Tag: VAT

MTD for VAT – Sign up Time Frame

HMRC have updated their guidance changing the MTD sign up window for those businesses who pay their VAT via direct debit.

 

Previously HMRC prohibited the registration for MTD 15 working days before and 5 working days after the direct debit date. This meant that some months there was potentially only a window of one or two days to be able to register. This posed a real problem for businesses who file monthly VAT returns.

 

The good news is that HMRC have now updated their guidance and the window in which business cannot sign up to MTD has been greatly reduced. Businesses that pay VAT by Direct Debit now cannot sign up in the seven working days leading up to, or the five working days after sending a VAT return.

 

Please remember all businesses must register for MTD and it is not an automatic transfer from the old system to MTD at the mandation date.

 

If you would like to discuss this in further detail please contact us on 01772 821 021.

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Holding companies and VAT

In our latest VAT video Jonathan Main, VAT Partner and Stephen Gregson, Director discuss the VAT issues in relation to holding companies and group structures.

 

Some of the areas this video covers are;

 

  • What the VAT issues are regarding holding companies and group structures
  • Deal fees
  • Passive holding companies
  • Economic activity and the consequences if this is absent
  • VAT groups

 

New VAT refund opportunity for Hospices

HMRC are set to announce a major reversal of their existing policy on the VAT treatment of Continuing Care funding received by hospices and other palliative care charities. The anticipated change comes after significant lobbying and pressure from those within the sector and should result in significant VAT savings, both current and also retrospectively in relation to periods where HMRC’s current policy has been followed.

VAT on commercial property transactions

In our latest video Jonathan Main, Partner and Joe Sullivan, Partner discuss the aspects of VAT that affect the construction and real estate sector.

 

This video covers the following;

– Summarising commercial property

– What are some of the principles of VAT relating to commercial property?

– Whether or not to charge VAT on the rent on commercial properties

– Option to tax

– Transfers as a going concern

– Do we want to recover VAT on construction cost going forward and if so, can we charge VAT to our tenants?

– Commercial considerations that may affect the bottom line

– The latest legislation regarding fraud

 

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BIKS Update

A reminder that from April 2019, anyone setting up a construction business who are considered high risk by HMRC will be asked for a security deposit. The legislation also extends to new, high risk, corporation tax payers.

 

Security deposits have been a legal option for HMRC for VAT, PAYE and NIC for some time, and so it is an extension to existing, rather than new, legislation, if that makes the builders amongst us feel any less targeted.

 

The guidance says it will “strengthen HMRC’s ability to deal effectively with the small minority of rule breakers who will not rather than cannot pay tax that is due.” It goes on to say that businesses “experiencing genuine difficulties are not the target of this measure”.

 

Whether HMRC will consider a “genuine difficulty” when a construction business fails due to HMRC removing its’ gross payment status remains to be seen.

 

Whilst discussing construction, although on a VAT point, please be aware that the main contractors become responsible to apply the reverse charge VAT on certain invoices from their subcontractors from next October. This will almost certainly require some system changes and would be worth looking at now, so you can provide necessary instructions to your subbies in good time.

 

The end date for new entries to the childcare vouchers scheme has now passed, but there are still other options available which do not require any input from the employer. Anyone interested should look at the  website.

 

Employer with a salary sacrifice, now referred to as Optional Remuneration Arrangements (OPRA), should be aware that you can close their scheme at the next renewal date. You are under no obligation to continue with the scheme.

 

Where childcare have grown up, and bicycles have been provided, whilst they can still prove a great asset for staff recruitment and retention, they are, as the new title suggests, optional.

 

The dynamic coding software used by HMRC over-reacted in the summer of 2017 and sent out significantly reduced code number, some staff even received K codes.

 

As many employers pay staff bonuses in June and July, and these coincide with forms P11D being submitted and processed, anyone with a new and significant benefit was coded for the benefit on the assumed salary increase indicated by the bonuses.

 

The codes therefore calculated the tax recovery for those at a higher rate than was actually liable.

 

It was hoped that HMRC would take note of the many complaints made and adjust their systems to prevent this happening again. Not so. If these codes are still in place, those staff affected should either log into to their self assessment account, call the HMRC helpline or email them, via their website.

 

If you would like to discuss this blog in more detail please email Carol Watters or call us on 01772 821 021.

 

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Where could Budget 2018 tax rises come from?

Partner Jonathan Main, MHA Chiks’s specialist in VAT and indirect tax, offers his Budget 2018 verdict.

 

In announcing “austerity is over” in her party conference speech, Theresa May signalled an increase in spending on public services, including the previously announced £20bn boost for the NHS. She also limited the chancellor’s room for manoeuvre in his Budget announcements next week.

 

It’s now down to chancellor Philip Hammond to make this work. In addition to the PM’s announcement about the end of austerity, the Democratic Unionists have threatened to derail the progress of the Finance Bill through Parliament if the Irish border issue isn’t resolved and Tory backbenchers will have no appetite for headline grabbing tax rises given the difficulties of navigating a safe passage for our departure from the EU and worries about a snap general election.

 

How will chancellor balance the books?

 

In recent years, there have been plenty of announcements regarding the likely content of the chancellor’s speech. Perhaps not surprisingly, this year there has been far less publicity concerning the possibility of either spending cuts, or tax rises to fund increases in NHS spending.

 

That said, I do think we are in for some modest tax increases in this budget, with . The Office for Budget Responsibility also said this was the only realistic way to .

 

But if we look at the taxes that affect the employed and self-employed; income tax and national insurance, there’s not much scope for increasing either of these if the Conservatives want to be seen as supporting hard-working people.

 

This is particularly the case as we’re just two years on from a Conservative election pledge not to raise mainstream taxes, albeit we’ve had another election since.

 

The chancellor has also said he will look to “minimise” the effect of any tax rises on the economy or people.

 

On corporation tax, the Conservatives have reduced this significantly in the last eight years and the chancellor has stated that the UK will be the most tax competitive European destination post Brexit. My colleague Tony Medcalf talks more about what may happen to corporation tax in his look at the Budget.

 

Is there scope to increase indirect taxes?

 

If we’re not expecting to see significant changes to any of the headline direct taxes, how about the indirect taxes?

 

VAT: I don’t foresee any increase in the headline rate of VAT of 20 per cent, but there’s a chance of a change to the VAT registration threshold for businesses. If this is lowered from the current £85,000 it could mean a lot more start-up businesses paying VAT. According to the Treasury, there are 3.5 million small businesses below the current VAT registration threshold costing the Exchequer around £2bn in unpaid VAT.

 

Fuel duty: The government has .

 

Excise Duty: As always, there will be increases in excise duties on cigarettes and tobacco. Could there be a reduction in the rate of VAT on e-cigarettes to align these with other smoking cessation products? The chancellor may choose to hold down alcohol duties, as a way of buying some goodwill as we head towards the exit door next spring.

 

Air Passenger Duty: Considering this only went up again in the spring, and the UK already has one of the highest APD rates in the EU, I think it’s unlikely we’ll see any big changes here.

 

Environmental taxes: There are a number of environmental taxes, such as the Climate Change Levy, Landfill Tax and Aggregates Levy, but again these are not going to raise huge amounts of tax for the chancellor.

 

Insurance premium tax: This is one of the areas where I would see some scope for a revenue generating tax increase. In the UK, the rate of insurance premium tax is lower than the rate of VAT, but many other countries have the same headline rate for both VAT and insurance premium tax. This would be unpopular because it would hit the consumer with increased costs. However, for the chancellor, it’s probably the indirect tax with what I would call the best ‘revenue to controversy’ ratio.

