 1AN
• These articles are for information only. If you need help with this or any other accounting or tax matters, please contact Steve Brown on [email protected]
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