Tag: VAT


VAT and Imports – The Importance of the C79



Businesses that import from outside the EU usually appoint an import agent to assist with the process. Whilst the agent should provide you with all the documentation needed to support the purchase costs, they are not responsible for paying the VAT as the goods arrive in the UK.


When The Shipper Pays!


In the absence of your business having arranged a duty deferment account with HMRC, the agent might pay the import VAT and Duties on behalf of the business, and then seek reimbursement of them from the business. The document from the shipper which notes the VAT and Duty due is NOT a VAT invoice and cannot be used to support the input VAT claim by your business.


Forms C79


Forms C79 are issued by HMRC. They confirm the input VAT amounts and link them to the name of your business. HMRC will issue the C79 by reference to the EORI number which you should have provided to your shipping agent.


This is the only document which can support VAT paid as input VAT and should be retained with the relevant purchase invoices.


Economic Operator Registration and Identification (EORI) Number


Delays will arise where the business has not accurately quoted their EORI number to their agent. This will prevent a C79 being issued correctly which may in turn, delay recovery of that input VAT.


Where businesses rely on the agents invoice figures on which to recover VAT, they can mistakenly include duty amounts as input VAT on their VAT returns.  This will lead to compliance errors as duty can never be recovered on a VAT return, and the input VAT can only be claimed when supported by a C79.


Where C79 forms have been lost, it is possible to obtain duplicates, but this also delays recovery of the VAT paid from HMRC.


If you would like to discuss the above blog in more detail, or you would like to speak with a member of our team, please contact Carol Watters or call 01772 821021 to be put in contact with a member of our Tax and VAT team.

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VAT Outstanding Returns Campaign


HMRC has announced that it is beginning a campaign to encourage businesses that have outstanding VAT returns to submit them. The announcement, on says:


“To take advantage of the best possible terms you must complete and submit your returns by 28 February 2013. If your VAT Returns are still outstanding after 28 February, your tax affairs will receive closer attention from HM Revenue & Customs.”


HMRC go on to say in a section headed ‘Why you should act now’:


“HMRC will be targeting businesses that have been identified as not having made a VAT Return by the due dates. They will compare information from various sources and will target those who should have sent in a return but have failed to do so. HMRC may carry out checks into your tax affairs or use legal powers to get detailed information about your finances.”


If you are found to owe VAT you may face higher penalties than if you come forward voluntarily. You may even face a criminal investigation. When a return is not received, HMRC will estimate what you owe, and so you might pay more than is actually due.


If your business has any outstanding returns there is only a small window of opportunity to get them completed and submitted to HMRC. Chiks can assist with all VAT compliance issues, including the completion of VAT returns and assisting with the submission of time to pay proposals.


When do I have to become VAT registered?


We have a had a recent flurry of VAT registrations, these have been for varying reasons but most surprising are those we are having to register suddenly or potentially even late.


If you have to register for VAT but you don’t, you will still have to pay the VAT due from the time that you should have registered. HMRC may also charge you a penalty based on how much VAT is payable, and how late your registration is.


In the rule (detailed below) where a 12 month period is referred to, this is a rolling 12 month period – your accounts year may be to a set date but this is not the only time you should be reviewing your VAT position.  Once you start to get close to the threshold you should be reviewing your position monthly.


Why you might register for VAT


The most common reason is Supplying goods or services within the UK.  If your turnover of VAT taxable goods and services for the previous 12 months (see above) is more than the current registration threshold of £77,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT.


Other reasons to register are listed below:


– Taking over a VAT-registered business from someone else.

– Receiving goods from other countries in the European Union (EU).

– Supplying goods or services from the UK to other countries.

– Supplying goods or services to the UK from other countries.

– Voluntary Registration:  We have explored the advantages of voluntary registration on our a recent blog.


How to register


To apply for VAT registration, you can either use HMRC’s online services or send paper forms through the post.


VAT Reclaims – Fraudulent Card Transactions


Retailers and other businesses who sell goods to the public which are purchased using stolen credit or debit cards may stand to benefit from the on-going litigation between Dixons Retail plc and HM Revenue & Customs.


Dixons is seeking to reclaim VAT on fraudulent transactions on the basis that on such transactions ‘no transfer of the right to dispose of tangible property as owner arises’ and hence, no supply for VAT purposes.  The banks have not applied a chargeback (including the VAT) as Dixons have complied with all the fraud checks required.


Retailers should consider a retrospective claim going back 4 years in the light of Dixon’s claim being for £70m plus interest.  The upside could be significant but the clock is ticking. We have significant experience in handling retrospective VAT claims and would welcome the opportunity to discuss this opportunity with you.


