VAT Question of the Week: VAT Voucher Changes

Q- My clients own a hair and beauty salon and have recently started to issue their own gift vouchers. I understand that the VAT treatment depends on the type of voucher, and also that there have been some recent changes. Please, could you clarify?

A- Vouchers issued by the same business that will redeem them are known as retailer vouchers. They can take three forms:

  1. Experience vouchers which have no face value but entitle the bearer to redeem for a specific service;
  2. Single purpose face value vouchers (SPFVV) which under current rules entitle the bearer to redeem for only one type of goods or services which are all subject to a single rate of VAT; and finally
  3. Multi-purpose face value vouchers (MPFVV) which can be redeemed for any type of goods or services, subject to different rates of VAT.

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VAT Question of the Week: VAT on the Sale of Assets

Q- My client trades as a limited company and operates using the Flat Rate Scheme for small businesses (FRS). The company purchased a car in 2015 which was used for business and private purposes. He also bought a van for £18,000 + VAT, which had minimal private use. No VAT was recovered on the purchase of the car but he did claim it on the van. My client is now selling both of the vehicles; do we need to account for the VAT on the sales?

A- Businesses using the Flat Rate scheme cannot generally recover input tax; this is because the flat rates have been calculated to incorporate an allowance for input tax. However, VAT can be recovered on some goods of a capital nature purchased by the business where there is a single purchase, and the amount of the purchase is £2,000 or more including VAT. This provision to allow recovery of input tax on capital expenditure goods would have allowed him recovery in respect of the van. Read More

VAT Question of the Week: Anti-Avoidance

Q- My client has a limited company that runs a children’s day nursery. It is not VAT registered because all of its supplies are exempt. Their business is expanding and they are looking at purchasing a larger property – the property they have identified has an Option to Tax (election to waive exemption), and the total purchase price is £300k + VAT. As the nursery cannot VAT register, the director is looking to set up a new company to purchase the property. It is the intention that this company will then opt to tax the property and rent it to the associated nursery company. As they will be making a taxable supply by charging VAT on the rents, I assume the new company will be able to reclaim the VAT charged on property purchase? 

A- As a basic principle of VAT, businesses have the right to deduct input tax where the VAT incurred is intended to be used in making taxable supplies. From this, you would expect to conclude that, as the property company will opt to tax the building and make taxable use of it, it should be able to recover the input tax on the purchase. Read More

Vat Question of the Week: What do HMRC mean by Taxable Turnover for Making Tax Digital

Q-My client works through her own limited company, providing public relations and marketing consultancy to businesses in the UK and all over the world. The business is VAT registered in the UK on a voluntary basis; is she going to be affected by Making Tax Digital?

A- Any entity with a taxable turnover that is above the VAT registration threshold on 1 April 2019 must follow the Making Tax Digital (MTD) rules, so essentially the question here is what is included within “taxable turnover”?

Taxable turnover for MTD is the same as taxable turnover for VAT registration purposes. HMRC’s VAT Notice on MTD (700/22) rather ambiguously states that “VAT taxable turnover is the total value of everything you sell that is not exempt from VAT”. It refers readers to VAT Notice 700/1: Should I be registered for VAT, which provides details in section 2, but this is not simple to understand, so we have provided some general clarification below.  Read More

VAT Question of the Week: VAT – Too Late to Claim?

Q- My client has been approached by a builder, who carried out repair work to the client’s factory some years ago. The builder was late registering for VAT and is now looking to issue VAT only invoices to my client for the supplies in question. I have several concerns: is the supplier liable to account for the VAT if the supplies were made more than 4 years ago? Is my client obliged to pay and if so can he now recover the VAT given that the original invoices were dated more than 4 years ago?

A- The supplier will be liable to account for VAT on supplies made since the effective date of registration. HMRC will treat the income as VAT inclusive, but the supplier has the option of issuing VAT only invoices if the customers agree to pay the extra, usually on the basis they can recover it. Read More

VAT Question of the Week: A Building for a Charity – VAT or Not?