 

Will it be cautious or optimistic budget?

 

In conclusion, I think we’re likely to see some tax rises, though I believe the chancellor will look to do this in a way that avoids any major changes to income tax, national insurance and VAT. I think he may also look to increase tax revenues through other means, perhaps with a curb on pensions tax relief, the cost of which he has previously labelled as “eye-watering”.

 

The chancellor talked recently about a possible Brexit “deal dividend”, once the terms of Britain’s exit from the EU are agreed, but that is clearly dependent on the way in which we leave next spring.

 

With so much uncertainty, it’s hard to commit to any firm tax rises or spending pledges, which is why I think we may see a cautious budget. Whether Britain leaves the EU with or without a deal, I think we’ll then see an emergency budget in April or May next year once the picture becomes clearer.

VAT Domestic Reverse Charge – How does this affect the Construction sector?

HMRC recently held a consultation requesting views on the proposed introduction of a reverse charge mechanism to combat VAT fraud in the construction sector. Following its conclusion and analysis of feedback, HMRC has published draft legislation in the form of a Statutory Instrument which will become section 55A of the VAT Act 1994 with effect 1 October 2019.

The type of supply to which the reverse charge will apply are borrowed from the meaning of ‘construction services’ in the Construction Industry Scheme (CIS) legislation, Finance Act 2004.

How do I get my VAT-registered business ready for Making Tax Digital?

VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) will be mandated to keep digital VAT records and send returns using Making Tax Digital (MTD) compatible software from April 2019.

 

What does this mean for my business?

 

From April 2019, affected businesses will no longer be able to submit their VAT returns through the government gateway. Business will be required to use MTD-compatible software which prepares a VAT return and sends it to HMRC. To be MTD-compatible, the software must integrate with HMRC systems to send VAT returns to HMRC.

 

MTD-compatible software

 

HMRC is working with more than 150 software suppliers who have said they’ll provide software for Making Tax Digital for VAT in time for April 2019.

 

Of these, software suppliers who have tested their products in HMRC’s test environment and have already demonstrated a prototype of their software to HMRC have been approved under MTD for VAT. These software suppliers are:

 

  • Accu-Man
  • Ajaacts
  • BTCSoftware
  • Bx
  • Clear Books plc
  • DTracks Limited
  • eFileReady
  • Farmplan
  • FreeAgent
  • GoSimple Software
  • Intuit – QuickBooks
  • IRIS
  • Landmark Systems Ltd
  • Liquid Accounts
  • Quickfile Accounting Software
  • Sage (UK) Limited
  • Simplifi-HQ Limited
  • Tax Automation Limited
  • Tax Optimiser
  • Xero
  • Zoho Books

 

HMRC will update this list as testing progresses and updates can be found on their .

 

I already use software, but my supplier is not listed

 

MTD for VAT is a project where developments are ongoing. If your software supplier is not listed above, this does not necessarily mean your software will not be compliant. It just means that the supplier did not participate in the initial pilot.

 

We recommend as a first step that you speak with your software supplier directly and ask them to check if they’ll be supplying suitable software for 1 April 2019. The likelihood is they will be and so it’s business as usual for you.

 

I currently use excel spreadsheets to maintain my records

 

HMRC permits the use of Excel spreadsheets provided it is used in conjunction with software that is capable of taking the relevant information from the spreadsheet electronically and sending it to HMRC.

 

For many clients, investing in software in order to continue using spreadsheets may be neither cost effective nor desirable. The good news is that MHA MacIntyre Hudson is undergoing a digital upgrade in its own systems and so we can act as the software intermediary for our clients that want to continue to maintain records in Excel. Our clients will be able to continue keeping their books as they currently do, simply supplying us with the spreadsheets so that we will make the digital submission on their behalf.

 

So, if your business falls into this category, it’s pretty much business as usual as well!

 

I currently maintain my records manually

 

Manual records will no longer be acceptable to HMRC from 1 April 2019. You will need to make a decision as to which software (including Excel) is suitable for your business. Please get in touch with your local MHA MacIntyre Hudson adviser to discuss your options.

 

We advise swift action if your business falls into this category. It will not be desirable to switch to software mid-way through an accounting period in order to be MTD compliant. Switching at the start of the accounting period beginning immediately preceding 1 April 2019 will ensure a much smoother transition, so please speak to us as soon as possible.

 

Exemptions from MTD for VAT

 

There are a small number of VAT-registered business that will be exempt from submitting VAT returns digitally and will be able to continue using the government gateway. They are as follows:

 

VAT-registered businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000). But, you will need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold;

 

Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);

 

It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason;

 

You are subject to an insolvency procedure.

 

This blog first appeared on one of our member firms,

Understanding VAT in the Hospitality sector

In our latest Leisure and Tourism video Colin Johnson, Partner and Adam Stock, Assistant VAT Manager discuss multiple VAT aspects that relate specifically to the hospitality sector.

 

Colin and Adam focus specifically on three areas regarding VAT treatment;

 

1. Deposits

 

2. Purchase of vouchers (multi purpose vouchers and single purpose vouchers)
They also discuss the change of legislation regarding single purpose vouchers that is due to happen in January 2019.

 

3. Tips, service charge and gratuities

 

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Implementation of EU Directive on VAT and vouchers – Changes from 1 January 2019

Changes to affect distributor of voucher and issue of multi purpose vouchers

 

Following a consultation, HMRC is to update the UK VAT legislation this summer for vouchers to bring it up to date with the EU VAT directive.

 

At the moment VAT must be paid on a single purpose voucher (SPV) when they are issued. VAT due on multi purpose vouchers (MPV) does not have to be paid before the voucher is redeemed. Under the current position a MPV voucher is one which can be redeemed against a range of goods or services even if they are all subject to the same VAT rate.

 

SPV – current definition

 

The current definition of an SPV is a face value voucher (that can only be used to purchase one type of goods or services, and the VAT rate is known at the time the voucher is issued by a retailer.

 

An example is a music voucher issued by a retailer. In this case, output tax will be accounted for by the retailer at the time it is paid for the voucher, rather than when the voucher is redeemed at a later date.

 

SPV – new definition

 

The new definition of an SPV will include vouchers that can be redeemed for a range of goods or services, but the VAT rate for all the items is the same. So output tax will still be accounted for when the retailer receives payment for the voucher.

 

MPV – new definition

An MPV will only include vouchers that can be redeemed for goods or services that are subject to different rates of VAT, so it is impossible to know the actual VAT liability on the purchase until the voucher is redeemed.

 

An easy example is a voucher issued by retailer that can be used to buy either a paper book or music. Will the customer redeem the voucher for the next JK Rowling wonder (zero-rated), or a standard rated CD of Spice Girls greatest hits, or  maybe both? This question can only be answered when the customer redeems their voucher, hence the redemption date is the tax point for VAT purposes and not the earlier date when the voucher was purchased, as is the case with SPVs.

 

Part payment

 

Where vouchers do not cover all of the cost, the balance will be a separate additional supply.

 

Distributors

 

Another big change is  SPVs will be within the VAT system when they are transferred via distributors. Distributors trading in these vouchers will be treated as buying and selling the underlying goods or services that can be redeemed with the voucher(s) and claim input tax and charge output tax accordingly.