Beware the Pitfalls of the Flat Rate Scheme!


The Flat Rate Scheme (“FRS”) offers a simple and usually cost effective way of calculating a business’ VAT liability.  However before committing to joining the FRS a business needs to consider future expenditure.  The scheme does not allow for separate recover of VAT incurred on expenditure unless a capital item has been purchased that cost more than £2,000.  This excludes all VAT incurred on services.  Normally this would not be an issue, however out of the ordinary expenditure could prove costly, including:


–    building works (services not goods)
–    software upgrades (usually services not goods)
–    professional fees incurred on property transactions


Therefore, if a business considers that substantial costs may be incurred on the likes of any of the above, the benefits of joining the scheme need to be weighed up against the lost VAT recovery.  Similarly, if already on the scheme, it may be possible to come out of it prior to any large expenditure.  When in doubt…take advice!

Autumn Statement: Help healthcare businesses recover VAT


As a sector that provides VAT exempt services, it’s a continuing bone of contention for healthcare businesses that they are unable to recover the VAT they are charged on direct business expenses.


Why not make healthcare services zero-rated instead of exempt and then the 20 per cent VAT charged on direct expenses will be recoverable.


I’m not holding my breath, but I’d like to see government give some consideration as to how this issue could be addressed.


I am concerned about the possibility of a reduction to the £50,000 annual allowance threshold for pension tax charges as that will put even more GPs into the position of having to pay this tax charge in respect of growth in their NHS pension benefits.


Generally we could do with a boost for employers to encourage business growth by cutting the rate of employers’ NIC, and increasing (or at least retaining) the Annual Investment Allowance.


I’d also like to see the chancellor take more lower paid workers out of the tax and NIC system altogether by increasing the relevant lower band thresholds.


Deborah Wood, healthcare services partner at Chiks

How to avoid unnecessary tax penalties and complications


I recently read an article which highlighted the penalties that HMRC could impose should a business fail to register itself for VAT within the set timescales. Many people would agree such penalties are justifiable in terms of loss to the tax payer’s coffers.


This led me to ask the question:


“Can penalties be imposed if a business simply fails to notify HMRC (specifically the VAT section) when there has been a change in circumstances?  An example of this might be where a sole trader incorporates into a limited company.”


The answer


Even though there may be no tax loss the answer is yes, because the old business failed to register the transfer of the VAT number as a going concern and the new company has failed to register itself for VAT.


I think this serves as a reminder that whenever any individual, sole trader, partnership, company or any other type of entity has a change in circumstance it’s important to both review their tax and legal obligations and seek professional advice.


The list of what may need considering is long but some of the more common things to remember should there be a change in ownership of a business, a change in directors or a change in family circumstance (birth, death, marriage, divorce) are listed below:


– All HMRC offices (VAT, Corporation Tax, PAYE, Income Tax) need to be informed if a business moves from being a sole trader/partnership to a limited company


– HMRC should be informed when a new company is set up, even more so when it begins trading


– If an individual becomes a Director of a company for the first time HMRC need to be informed


– Insurance should always be a consideration if there is a change in circumstance or ownership


– Where there is a change in ownership consider whether the partnership or shareholders agreement need changing


– A change in family circumstance, or a change in assets, should make you ask yourself “Does my Will need changing?”


The key message is that consideration is given and advice is sought at the earliest opportunity.  A professional advisor will not just help you avoid the pitfalls but may also be able to help you mitigate any penalties that may arise.


HRMCs ‘failure to notify’ penalty


Late Registration Penalty (700/41) and Misdeclaration Penalty and Repeated Misdeclaration (700/42)


HMRC have announced updated versions of the above VAT Notices.  The Late Registration penalty has been replaced by a new failure to notify penalty for obligations to notify liability to be registered on or after 1 April 2010.  The penalty varies between 0% and 100% and is determined by whether HMRC were prompted or unprompted.


In addition the following “behaviour” factors are taken into consideration, the definitions below are taken from HMRC:



“This is where you failed to tell us about a circumstance that affected your liability to tax within the relevant time limit, but the failure was not deliberate or deliberate and concealed.”


Deliberate but not concealed
“This is where you knew that you should have told us about a circumstance that affected your liability to tax within the relevant time limit, but you chose not to tell us.”

Deliberate and concealed


“This is where you knew that you should have told us about a circumstance that affected your liability to tax within the relevant time limit, but you chose not to tell us. As well as choosing not to tell us, you also took active steps to hide the failure to notify from us.”


The important point to note that no penalties are due if there is a “reasonable excuse”.


For further information please contact Carol Watters on 01772 821021.


