VAT Question of the Week: Flat Rate Pre-Registration VAT

Q- My client is about to register for VAT and wants to use the flat rate scheme as she meets the conditions and it would be beneficial to her. However, her intention is to register for normal VAT initially, in order to recover pre-registration input tax, and then after the first return has been filed, switch to the flat rate scheme. Is this acceptable or will HMRC challenge it?

A- Input tax incurred after the effective date of registration is not recoverable, under flat rate rules, with the exception of capital items costing more than £2,000 including VAT.

However, there is no need to switch VAT accounting schemes to recover pre-registration input tax.  HMRC Notice 733, confirms at para 7.6 that a trader using the flat rate scheme can recover input tax on goods and services prior to the effective date of registration (EDR) under the normal rules.

The normal rules for pre-registration input tax can be read in VAT Notice 700 (section 11) and in HMRC manuals VIT32000 – Read More

Tax Question of the Week: Professional Fees

Q- My clients have inquired about the possibility of claiming relief for expenses incurred in connection with closing down their company.  In particular, they would like to know whether they could get tax relief for professional advice that they have taken and whether they can arrange for the company to make pension contributions on behalf of employees.

A- As ever, we must first consider whether the expense meets the wholly and exclusively (‘W&E’) test for the purposes of trade (s54 CTA 2009). We also consider whether the expenses are capital in nature. If the W&E test is not met or the expense is considered to be capital then the expense will be disallowed in computing profits. Read More

Making Tax Digital for VAT

Digital recordkeeping requirements: Treatment of supplier statements or individual invoices

The Croner Taxwise VAT Advice line has received numerous calls from accountants whose clients receive large numbers of invoices from single suppliers,  such as builder’s merchants or drugs companies.

VAT returns for those clients have historically been prepared based on the supplier statements ( often a monthly summary), rather than the individual invoices.   However, the concern until now has been that the MTD requirement relating to digital record keeping of supplies received required each supply received to be recorded individually –  an exceptionally onerous task. Read More

Tax Question of the Week: Pension Deductions

Q- We have received many queries from payroll departments on how to process refunds of pension contributions when auto-enrolment and opting out span a tax year. There is also some confusion about relief at source and net pay pension schemes so we hope this article helps all those clients processing payrolls.

A- A newly established Ltd Company who recently registered for PAYE now had to comply with Auto Enrolment duties and so began the auto-enrolment process for all eligible employees in March 2019 (Pensions Act 2008 section 3).  The client was unsure how refunded contributions should be processed in the April payroll should any employee chose to opt out. (Pensions Act 2008 section 8).

Paragraph 44 of Pensions Regulator Detailed guidance for Employers states:

When an employer is given a valid opt-out notice, they must refund to the jobholder any contributions that have been deducted from pay (less any tax due) by the refund date, which is either:

  • within one month of being given the valid opt-out notice, or in the next available payroll run after they were given the notice”.

Read More

HR Expert: Physical Contact at Work

Q- My client has recently read online that some staff are calling for physical contact at work to be banned, is this something they need to think about

A – Your client is likely referring to the recent study conducted by Totaljobs, which revealed that 76% of respondents would like the level of physical contact they experience in work reduced, whilst 42% would like an outright ban on certain interactions. Read More

VAT Question of the Week: 28 Day Rule

Q- My client runs a small bed and breakfast and a furnished apartment which to date has been let on an Airbnb basis with a daily linen change and cleaning service. Normally she would account for VAT on all of these stays. Now she has received an enquiry from a construction company about exclusive use of both for a period of 12 months to house some of its employees working away from home. Should she still charge VAT?

A- The VAT Act 1994 Schedule 9 Group 1 exempts the grant of a licence to occupy land. However, item 1(d) excludes from the exemption the ‘provision in a hotel, inn, boarding house or similar establishment of sleeping accommodation or of accommodation in rooms which are provided in conjunction with sleeping accommodation …’ Read More

Tax Question of the Week: Residential Nil Rate Band

Q- If I leave my main residence to a discretionary trust on my death for the benefit of my children, will I still benefit from the residential nil rate band?

A- To benefit from the residence nil rate band you must leave your main residence to a direct descendant. For the purpose of this threshold, the direct descendant of someone is a child, grandchild or other lineal descendant, a husband, wife or civil partner of a lineal descendant (including their widow, widower or surviving civil partner), a child who is, or was at any time, their step-child, their adopted child, a child who was fostered at any time by them, a child where they’re appointed as a guardian or special guardian when the child is under 18. This does not include nephews, nieces, siblings, and other relatives. Read More

VAT Tax Question of the Week: MTD and Cash Accounting

Q- My client is a wedding and party planner, and is compulsorily VAT registered operating the cash accounting scheme. Their current system is not particularly sophisticated and they only operate using a manual cashbook. I am in the process of ensuring they are MTD compliant for their 07/19 return, but want to keep things as simple as possible for them. Can they continue to operate a cashbook in a spreadsheet format and submit via bridging software?

A- HMRC’s Notice on Making Tax Digital 700/22 (, sets out the digital record-keeping requirements in section 4.3. It states that for both supplies made and supplies received a digital record should be kept of: Read More

VAT Question of the Week: Input Tax on Re-Registering for VAT

Q – My client is a bathroom fitter and was VAT registered from January 2017 to March 2018 as he had a contract with a large developer to fit en-suites into new-build dwellings. His supplies were mostly zero-rated and he received repayments of VAT from HMRC. He bought a new commercial vehicle and specialist tooling in August 2016 on which he recovered the VAT as pre-registration input tax. On his final return, for the tax period ending 31st March 2018, he accounted for VAT on all the assets and stock on hand as a deemed supply.

The client has now been approached by another developer to install bathrooms and will look again to VAT register in order to recover his input tax. His effective date of registration (EDR) will be 1st April 2019. We are happy that he can recover pre-registration input tax on new tooling and stock on hand at registration that he purchased earlier in 2019, but can he also recover the input tax on the commercial vehicle and the tooling purchased in 2016 as pre-registration input tax again?

A –

Regulation 111 entitles businesses that buy goods and services prior to VAT registration, to be used for its taxable activities after registration, to recover the VAT as input tax provided that: Read More

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