News

Reduced frequency of tax returns and payments.

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Revenue have advised that the reductions in the frequency of PAYE/PRSI and VAT tax returns and payments for smaller businesses will again be extended to eligible businesses from 1 January 2011. Similar arrangements in respect of RCT will also become available from that date. The good news is that there is no need for you to take any action if you qualify as Revenue will notify you shortly if you are eligible. You will receive a letter confirming that the reduced payment and filing frequency is being applied to you.

A business will qualify for the reduced frequency for the filing of returns in the following circumstances:-

 VAT

  • 6 month filing will apply where total annual VAT return payments are less than €3,000.
  • 4 monthly filing will apply where the total annual payments for VAT are between  €3,000 and €14,400.

PAYE/PRSI

  • 4 monthly filing of PAYE/PRSI returns will apply where total annual payments are between €3,000 and €14,400
  • 3 monthly filing of PAYE/PRSI returns will apply where total annual PAYR/PRSI payments do not exceed €28,000.

 RCT

  • 3 monthly filing will apply where the total annual RCT payments does not exceed €28,800.

 If you or your business qualifies, the reduced frequency of tax returns and tax payments will apply to them with effect from 1 January 2011.

VAT – Back to Basics

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Are you a new business? Are you an existing business? Have your circumstances changed? If so, do you need to be registered for VAT? Any business selling products or services must register for VAT (unless its supplies are VAT-exempt) if the turnover exceeds certain thresholds as follows:

– €37,500 per annum on the supply of services

– €75,000 per annum on the supply of goods.

If turnover levels are expected to be below these limits, a business can elect to register for VAT even though it is not required to do so. This may be advisable if a significant amount of VAT has been incurred on commencing a business such as pre-trading expenditure.

VAT can be accounted for on an “Invoice Basis” or a “Cash Receipts Basis”. The advantage of cash receipts basis is that VAT can be paid on the basis of when cash is received rather than when the invoice is issued. This can have a huge beneficial effect on cashflow.  To be eligible to account for VAT on cash receipts basis, annual turnover (excluding VAT) must be less than €1 million or 90% of turnover is from Vatable supplies to non-VAT-registered people.

The rate of VAT chargeable on your supplies will depend on the nature of the product or service. The supply of certain goods and services is exempt from VAT, while other supplies are subject to VAT at rates of 0%, 13.5% or 21% and for farmers 4.8% and 5.2%. If the supplies are VAT-exempt, you will not be entitled to recover any input VAT on your costs. Generally, VAT can be reclaimed on expenditure incurred wholly and exclusively for the purpose of the business. As with every rule, there are exceptions – no business can recover input VAT on expenditure on any of the following, even when the goods and services are used for the purposes of the business:

  •  personal services
  •  accommodation other than qualifying accommodation in connection with attendance at a qualifying conference
  •  food or drink
  •  entertainment expenses
  •  the purchase, intra-Community acquisition or importation of petrol (other than as stock)
  •  contract work involving the handing over of goods when such goods are themselves not deductible.

Valid VAT

Invoices VAT law contains specific requirements in terms of the information that must be included on invoices, including the date of issue, a sequential number, the full name, address and VAT registration number of the supplier, and the full name and address of the customer.

Applying the correct VAT rate to your supplies is essential, and it can be a complex process if you are supplying a variety of products or services.

If you are not charging the correct rate of VAT or if you are claiming VAT inputs incorrectly, you may be subject to significant interest and penalties should the matter be uncovered during a Revenue audit.

Cancellation of VAT registration

A person who has elected to register for VAT (even though not required to do so by law) may cancel their registration. However, it is a condition of such cancellation that they pay to Revenue any excess of VAT refunded to them over the tax paid for the taxable periods during which the election had effect or three years prior to the date of application for cancellation, whichever is the lesser. In certain circumstances a cancellation of registration will give rise to recovery by Revenue of net VAT repaid to the person during the period of election.

A person whose turnover has fallen below the appropriate turnover threshold may deregister for VAT. So long as the business did not originally elect for registration there will be no clawback of any VAT refunded previously.

Where a farmer who would not otherwise be an accountable person has elected to register for VAT and wishes to cancel that election then the review period is also the period for which the election had effect or three years, whichever is the lesser.