What tax relief can I claim when buying commercial property?


Businesses buying or selling commercial property could be hit financially if they fail to act on important changes to capital allowances on fixtures.


Fixtures include the plant and machinery that form part of the property, such as heating equipment, air conditioning and hot water systems. Since 2008, general lighting, electrical installations and cold water systems have also qualified as plant.


Tax is not usually the first thing on the mind when buying or selling commercial property, but these changes mean it must be prioritised to avoid losing out financially. In the past, it has often been possible to deal with tax issues after completion. However, this has all been changed by amendments to the rules for capital allowances that came into effect on April 1, 2012.


How the changes affect transactions


The changes mean that in order to claim capital allowances, purchasers must sign a joint ‘section 198’ election with the vendor, confirming the apportioned price of the fixtures. It is no longer acceptable for the contract to set out the apportionment – indeed any contract apportionment of proceeds is now completely irrelevant to the allowances that can be claimed on fixtures.


Without a signed election, the purchaser cannot claim any allowances on the fixtures, nor can any future purchaser. In theory, the time limit for signing the election is two years after the date of contract. In practice, though, there will be no incentive for the vendor to sign an election after completion. So it is imperative that the purchaser ensures the election is signed before completion.


The need to negotiate


The election is binding on the vendor as well as the purchaser, which usually involves a conflict between the interests of the vendor and the purchaser: a high claim will reduce the purchaser’s tax bill and increase the vendor’s bill, and vice versa. Ultimately, the figure must be reached by negotiation.


But what if an election is not signed? As we have already seen, this will prevent the purchaser claiming allowances. The vendor,  on the other hand, will still have a clawback of capital allowances, based on a just and reasonable apportionment of the contract price.


Section 198 elections are not new, although they have seldom been used in the past. However, from now on they will be a crucial part of the property transaction.


VAT Implications


VAT is equally important. The purchaser must obtain confirmation of whether VAT is chargeable on the purchase price. If it is, he will need evidence in the form of the option to tax, because if VAT is wrongly charged, the purchaser will not be able to recover it.


So, while tax will not be the driving factor in commercial property deals, capital allowances and VAT should be addressed in good time, before contracts are exchanged if potentially significant extra costs are to be avoided.


VAT – to register or not to register


I recently delivered a half day workshop to a group of start-up and small businesses on behalf of the Cumbria Rural Enterprise Agency.  One of the questions that was asked was:  “Is there a reason to register for VAT even if your turnover is under the VAT threshold?”


In some cases it can be beneficial to business owners to register for VAT when they are below the compulsory registration threshold (currently where turnover exceeds £77,000 over a 12 month period).


What to consider


The most important question to ask is ‘Who do you supply?’  The answer to this question will allow you consider voluntary registration in more detail or rule it out as an option.


Your answer:  I supply individuals or non VAT registered business


If you principally sell goods or services to individuals or non VAT registered businesses then it is unlikely that you will be able to increase your prices by 20 per cent without them noticing and you run the risk of  losing their business because they cannot reclaim the VAT.


Your answer:  I supply VAT registered businesses


If you principally make supplies to other business, that are also VAT registered then adding 20 per cent to your sales will make no difference to them.  Ultimately the cost of goods they buy from you remains the same as they can claim back the VAT you charge.


In this case it is worth exploring the option to register.


There are several different VAT schemes which may well suit your business, and some of these could save you time and money.  .

Alternative VAT Schemes


The quarterly process of completing VAT returns can be time consuming. However, there are alternative VAT accounting schemes out there, designed to lessen the administrative burden, reduce the scope for error and free up your time to concentrate on running your business.


Flat Rate Scheme


The Flat Rate Scheme for VAT is designed to simplify VAT accounting by calculating your VAT liability as a fixed percentage of your total VAT inclusive turnover.


Businesses with an annual turnover of £150,000 or less are eligible to join the scheme and once you join you can stay in the scheme until your total annual business income exceeds £230,000.


The flat rate percentages vary between 5.5% and 14.5% depending on your particular business sector. If you are newly VAT registered, there is also a one per cent reduction in the flat rate percentage for the first year of registration.


Under the scheme, you charge the full VAT at 20% to your customers, but only pay over the flat rate percentage to HMRC. You keep the difference. However, you cannot offset the VAT you pay on purchases, except in the case of certain capital assets costing more than £2,000, including VAT.


The Flat Rate Scheme won’t be right for all businesses and this will largely depend on your mix of sales and the level of VAT currently suffered on your purchases, but for eligible small businesses this is a genuine opportunity to simplify your VAT returns and, reduce the scope for mistakes. It may even save you money!