 

The exception is if the distributors act as commission-based agents, and do not actually buy and sell the vouchers. They are unaffected by the new rules and will continue to account for output tax on their commission payments.

 

Other issues

 

The new rules also do not affect transport or admission tickets. The changes are also not relevant to the supply of “free offer vouchers” given by business. An example being a hotel giving a free nights hotel stay to a guest in the future, this is still a 100% discount voucher which does fall under SPV or MPV.

 

If you would like to discuss this blog in more detail please contact Adam Stock or call 01772 821 021.

 

Alternatively, you can leave an enquiry or comment in the form below.

 

VAT – Digital Changes Ahead for Business

Making VAT Digital

This big change goes live on April 1st, 2019 and will impact your business if:

• You are registered for VAT and
• Your taxable turnover is over £85,000

If you meet these criteria, then you must act now to ensure that you comply with the new rules. There are very few exemptions. Charities and not-for-profit sector organisations who are VAT-registered and above the turnover threshold will also need to apply the new rules

Relief for the Construction Sector as HMRC’s VAT challenge on student accommodation fails

Contractors, developers, planners amongst others can now be assured that they do not have to pay VAT to subcontractors with regard to new build student accommodation. Despite HMRC’s best efforts to overturn the decision with regards to VAT relief on new build student flats, the courts firmly rejected their argument.

 

The case – what is a dwelling?

 

HMRC’s appeal concerned the VAT treatment of electrical services provided by Summit, sub-contractors at a new build student site in Leicester. Like most modern student blocks, each unit was designed as self-contained living accommodation including kitchenettes and en-suite bathrooms. Critically, the planning consent restricted use to:

 

…full time student[s] of Leicester or De Montfort University(or such higher/further educational establishments as may be agreed in writing by the local planning authority.

 

In HMRC’s view this represented a restriction on ‘separate use’ of each unit and therefore prevented them being treated as dwellings for VAT purposes. VAT rules require a dwelling to be capable of separate use and disposal. The HMRC argued that the use of these particular flats was tied to the use of university buildings.

 

The tribunal’s decision 

 

The Court agreed that the student accommodation could be treated as ‘dwellings’ for VAT purposes. In the Judge’s view the ‘separate use’ test will only be failed if planning consent prohibits use of the premises separately from the use of other specificland or buildings.  They therefore accepted the arguments made by Summit that the planning consent was merely a restriction on a category of users i.e. students.

 

HMRC argument was that there was a link to specific buildings i.e. that the planning restriction was implicitly referring to all the universities’ buildings and that this was sufficient to link the student accommodation to those buildings.

 

Why it Matters

 

Main contractors in the student accommodation sector will be delighted with the outcome in this case. If HMRC had succeeded in their arguments against Summit, main contractors would have been forced to pay VAT to subcontractors whenever planning consent referred to students of named universities. Whilst this VAT would be reclaimable, the amounts involved are large and the cash flow impact is significant.

 

The wider implications.

 

The alternative relief for relevant residential buildings, which allows main contractors to zero-rate new building work on student blocks is only available where the end-user certifies that a development will be used solely for student accommodation. This condition is breached if a landlord intends to let flats out to others during vacation periods. If HMRC had succeeded, this would place a landlord in the position of incurring VAT on the new build and being unable to reclaim this VAT due to VAT exempt lettings to students. The additional costs would make many developments unviable and the Courts confirmation that the wider relief for zero-rating of dwellings still applies will be very welcome.

 

The decision also helps those universities who want to use planning restrictions to ensure that there is sufficient local accommodation for students studying at their institution. A planning consent which only refers to ‘students’ is often insufficient, particularly in our largest cities where a very large number of students are competing for limited accommodation. Now that the Courts have confirmed that zero-rated dwellings are being constructed even where planning consent restricts occupation to students of named universities, planners can be bolder in defining and limiting the class of residents of a new build development, without creating unexpected tax problems.

 

This article originally appeared on the blog of our member firm, 

 

If you would like to discuss this article in more detail please contact Adam Stock or call 01772 821 021.

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VAT: Property search fees – update

The Law Society has published “interim guidance” concerning the VAT liability of property search fees following recent discussions with HMRC. This followed the First Tier Tribunal decision in the case of Brabners LLP, which ruled that the recharging of electronic property search fees could not be treated as a disbursement for VAT purposes and therefore VAT was due on the amount recharged. (See link for our original commentary on this case http://2-chicks-same-time.info/latest-blogs/vat-search-fees/
 

 

HMRC has indicated a willingness to work with the Law Society in order to clarify and improve their published guidance in this area, but has confirmed that they do not intend to change the general approach set out in this guidance. This approach remains that where a property search is passed onto a client without further comment or analysis then the relevant fee may be treated as a disbursement. However, where the search is used for the purposes of providing advice or producing a report their view remains that the fee will form part of the wider charge for services and would be subject to VAT accordingly.

 

The Law Society has commented that although their interpretation of the relevant rules still differs from HMRC’s “in the absence of a binding decision of an Upper Court, firms may wish to follow HMRC’s guidance when deciding whether to charge VAT on fees for property related searches going forward.”

 

The full guidance issued by the Law Society can be found here. We are aware that in certain cases HMRC have taken the Brabners decision as a green light to revisit the VAT treatment of professional service providers and raise assessments where there has been a perceived incorrect treatment adopted in the past.  Professional firms are urged to review their own internal policies and procedures in relation to such issues to ensure that any potential exposure in this area is mitigated as fully as possible.

 

If you would like to discuss VAT on search fees in more detail or you would like to speak with a member of our  team, please contact Adam Stock or call on 01772 821021 to be put in contact with a member of our VAT team.

 

A version of this blog originally appeared on the website of one our MHA association member firms, MHA MacIntyre Hudson by David McDonnell.

Commencement of due diligence scheme for imports starts 1 April 2018

The UK Government campaign to crack down on tax evasion mean there is a new due diligence scheme for fulfilment house which handle goods imported from outside the European Union. Businesses which stores any goods imported from outside the EU, goods owned by or stored on behalf of someone established outside the EU will need to register for this scheme. If goods are stored temporarily as part of transport service do not need to register for this scheme.

 

There are different deadlines for applying for the scheme

 

If you started trading in this area before 1 April 2018 you need to apply by 30 June 2018

 

If you started trading in this area from 1 April 2018 to 30 June 2018 you need to apply by 30 September 2018

 

If you started trading in this area from 1 July 2018 you need to apply by 1 October 2018 or before the date you start trading (which is later).

 

Late applications can incur a penalty of £500 which can increase by £500 each month the application is late to a maximum of £3,000.

 

If your business is covered by this scheme and you are not registered by 1 April 2019 HMRC can force your business not to trade as a fulfilment business and also issue a penalty of £10,000 and a criminal conviction.

 

 

From 1 April 2019, registered businesses will be required to keep a record of:

 

– overseas customers’ names and contact details;

 

– overseas customers’ VAT registration numbers;

 

– the type and quantities of goods stored in the warehouse;

 

– import entry numbers;

 

– the delivery addresses; and

 

– notices that the business will need to give its overseas customers, which explain their tax and duty obligations in the UK.

 

Records must be kept for six years – a penalty of £500 may be imposed for failure to comply with this requirement.

 

If you would like to discuss this further with a member of the VAT team, please contact Adam Stock on 01772 821021.

 

Sage 50 and changes to HMRC VAT Portal

Are you using Sage line 50 and filing VAT returns direct with HMRC?