Q. My client owns and rents out commercial properties; mainly office blocks. A local charity has asked to take a lease on one of his buildings but is saying that VAT should not be charged on the premium or rent. My client has opted to tax all of his properties because he does not want to be partly exempt and, more importantly, this particular building is within the capital goods scheme. I have forewarned my client that if he were to make exempt supplies during the term of the scheme he may have to repay some of the VAT he claimed on the building and, understandably, he isn’t happy about that. Does he have any choice in this matter? 

A. To be fair to both parties, if the amount of VAT at stake for your client is relatively small it may be possible to factor this in when negotiating the lease. However, whether a property owner facing a significant VAT loss has any scope to refuse to disapply his option to tax depends on how the charity intends to use the property. Read More

VAT Question of the Week: Working on Goods From Outside the EU

Q- My client is a VAT registered business operating as a garage. An individual based in Guernsey is sending his car to the UK for a service, and once the service is completed, my client will send the car back to the customer. Will my client be required to charge VAT?

Q- The first thing to establish here is the place of supply, and to do that your client has to consider the nature of the service being provided, and whether his customer is a business (B-B) or an individual (B-C).  The service here is that of working on someone else’s goods and you have said that the customer is an individual. The general (or default) rules for B-B supplies and B-C supplies are different. If this had been a B-B supply, it would have fallen under the general place of supply rule, being where the business customer belongs, i.e. Guernsey, and therefore outside the scope of VAT.  However, as a B-C supply it is one of the exceptions to the B-C general rule (being where the supplier belongs), and the place of supply is where the work takes place. As it happens, in this particular case both rules achieve the same outcome.  The work takes place in the UK so the supply falls within the scope of UK VAT; however, this does not necessarily mean VAT must be charged.

Section 16 of VAT Notice 741A sets out those services that may, in certain circumstances, be subject to the zero-rate of VAT when supplied in the UK.  These services include work on goods for export (legal reference: VAT Act 1994 Schedule 8 Group 7 item 1).

Zero rating under this provision applies where:

  • the goods on which the work is to be carried out have been obtained, acquired within, or imported into the EC for the purposes of being worked on; and
  • the goods are not used in the UK between the time of leaving the supplier’s premises and exportation; and
  • on completion of the work, the goods are intended to be, and in fact are, exported from the EC either:
  • by the supplier of the service (or someone acting on their behalf); or
  • If the customer belongs outside the EC, by the customer (or someone acting on the customer’s behalf).

The information you have provided indicates that your client will meet these conditions and therefore the supply is zero-rated.  Your client must obtain and keep satisfactory official or commercial evidence of the export of the car to a place outside the EU. Examples of acceptable evidence are set out in VAT Notice 703 VAT on goods exported from the UK.


VAT Question of the Week: Recharges V Disbursements

Q- My client is an IT consultant, operating through a VAT registered UK company. He is supplying consultancy services to another UK IT business. He has incurred hotel, travel and meal expenses, and is charging these on to the company he is supplying. Can he treat these as disbursements, and therefore not charge any VAT on them?

A- The treatment of recharged expenses is a common cause of VAT errors. A disbursement is where you act on behalf of your customer in arranging and paying for goods or services, but the underlying supply remains between the supplier and your customer. Read More

VAT Question Of The Week: Installed Goods

Q- My client is a VAT registered luxury carpet and flooring specialist, and they have a contract to supply and fit a hand-woven carpet in a VAT registered boutique hotel in Italy. Will my client need to charge VAT? He will be using a VAT registered fitter in Italy to actually install the carpets.

A- When a business is contracted to install goods on land or within a property, it can be difficult to decide whether that is a supply of a land-related service or of installed goods. Whilst the place of supply for both would be the same, being in the first instance where the land is, and in the second instance where the goods are installed, the rules to determine who must account for the VAT differ. Read More

VAT Question Of The Week: Building Work for a Disabled Customer

Q- I have a client who is carrying out extensive building modifications to a disabled person’s home. He has had conflicting advice from various contacts in the trade about VAT. Can all the work be zero-rated or are there limitations?

A- Your client cannot automatically zero rate his supply as the liability will depend on the nature of the work supplied. There is no general VAT relief on building modifications for disabled people or on purchases of building or construction materials. However, a number of specific reliefs exist within VATA1994 Schedule 8 Group 12.

The Group 12 construction reliefs were Read More