Annual Accounting Scheme


The Annual Accounting Scheme for VAT is exactly that, an annual process. Unlike standard VAT accounting, where VAT returns are required to be submitted on a quarterly basis, the Annual Accounting Scheme allows you to submit one VAT return covering the previous twelve months trading.


You can use the scheme if your annual VAT turnover is £1.35 million or less and once you join you can stay in the scheme until your annual VAT turnover exceeds £1.6 million.


Under the Annual Accounting Scheme, you make either nine monthly, or three quarterly interim payments towards your VAT liability, with a balancing payment or refund falling due two months after your year end.


As well as saving time, the Annual Accounting Scheme can help businesses better manage their cashflow by offering flexible monthly or quarterly installments.


In addition, the scheme gives you an extra month to file your VAT return and pay the balance of your VAT liability, when compared with standard VAT accounting.


Cash Accounting Scheme


Under standard VAT accounting, VAT is generally payable on invoices issued in the VAT quarter, irrespective of whether your customer has actually paid you. Using the Cash Accounting Scheme, VAT only becomes  payable to HMRC once your invoice has been paid.


The annual VAT turnover thresholds for the Cash Accounting Scheme are identical to the Annual Accounting Scheme.


This scheme offers automatic bad debt relief and improved cash flow, but on the flip-side you cannot recover the VAT suffered on your purchases until you have paid your supplier.


And finally, don’t forget that from 1 April 2012, all businesses, irrespective of size, are required to file their VAT returns online and pay any VAT due electronically!


Compulsory submission of VAT returns online


From 1 April 2012, all remaining VAT-registered businesses – those registered for VAT before 1 April 2010 with a VAT-exclusive turnover of less than £100,000 – will also have to submit VAT returns online and pay any VAT due electronically.


Most of our clients have actually been quite positive about filing returns online as they receive immediate confirmation that the return has been transmitted, it removes the risk of the return being delayed or lost in the post and they get an additional 7 days to file the return. However, the process for setting up your gateway account for this service can be a little confusing especially if you are not particularly experienced with a computer.


If you are still submitting VAT Returns on paper, we strongly recommend that you sign up to using the online service before April 2012, so that you have time to get familiar with the new service. If you need advice on what to do to register online or how accounting packages such as Sage can be configured to submit the information for you, please get in touch with your usual contact at Chiks who will be happy to help.


Budget 2012: Could a reduction in VAT rate benefit tourism businesses?


Colin Johnson, corporate services director at Chiks, and head of the firm’s leisure and tourism team in Kendal, on the need to support the tourism sector.


There have been well publicised calls for the rate of VAT on tourism-related activity to be cut to five per cent in line with many other European countries and I believe this could help UK tourism be much more competitive.


The Chancellor has said he’d like to see greater proof that this is a policy that can work, but France has made strong arguments to show that it has been a tax neutral, or even tax beneficial policy because it has given tourism businesses greater willingness to reinvest and create jobs.


With diesel prices at a record high, I also think something has to be done to help the Cumbria region, which because of its geography, feels a greater impact from high fuel prices. The Chancellor has intimated that he will go ahead with a 3p increase in fuel duty from August, but I think this again needs to be delayed to help both businesses and employees.


We’ve seen many times how a hike in fuel prices can affect the region, particularly in discouraging visitors from further afield. At a time when families are already struggling financially, there’s a real need to help stabilise fuel prices, which are already volatile due to a number of external factors.


More generally, I would also like to see an Enterprise Zone for Cumbria because the area has not yet benefited from this initiative, which offers cheaper business rates, superfast broadband and lower levels of planning control.


Should there be a reduced rate of VAT for tourism related businesses?


Tourism and business leaders in our region are calling for the Government to get in line with other EU countries and drastically cut the rate of VAT on the tourism industry.


They argue that although every business sector would get a boost from a general cut in VAT, a new rate of 5% for the tourism industry will attract more visitors and incentivise tourism related businesses to invest.


Tourism is one of the most significant segments of the local economy and our region is therefore disproportionately affected by this uncompetitive tax rate. With some signs of weakening consumer demand, the sector and the region are amongst the worst affected by current austerity measures and decreasing disposable income.


There are currently 21 countries in the EU with a lower VAT rate for the hotel sector and 13 for the overall hospitality sector.  A reduction in the rate of VAT in France for tourism related activities is reported to have led to the creation of 21,700 jobs and many argue that reducing the rate of VAT would actually increase the overall tax take for the exchequer.


The British Hospitality Association is one of the groups that are lobbying Government on this topic and further information, including details of how to add your views and support for the change can be found by following the  link.