 

From 14 February, the Electronic Data Interchange (EDI) will be decommissioned and the existing service will be migrated to a new platform.
What does this mean for you?

 

To accommodate the changes, Sage will be updating the latest version of Sage 50 Accounts online (Sage 50v24 2018).  If you would like to continue to submit your VAT return directly from your Sage Software you will need to upgrade to the latest version.

 

If you do not wish to submit your VAT via the software, you will still be able to access the new portal via your HMRC online account and complete your return manually.

 

For Sage users on versions before v24, an upgrade will result in a move to a subscription model. Prices start from £20pm for simple businesses and will be around £60 a month for most small businesses. The latest version allows for cloud back-ups and direct links to your bank accounts to reduce the burden of bookkeeping.

 

If you would like to discuss Sage 50 and the changes to HMRC VAT portal in more detail, or you would like to speak with a member of our team, please email Judith Dugdale or call 01772 821021

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Provision of Staff – The VAT Pitfalls

The primary care sector is seeing an increase in restructuring activity which includes mergers and more collaborative working. This often means that staff employed by one entity may do work for another entity with a charge being made.

 

Supply of staff or supply of services that the staff are providing

 

A supply of staff would be made between two GP practices if the use of an individual who is employed by Practice A is provided to Practice B for a consideration [an agreement to provide a service in exchange for payment]. This applies whether the terms of the individual’s employment are set out in a formal contract or letter of appointment, or are on a less formal basis.

 

The determining factor is that the staff are not contractually employed by Practice B but come under its direction. Where staff are supplied to Practice B but continue to operate under the direction of Practice A, this is not a supply of staff, but is a supply of those services.  The supply of medical services is generally exempt from VAT, whilst the supply of staff is fully VATable.  The difference between the two may not always be straightforward.

 

Therefore, the charge from Practice A to Practice B above for a supply of an employee on secondment would be subject to UK VAT at the standard rate (currently 20%).

 

Joint employment of staff

 

In case of Practice A and Practice B entering into a joint employment contract with an employee there is no supply of staff for VAT purposes between the Practices.

 

In order for staff members to be considered to be jointly employed their contracts of employment or letters of appointment must make it clear that they have more than one employer. The contract must specify who the employers are (e.g. ‘Practice A and Practice B must both be named as joint employers).

 

When one practice acts as paymaster and pays the staff members salary, NIC and pension contributions etc, the reimbursement of its share of those costs by the other practice is treated as a disbursement for VAT purposes and is not subject to VAT.

 

Employees would not be considered to be jointly employed if their contract was with either Practice A or Practice B, even if their contract specifies that they will be required to carry out duties for the other practice. In that case there would be a supply of staff between one practice and the other and the treatment mentioned above would apply.

 

In many cases this might not be an issue.  Most medical practices are not VAT registered and the level of cross-charging of staff will be below the registration threshold of £85,000.  There may, however, be dispensing practices that are registered for VAT that would need to incorporate such cross-charging into their partial exemption calculations.  Such cross-charging may become more prevalent as GP practice and other provider organisations work collaboratively together.  Federations, for example, may provide VATable advisory services in addition to staff to practices for clinical purposes.  The supply of VATable services may therefore be of more than one kind.  Care is needed when in these more diverse times, so it is essential that advice is sought.

 

For the purposes of this article the possible NHS pension scheme implications have not been considered, only the VAT issues.

 

 

If you would like to discuss this further with a member of the VAT team, please contact Adam Stock on 01772 821021.

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VAT Flat Rate Scheme – are you a winner or loser?

In the last few weeks I have seen two businesses that have been using the VAT flat rate scheme that would be far better off outside the scheme. Why is this? The flat rate scheme is a simplification introduced by HMRC to help small businesses account for VAT more simply. However as a simplification, it is not the best route for every business.

 

The flat rate scheme is available to businesses with a turnover of £150,000 per year or less and they can stay in the scheme until their turnover hits £230,000 per year. The idea is that instead of adding all the output tax charged on sales in a VAT return period and deducting all the input tax incurred on purchases to get to a liability to be paid or reclaimed from HMRC, the business instead applies a flat rate percentage to its VAT inclusive sales each quarter and this is the amount of VAT payable to HMRC. The business cannot recover any input VAT – the flat rate percentage makes an allowance for that. The percentage to be paid varies according to the trade category of the business.

 

Businesses that decide to use the flat rate scheme should only do so after very careful comparison of their likely VAT position in the scheme compared to outside the scheme. Use actual projected sales and purchase figures to make the calculations and my advice is to redo the calculations every time you submit a VAT return to check that you are not overpaying by being in the scheme. Your accounting package probably prepares a normal VAT return for you in any case so you are unlikely to be saving much time by being in the flat rate scheme.

 

In general though the scheme is unlikely to benefit your business if:

 

• A high proportion of your sales are zero rated, exempt or to overseas customers – you will end up paying VAT on sales where no VAT has actually been charged to the customer

 

• You incur input tax on purchases because under the scheme, you cannot recover this input VAT

 

As always, the rules are complex! Although HMRC have the discretion to allow a business to leave the scheme with effect from a date in the past if you find that you are worse off in the scheme, they don’t often allow it earlier than the previous VAT period so you need to keep on top of checking whether it is a good deal for your business or not.

 

 

If you would like to discuss a VAT Flat Rate Scheme issue in more detail or you would like to speak with a member of our team, please contact Adam Stock or call on 01772 821021 to be put in contact with a member of our VAT team.

 

This article orignially appeared on the blog of MHA member firm,

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Hire of Room for Licensed Civil Marriages

In the recent case of Blue Chip Hotels Limited v HMRC [2017] UKUT 0204 the Upper Tribunal (UT) found that hiring out a hotel room for wedding ceremonies was not an exempt supply of land for VAT purposes and is therefore subject to the standard rate of VAT.

 

Two issues were identified by the UT as key in determining whether the hire of the room for the wedding was an exempt supply of land:-

 

  1. Did customers have a right to occupy the room as the owner, and exclude any other person from enjoyment of such a right?
  2. Did the taxpayer add any significant value to the hire of the space so that it was not merely a simple provision of space?

 

Applying these tests, the UT concluded that the supply of the room was not exempt from VAT:

 

  • The legal requirement that members of the public must be allowed access during ceremonies does not mean customers don’t have exclusivity: any owner would be subject to the same requirement.

 

  • However, the taxpayer did not simply make a room available: they actively exploited the room by obtaining approval for its use as a marriage venue and performing all the required activities to maintain that approval.

 

  • This went beyond what would be expected from mere letting of immoveable property: by its active exploitation of the room the taxpayer added significant value to the supply.

 

Hotels letting space for weddings, parties and other catered events must now account for VAT at 20% on their room hire charge which includes the hire of a room for a licenced ceremony. VAT should, therefore, be taken into consideration when quoting for future room hire for civil ceremonies.

 

If you would like to discuss VAT in more detail or you would like to speak with a member of our  team, please contact Adam Stock or call on 01772 821021 to be put in contact with a member of our VAT team.

Motor Sector

Major VAT Changes ahead for Motor Finance

In a case which is being closely followed by the Motor Finance sector, the Advocate General to the Court of Justice in Luxembourg has released his opinion on whether the Mercedes-Benz ‘Agility’product constitutes a supply of goods or services.

 

Although this may sound like a very esoteric argument, if the Court follows the Advocate General’s opinion, then finance houses could see significant cash flow improvements on Personal Contract Purchase (PCP) type arrangements.