VAT can be quite a complex area with almost as many exceptions as there are rules. If you are involved in any business transactions that are different to your normal day to day transactions, in particular in relation to any property transactions, you should seek professional advice in advance.

Getting paid on time.

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All businesses are competing with suppliers for their customer’s money. The business with the best credit control system will get paid first. The groundwork for getting paid on time starts with the beginning of a new customer/client relationship. Every business needs to have a system in place for accessing a potential customer’s credit worthiness, whether it is a policy of requesting credit references, bank references or using publicly available information or credit bureaus.Once you are satisfied with the credit references, the next step is to ensure that there are written terms of business, which should include payment terms, provided to the customer. Do be aware though that for a contract to be legally enforceable it must contain certain elements and it is always wise to seek professional legal advice on this.

We all know that there are different categories of customers when it comes to collecting payment. In these difficult times, we all try our best to be reasonable and fair, particularly where in the past the customer has always been a good payer. The main thing is to ensure that as a business, you limit your potential exposure. The most difficult categories for all business to deal with are firstly, those that can pay some debts, but can’t pay it all and secondly, those that won’t don’t and never pay.

A good cash collection system should be flexible, reliable, secure, adaptable and economical. Most importantly, the system needs to be operated in a firm, but intentional manner. If a customer gives you a date for when payment will be made, if not received, a telephone call should be placed immediately. Information about the customer’s accounts department including their payment processing system should also be obtained as this can avoid delays in the issuing of payments.

When preparing to make a cash collection telephone call, it is important to make sure that you have all relevant information and be prepared with possible responses to the standard excuses such as “the cheques in the post”. You must remain firm and ensure that you finish the call with a definite answer.

Reducing cash collection time can also be helped with the use of electronic invoicing over traditional paper invoices. It can save time (not to mention costs) on the delivery of invoices and statements. Encourage electronic payments, standing orders and direct debits where appropriate. Accepting card payments and discounts for early payment can also encourage early payment.

Unfortunately, where telephone calls and reminders don’t work, things need to be ramped up a bit. Clear concise cash collection letters may ensure that the correct person is aware of the outstanding debt and result in settlement. Applying late interest payments may also speed up the collection. However, you need to decide the time that will be spent on something like this if you are aware that the inevitable result will be legal action.

  • Immediate steps that you can now take to improve cash collection include.
  • A review of your current terms of business/contracts.
  • Ensure that payment terms are clearly stated.  
  • If a written contract, make sure that there is an agreed reference to what interest will be payable on late payments 
  • Ensure system in place for monitoring agreed payment terms and unpaid debts
  • Enforce the credit control procedures firmly, but vigorously.

Remember, good communication and negotiation skills are absolutely necessary when collecting debts. Keep making the calls, square off any excuses and always make sure that you end each call with a firm commitment and follow up if required. A company needs to make sure that they are always “first in line” to ensure that what cash a customer has comes your way.

Protecting your business

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Business owners, more than ever, need to have a proactive approach in managing their business. We need to be able to detect and identify warning signs of potential problems and know what steps to take as soon as problems become apparent. Problems rarely arise suddenly. It is more usually a gradual process, as a result of a variety of circumstances either external or internal. External causes cannot always be predicted with accuracy in advance. Internal factors however, may, in many cases be capable of being foreseen.
Businesses will usually have expert skills and experience in the area of activity the business operates.

No matter how good a product or service is, skills and experience in areas such as business planning, financial reporting, marketing, customer relations and financial management cannot be taken for granted.  Running a successful business requires not only good creative and operational skills but good business skills too. If these skills are not available in-house, then the business will need to source these skills from specialist advisors.
 
Advice from professionally qualified financial accountants should be sought regularly, at all the stages of business life. Some of the many benefits of this include being able to take advantage of any opportunities of growth and to anticipate any threats to the survival of the business and reacting to them promptly. The key areas that a professionally qualified accountant usually provide expert advice is in regards to accounting, financial planning and credit management. Advice in areas such as bookkeeping and financial reporting practices and sound business practice should also be utilised in order to produce high quality financial information, which sets the ground for the efficient and effective growth and the survival of the business.

The CACM Accountants Blog begins…

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