 

When buying a car using PCP a customer pays a deposit and makes monthly payments, but title does not pass unless/until the customer makes all payments including a relatively large balloon payment at the end.  The balloon is set at a level equivalent to the vehicles’ estimated residual value at the end of the term. Crucially there is no inevitability about the transfer of ownership, with many customers simply choosing to hand a car back rather than make the balloon payment.

 

Under current HMRC interpretation, the supply of a vehicle under PCP is treated as a supply of goods for VAT purposes. This means that the finance company must account for VAT in full at the time a car is driven away by a customer, even though only a small proportion of the price will have been paid at that time.

 

Mercedes-Benz have challenged this view, arguing that a supply of goods is one where title is expected to pass in the normal course of events, such as in traditional HP agreements with small final instalments. The Advocate General only advises the Court, but he has supported Mercedes-Benz’ view that Agility (a PCP-type contract) is for a supply of services. If the Court agrees, VAT will only be due on each payment made by the customer rather than on the whole value of the car at commencement of the contract. This is potentially a major boost to finance companies, both in terms of cash flow and in an absolute reduction of VAT due where a customer does not decide to take ownership at the end of the term. In addition, there may well be opportunities for VAT reclaims to be made for VAT overdeclared over the past 4 years.

 

In VAT terms, the outcome of this case could bring PCP in line with purchase contract hire – a less common arrangement where a customer is not given the automatic right to buy the vehicle at the end of the contract. It is right that it should do so, as the commercial reality is that many customers make a choice to acquire a vehicle using PCP on the basis of affordable monthly payments rather than with any intention to buy a car outright.

 

If you would like to discuss VAT in the Motor Sector in more detail or you would like to speak with a member of our team, please contact Ginni Cooper or call on 01772 821021 to be put in contact with a member of our team.

 

This article orignially appeared on the blog of MHA member firm, .

Charity strategic planning – think about tax!

Many charities are having to adapt to changing funding environments and in seeking to reduce reliance on grant funding, have looked to increase enterprise trading and charging for services. But the tax impacts of developing new opportunities and even delivering the same services under different arrangements have sometimes been overlooked – these need to be on a charity’s radar.

 

There needs to be joined up thinking on the tax impact of changes in activities, often including corporation tax, VAT and business rates.

 

For instance, just hiring out a room would not be trading. But if you start to supply refreshments to provide a better commercial proposition, this could fall into trading and this could affect the charity’s corporation tax status, its VAT liability and business rates exemption.

 

However, with a little forethought, discussion and sometimes professional advice, a new plan for income development can often be structured in a way that either minimises the impact of tax or at least factors in the impact of tax. There is no point looking at a new income generating idea to find that unforeseen tax implications render it a cost to the charity. For existing activities, a regular review of changes could help identify if adjustments are needed.

 

Questions to ask include:

 

WHEN

….. did you last consider your activities and if they are trading? Do they fall within the exemptions?

WHAT

……are you charging for? Is it directly related to your charitable purposes (or carried out by your beneficiaries)?

WHY
……are you doing it? If it’s not directly furthering your charitable purposes, is it closely related or is it fundraising? Fundraising activities would generally be expected to make surpluses.

HOW MUCH
…… income is expected to be generated from a trading activity? If it is unrelated to your charitable objective, is it sufficiently small scale (lower than £50,000 and either 25% of total income or £5,000, whichever is higher) to fall within the small trade exemption?

WHO
….should carry out the activity? Is it possible to carry out the activity within the charity using its tax exemptions, or should you be putting it into a trading subsidiary? Remember that a separate entity can bring with it additional administration costs (financial and time) – it may not be the only way to manage trading.

 

A version of this blog originally appeared on the website of one our association member firms,

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When can I be penalised for paying my VAT on time?

So, when can you be penalised for paying your VAT on time? The answer is when HMRC use the funds for something else and don’t tell you.

I’m a recent case before the Upper Tribunal, Swanfield and 3 associated companies were appealing the imposition of default surcharges on a period when the payment for a VAT return had been made on time, or so they thought.

What had happened was that a payment for a current return was made before the due date.  Instead of this payment being allocated to the current return, HMRC used it to clear historic debts.  Consequently, the current return was subject to a default surcharge at the maximum level.

In the absence of an explicit instruction, HMRC can allocate payments as they see fit irrespective of the impact this might have on the imposition of a default surcharge or any other penalty.

The moral of the story is never assume HMRC will do the obvious.Unfortunately, it is another situation where the responsibility lies with the taxpayer to tell them what to do.

As it happens a client was in a similar position only the other week which we were able to resolve, but not without a struggle and a lot of unnecessary aggravation for the client.

Should VAT be charged on disbursements?

When preparing your bills you will have a variety of costs relating to the services you provide including disbursements incurred.
You need to carefully assess whether the disbursement is VATable or not under regulations.
It is important to ensure that input is not reclaimed on disbursements which are specifically payable by the firm on behalf of your client, as these costs are not recharged to the client with output VAT added.

Qualifying disbursements
A payment qualifies as a disbursement for VAT purposes if the following criteria are met:
– The payment has been made to a third party, on behalf of your client, whilst you were acting as agent.
– Your client is charged the exact amount paid to the third party.
– The client authorised the payment.
– You show the amount separately on your bill.
– The goods/ services provided were properly required on behalf of your client.
Common examples of disbursements which qualify are ; estate agents fees; office copies; land registry charges; medical fees; medical reports; hire charges; vehicle repairs.
If the costs incurred on behalf of your client qualify as disbursements for VAT purposes then no VAT should be charged to the client on your bill. Similarly no VAT should be reclaimed unless the client you are acting for is VAT registered and they retain a valid VAT invoice.

Non-qualifying Disbursements
Any costs charged to your clients that are incurred as part of your normal service to them cannot be treated as a qualifying disbursement for VAT purposes. Therefore you should charge VAT on such costs when preparing your bills.
Common examples of costs which do not qualify are bank transfer fees to or from your office account on behalf of your client (even if you only charge the equivalent of the transfer fee charged by your bank); business expenses such as telephone, postage, travelling, subsistence or other office costs.
Items such as these are recharged to clients with output VAT added and should be billed as part of the firms profit costs before all other disbursements are listed out.

 

If you would like more information on the topic, please contact us on 01772 821 021.

Avoiding VAT Default Surcharges

The late submission of a return and/or payment can result in a default surcharge penalty being raised by .  The penalties start off at 0%, however they increase to 15% of the net VAT due for the quarter.  If the reason for late submission is cash flow issues the addition of a surcharge is salt in the wound.  It is therefore important that all possible measures are taken to avoid surcharges.  The following are some tips which will hopefully help.

 

Pay current VAT return before clearing existing VAT debts
If your business has an existing VAT debt you may have had to negotiate a time to pay arrangement with HMRC.  However don’t agree to an arrangement which will make it difficult to pay the forthcoming VAT returns.  This could lead to further surcharges and just adds to the overall debt.  HMRC will take into consideration that current liabilities must be met.

 

Be careful with part payments
Rather than waiting to pay the VAT return liability on the due date you might decide to pay lump sums before the due date as and when cash flow allows.  Although the total of the payments may clear the current VAT return liability, if you have an existing VAT liability the payments will be allocated against the earlier debt. Again resulting in another surcharge!

Try not to use VAT as a way to finance business
As VAT payments are usually only due every three months it is easy for VAT receipts received to be swallowed up in day to day cash flow so by the due date the funds aren’t available to pay the VAT return.  Taking into consideration that surcharges rise to 15% quite quickly this can be an expensive way to maintain cash flow.  It would therefore be recommended that the net VAT liability is monitored through the VAT period it conjunction with cash flow.  If possible accrue for the liability through the VAT quarter.  However if it becomes apparent that current cash flow is tight, and after paying other liabilities such as salaries and suppliers, the VAT liability won’t be met then consider whether other financing options are available which could be cheaper than the possible 15% surcharge.

Points to note
Default surcharges start at 0%, then 2%, 5%, 10% and 15%
Once a default surcharge is raised four VAT returns need to submitted and paid on time to be removed from the cycle.

Default surcharges can be appealed if there are mitigating circumstances.  Always consider an appeal as there is no negative impact if an appeal fails.

VAT & Goods

Buying and Selling to and from abroad
Cross border transactions involving goods aren’t always as simple as they seem, here are two scenarios to watch out for.

Selling Goods to other EU countries – Distance Selling
Most businesses know that they sell goods to an individual or a non-VAT registered business in another EU country that the sale cannot be zero rated and as such UK has to be charged at 20%. This type of sale is known as “Distance Selling”. However not as many business are aware that if their distance sales to individual countries within the EU exceed certain thresholds they are obliged to VAT register in that country. For most countries the threshold is 35,000 Euros.

Therefore exporters of goods to the EU subject to the Distance Sales rules need to consider how they monitor their sales on an individual country by country basis.  For some business this may form part of their monthly management account information, however for most this data would not be readily available.

This could be achieved by for example attaching a department number, as such it would be possible to keep an eye on sales to each country.

Once a threshold for a country has been exceeded the business needs to VAT register in that country, this can be done via an agent or local representative.

Following VAT registration in another EU country there would be a “movement of own goods” from the UK to the other member state.  As the business is VAT registered in the other member state this movement can be zero rated, correspondingly, the business accounts for acquisition tax, i.e. Box to on their VAT return, in the other EU country and then accounts for VAT on the sale to the end customer.

Chiks is a member of with offices across the EU.  We can assist in finding a local representative to help with your regional VAT obligations including VAT registration.

Purchases of Goods from the EU
In order for a supplier of goods in another EU member state is able to zero rate their sale a UK business must provide them with their UK VAT number.  The UK business then accounts for .

However there are circumstances when it’s not so easy, for example if a UK business has yet to , or if the goods are not coming direct to the UK, or not coming to the UK at all.
Prior to making any large purchases of goods from the EU it’s important that the UK business considers where the goods are destined to go and whether the supplier will be in a position to zero rate the sale.  For example if the goods are going direct to an end customer it might be possible to take advantage of the “triangulation” simplification rules.

And a final thought…if a UK business is charged with VAT from another EU country…remember that it can’t be recover on the UK VAT return!  It may however be possible to recover it through the EU refund mechanism.

Cars, vans and fuel

A  VAT compliance visitor will arrive with a fairly standard list of questions. They will usually ask whether fuel is being provided for cars used in the business and if so how.

 

The follow on query will be whether the VAT fuel scale charge is relevant and if so, whether it is actually being accounted for on the VAT returns.

 

Where all fuel is provided by a business for a car, then:-

 

  1. All input VAT can be recovered where the VAT fuel scale charge is applied correctly each quarter, or
  2. No fuel scale charge is applied and so no input VAT at all is recovered, or
  3. Input VAT is recovered only on the business mileage records, and at the appropriate rate.

 

This is a very common error, which is why they ask the question. It is quite a complex set of rules for what can be a relatively small amount of VAT.

 

However it is worth checking that input VAT on fuel is being dealt with accurately to help you avoid back duty VAT charges plus potential penalties.

 

Fuel provided for a van on the other hand is not subject to the VAT scale charge. Where private use of the van is more than insignificant, however, HMRC expect a business to make a reasonable estimate of the private fuel proportion and block that percentage of input VAT.

 

Whilst on the subject of vans, when purchased the input VAT can be reclaimed in full assuming they are to be used for predominantly business purposes. However, should an HMRC visitor discover that a van has been used mainly or wholly for private use, that initial recovery of the input VAT could be assessed, again with the possibility of penalties being added.

 

As the two HMRC departments are communicating increasingly well, any errors uncovered by VAT officers can and have fed through into a further visit by their direct tax colleagues.

 

Where a missing VAT fuel scale charge has been discovered, direct tax officers can follow up and will review the forms P11D to check they include the fuel benefit for any company cars or show a fuel cost when  fuel has been provided to privately owned cars.

 

Also, where the VAT officers have queried private use of vans, this could also prompt a review of P11D forms for van scale charges and the additional fuel charge where they believe unlimited fuel is being provided.

These do start out as small queries, but can amount to significant costs when assessed over several years with penalties, so a little time checking now can save a significant cost later.

 

For more information, please contact Carol Watters.

 

 

Recovering VAT on pension scheme costs

HMRC have recently released two briefs concerning the Pension Scheme costs, the first (Brief 43, 2014) sets out HMRC’s position following the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV vs te Hoogezand (C-26/12) (“PPG”). The case relates to PPG, a Dutch company which incurred VAT on the administration of the pensions and investment management of the assets of the pension fund from third parties.

 

It has been established practice that it is possible for an employer to recover the VAT incurred on the administration expenses of a Pension Scheme, but not the investment management.  This was because HMRC considered the administration costs to be overheads of the employer as opposed to investment costs which HMRC considered to be overheads of the pension scheme. Following the result in the PPG judgment HMRC have changed their policy. They consider that there are now circumstances where employers can recover the VAT incurred in relation to investment costs which was not previously recoverable.

 

HMRC consider the tests required before an employer can recover VAT on investment costs are as follows:

Where the services supplied to the employer? i.e…

–          Who paid for the supply?

–          Is the employer party to the contract?

–          Does the employer have a valid invoice?

 

HMRC have extended a transitional period until December 2015 to allow businesses to adapt to the change in policy.

HMRC have confirmed that business that have not previously recovered VAT incurred on pension scheme costs may make a claim for this VAT as long as the above conditions are met.

 

Claims must:

  • Set out the basis of the error.
  • Show the amount claimed and how calculated.
  • Whether the claim is in respect of a defined benefit or a defined contribution pension scheme.
  • Have supporting documentation.
  • Take into consideration the four year cap.

 

Chiks can assist in determining whether a business is in a position to make a claim and if so can also help calculate and submit claims on their behalf to HMRC. To find out more, please contact Carol Watters.

Autumn Statement 2014 series: Cut VAT on tourism to help UK compete

Those in the leisure and tourism industry have long called for a cut in VAT on tourist accommodation and attractions and the run up to this Autumn Statement has been no different.

 

Do I think it’s likely this time? No. The Treasury has on many occasions repeated its stance that it is unclear what the true economic benefit would be. In other words, it would see a big dip in tax receipts without knowing how it would impact the economy.

 

That said, the argument for a cut in the rate of VAT on tourist related activity is a compelling one. The UK is one of only four EU states not to have a reduced VAT rate on visitor accommodation. The Campaign for Reduced Tourism VAT believes it could see 123,000 new jobs in the sector and argues the Treasury would see an extra £3.9bn over 10 years.

 

Cutting the rate to five per cent, which is line with many other European nations, most notably our not too distant neighbours in France, would no doubt trigger immediate investment in hotel upgrades, not to mention allowing small tourism businesses to flourish.

 

I am aware of holiday lets, for example, that are discouraged from taking bookings because they don’t want to hit the VAT threshold. When we have a situation where accommodation providers are turning away business so as not to risk losing 20 per cent of their income, there is something wrong. VAT is a punitive tax, not a progressive one, so I would like to see action taken to address this, though I won’t be holding my breath.

 

Looking at other issues, I wonder whether more money could be committed to having a better co-ordinated programme for advertising the UK to emerging markets like China and India, where the population is getting wealthier and is showing more appetite for travel in the UK, and to existing markets. From my conversations with local hoteliers, there has been a decline in the number of visitors from the United States.

 

Finally, it doesn’t seem like two minutes ago this firm was calling on the chancellor to offer some clarity on capital allowances ahead of Budget 2013. He duly went ahead and doubled the rate of the annual investment allowance. Eighteen months on and we’re in the same boat again with the rate due to drop from £500,000 to just £25,000 at the end of next year.

 

For hotels and other accommodation providers planning in their refurbishment programmes, some longer-term clarity on the AIA rate would be greatly welcomed.

 

Colin Johnson, partner at Chiks and head of the leisure and tourism team in Kendal.

VAT and holding companies

HMRC have recently released a Revenue & Customs Brief following  the Court of appeal case Briitish Airport Authority (BAA).  The case relates to whether a Holding Company can recover VAT it has incurred on expenditure specific to the acquisition of another business.

 

The Court of Appeal noted that there are 2 conditions for the recovery of VAT. “Firstly the tax must be incurred by a taxable person in the course of an economic activity. Secondly the goods and services on which the VAT is incurred must have a direct and immediate link with taxable supplies made by that person.”

 

The Court of Appeal dismissed the case because at the time of the purchase of the shares the purchaser was not making VATable supplies and the acquisition would not result in the Holding Company making future VATable supplies.

 

This case reiterates the ongoing problem that Holding Companies have with regards to VAT recovery, a Holding Company must be able to generate it’s own VATable supplies, for example by management charges, the supply of staff etc, before there is a possibility of recovering VAT on expenditure. In addition, if it is possible to link an acquisition of shares with future VATable supplies then there is the possibility of recovering some of the VAT incurred.

 

Silvergum Solutions Limited – Recovering VAT on expenditure

 

In the recent Tribunal case the above business lost a claim for input tax because the purchases made were actually used by an associated business.  That business was partially exempt therefore would have been unable to recover all the VAT incurred.  This case is a reminder of the basic points concerning input tax deduction and is often an issue for associated businesses.  For VAT incurred on expenditure to be recoverable the main criteria are:

 

– Have been purchased by a taxable entity.

 

– Relate to an actual purchase of goods or services.

 

– The VAT recoverable is the amount properly chargeable and may be different from the amount actually charged.

 

– The purchased goods or services must have been supplied to the entity recovering the input tax.

 

– The purchase must have been incurred for the purpose of the business and not restricted (blocked or attributable to exempt supplies)

 

– A valid purchase invoice must be held.

 

A business will often recover the VAT on a purchase invoice and not take into consideration the above factors.  However a business should always consider whether the VAT being recovered is correct to this or an associated business.  As the fundamental principle of VAT recovery is that a purchase must be attributable to a taxable supply this issue can often be corrected with a cross management charge.  However, as is the case above, if the associated business is partially exempt there may be the issue of the VAT charged on the management charge only being partly recoverable.  A possible further solution is the setting up of a VAT group, if the criteria are met to set up a VAT group no VAT is chargeable on supplies made between VAT group members. As always, it’s important to consider the wider implications before making any changes to VAT systems.

 

If you would like some more advice on this topic, please call Carol Watters on 01772 821021.

When to VAT Register – Partially Exempt Businesses

 

The VAT registration threshold currently stands at £79,000, this is calculated on a rolling 12 month basis.  A fully taxable business should monitor their turnover at the end of each month to see if they have exceeded this threshold.  However, for businesses who are also in receipt of exempt income, this task is often more difficult.  As a partially exempt business in receipt of both taxable and exempt income they need to keep a separate record of their taxable income in order to ensure that the threshold has not been exceeded. Easier said than done.

 

One way of doing this, which also lays the groundwork for post registration, exists for users of Sage Line 50 or other similar accounting software packages.  Accounting software allows for different codes to be set up for different VAT liability income streams, for example Sage T1 for standard rated and T2 for exempt.  In Sage accounts there are 99 tax codes available, some of these can be used to split taxable and non-taxable income.  By using these codes, even though the business is not yet VAT registered, it takes away the hard work of calculating the taxable income, at the end of each month a report can be generated to identify the total for each different tax code used.  Please note, the code parameters will need tweaking so Sage doesn’t calculate VAT as well!

 

As stated above, and when a business becomes VAT registered everything is in place, just the codes will need adjusting to calculate the VAT chargeable on the standard rate supplies.

 

Chiks can provide advice regarding the VAT registration requirements and also on how to configure your Sage software. Please contact either Carol Watters, VAT Manager on 01772 821021 or Nick Wetherall for Sage queries on 01772 821021.

Adjusting previous VAT returns, how and when to claim?

 

In a recent tribunal (Websons (8) Ltd v Revenue & Customs) a business saw its claim for overpaid VAT rejected.  Under the legislation, it is possible to go back four years and adjust previous returns, this is the case when VAT has either been incorrectly over or underpaid, or as in this example, the liabilities of the supplies are called into question through case law.

 

As the four year clock is always ticking it is common practice to submit a “protective” claim.  This is usually done when either a court has not made a ruling or HMRC are appealing.  A protective claim can also be done for the older periods when further time is required to make an accurate claim.

 

In the above case the business made a protective claim, however they didn’t specify the amount or the calculation to be used in making the claim.  Subsequently when the actual claim was submitted HMRC rejected it as it failed to meet the regulations within the VAT Act.

 

This case highlights several important points, ongoing over payments of VAT can be recovered from HMRC going back up to four years.  If the basis of the claim relates to possible changes brought about through the courts “protective” claims can be made whilst waiting for the final ruling, but the claim must include the reason why the claim is being made, the calculation to be used and a figure.

 

Also, when calculating and submitting a voluntary disclosure going back over a four year period it is best practice to start on the oldest periods first and if need be submit them as quickly as possible.  A further disclosure can be made for the more recent periods at a later date.

Getting it right, after it has gone wrong!

Calculating and paying the “right tax at the right time” is the basis of good VAT compliance, however this is often easier said than done.  Complexities within accounting systems, different VAT liabilities and the sheer number of transactions often result in errors being made.  The first and most important step is to have controls in place which will hopefully pick up these errors. Starting with an easy to follow and a simple as possible VAT account (i.e. calculation sheet), which is quite often maintained on a spreadsheet, through to reconciliation checks and reviews by a second pair of eyes.  With the correct controls in place hopefully errors will be picked up quickly.  For more complex businesses, assignment of responsibilities for individuals who are involved in the production of information for the VAT return is essential.

 

On the discovery of an error, the next VAT return can be amended to declare the error, that is unless the error is over £10,000, in which case HMRC have to be notified by way of a voluntary disclosure.  By doing so HMRC are unlikely to impose penalties due to the high level of cooperation and compliance shown.  One of the levels HMRC rate a business is by compliance.  By making adjustments for errors either on the return or by way of a voluntary disclosure is a good indicator that firstly, there are adequate controls in place to discover errors and secondly, the business is being honest by declaring the error.  If it can also be demonstrated that the underlying reason behind the error has been resolved then all the better.  It is a common misconception that by making a disclosure the business will get a “black mark” because it made a mistake, when actually everybody makes mistakes; it is what you do when you find the mistake that matters.

 

A further important point to consider is that HMRC are more likely to accept a time to pay arrangement in relation to a disclosure than if an error was discovered on a VAT visit.  In summary by making the disclosure a business is:

 

– demonstrating that controls are in place to uncover errors.

 

– demonstrating its honesty.

 

– significantly reducing the possibility of a penalty (however interest will still be chargeable).

 

– increasing the likelihood of agreeing a time to pay arrangement.

 

Chiks can assist in reviewing VAT systems and can recommend in the implementation of controls.  Also we can assist in the calculation and submission of voluntary disclosures. If you would like further information then please contact Carol Watters on 01772 821021.

VAT update for hoteliers

 

Some may think that VAT on hotel supplies is straightforward but it most certainly isn’t. In this blog I set out confirmation on how to charge VAT for different supplies following some recent changes.

 

Deposits on accommodation

 

VAT should be applied at the standard rate for deposits on all accommodation sales. This should be accounted for at the time the deposit is received not when the stay occurs. Most hoteliers know this by now as HM Revenue and Customs have been keen to check during compliance visits. However, if the advanced payment taken at the time of booking includes a cancellation charge then this receipt isn’t subject to VAT at the standard rate. Therefore by adjusting the description of the advanced monies (whilst ensuring your Terms and Conditions are up to date) you can avoid paying VAT on advance monies, and only pay VAT when the stay actually happens.

 

VAT on conference hire

 

If you hire out a room for a meeting or a conference and there is no significant catering (tea/coffee, biscuits and pastries are considered incidental) then there is no VAT on the room. If there is catering (whether provided by the hotel or a third party) then the room hire becomes a standard rated supply.

 

VAT on delegate packages

 

If you provide a rate for conferences which includes room hire, catering and accommodation then each element should be separately noted and VAT charged on the catering and accommodation. The room hire is exempt.

 

VAT on civil ceremony room hire

 

If you provide a room for civil ceremonies and you separately itemise the cost for this, and indeed people could book this room on its own, then the room hire is exempt from VAT. If this room is “dressed” by the hotel for each and every wedding in a different way then the provision of the room is classed as a service and VAT must be charged at the standard rate.

 

NB:  If the hotel building as an option to tax then all room hire is standard rated irrelevant of its purpose.

 

The rules are correct at the time of posting.

Stamp Duty Land Tax rebate opportunity following recent VAT case decision

If you have purchased a tenanted property in the past four years and you have paid VAT on the purchase price then you may wish to revisit this VAT treatment as HMRC accept their policy at the time was wrong. The change could result in a reduction of VAT for some buyers but will lead to reimbursement of SDLT for all qualifying transactions. If you would like to know more or you believe that you may have been affected by this policy change please contact me on 01772 821021.

VAT and cosmetic dental treatments and augmentations

 

The supply of services relating to health are exempt if they are provided by a health professional and the primary purpose of the services is the protection, maintenance or restoration of the  health of the person concerned.  This includes the services of registered dentists and dental care professionals.

 

For most services and procedures relating to dentistry it is usually quite straight forward to determine whether the exemption is applicable.  However, for augmentation procedures it isn’t so easy to determine whether the “protection, maintenance or restoration of health” is the primary purpose.  Over recent years the numbers of people receiving such procedures has increased dramatically and are no longer just the domain of the rich and famous.  It could be argued that all procedures are undertaken in part to prolong the health of the teeth and mouth as well as to improve appearance.

 

The issue of whether a procedure is purely cosmetic or health related is contentious and open to interpretation.  When is a procedure undertaken purely for aesthetic reasons and VAT be charged?

 

This problematic issue was finally heard in the European Court of Justice in the recent PFC Clinic AB case.  Unfortunately, things aren’t that much clearer following the release of the judgment, it was stated that:

 

“the fact that services such as those at issue in the main proceedings are supplied or undertaken by a licensed member of the medical profession or that the purpose of such services is determined by such a professional may influence the assessment of whether interventions such as those at issue in the main proceedings fall within the concept of ‘medical care’ or ‘the provision of medical care’

 

In other words if a health professional has undertaken a procedure it is an indicator that the procedure is exempt, however it is still a requirement that the services are intended to diagnose, treat or cure diseases or health disorders or to protect, maintain or restore human health.

 

So, what has changed?  In short, not much really, all dental work is deemed to be medical care, but are not exempt unless it can be demonstrated that the intention is to maintain or restore health.  Therefore, the health professional needs to determine whether they consider that the requirements for exemption have been met.  Considering the multitude of treatments and procedures and the individual’s needs and motives, this is far from an ideal situation.  In addition, HMRC will not be in a position to see case notes, so they won’t be able to argue that there isn’t a health requirement!

 

For further information please contact Carol Watters on 01772 821021.

The benefits of VAT Registration

 

In the recent budget the VAT threshold was raised to £79,000, as such many small businesses can trade without the inconvenience, compliance and cash flow issues that VAT registration often bring with it.  Most commonly affected are small turnover retailers who deal with the general public such as hairdressers and takeaway food establishments.  The burden of VAT registration usually results in reduced margins as following registration the market does not allow for prices to increase by 20%.

 

However, for some businesses VAT registration can be beneficial.  It is possible to voluntarily VAT register even if the VAT registration threshold has not been exceeded, as such businesses who provide goods and services to other VAT registered businesses should consider the advantages and disadvantages.

 

Advantages

 

–  It is possible to recover all the VAT incurred on expenditure.  If you are a goods trader this could be a substantial amount.

 

– Even suppliers of services can see a positive effect to cash flow, especially if the Flat Rate Scheme (“FRS”)  is taken advantage of.  Under the FRS although VAT is charged at 20%, depending on the type of business, not all that VAT has to be passed over to HMRC.

 

–  Having a VAT registration number can provide a level of kudos and professionalism.

 

Please note, this is on the assumption that all businesses customers are in a position to recover the VAT charged.

 

Disadvantages

 

– There is a compliance requirement to complete and submit the returns as well as pay HMRC the VAT collected.

 

–  Compliance issues can result in surcharges, assessment and penalties.

 

Summary

 

Business trading below the VAT threshold who sell to other VAT registered business should consider the potential benefit of VAT registration.  This can done by calculating unrecovered VAT for the previous year.

VAT – Cars & Vans

 

HMRC have recently updated their list of vehicles which they consider to be either a car or van.  The reason that this is important is that VAT is fully recoverable on commercial vehicles used in the business (including vans), however in the vast majority of circumstances VAT isn’t recoverable on the purchase of a car.  The problem arises with combination vans, which have additional seating or other attributes that are more “car” like.  In simple terms if a combi van or double cab pick up has a payload of more than a tonne then it will be classed as a commercial vehicle.  The result of which is that within a single range of vehicles by a manufacturer which may appear very similar in appearance, one vehicle may be deemed to be a van/commercial vehicle and the other a car.

 

It is therefore extremely important that when purchasing a combi van or double cab pick the rules are checked, otherwise you might get an unpleasant surprise on your next VAT inspection.

 

It is also worth noting that if you can demonstrate that a car is used 100% for business then the VAT is recoverable.  However detailed evidence needs to be maintained and retained.

 

for HMRC’s updated list

 

HMRC also provide the following guidance: