VAT Question of the Week: Reistration

Q- Following the filing of self-assessment returns I have been asked to address VAT registrations for several clients that exceeded the VAT threshold of £85000 in the 2017 -18 accounting year. Can you advise how best to address this? Should we register them immediately with a registration date of 5 April 2018?

A- Before rushing to register your clients you should ensure that they made taxable supplies that have exceeded the threshold and at what date. You will need to consider the liability of supplies made and whether the place of supply is the UK.

Compulsory registration only applies when taxable supplies made in the UK exceed £85000 on a rolling 12-month basis, not a financial year.   You should only include those supplies of goods and services that would attract VAT at the standard, reduced, or zero-rate once registered, together with the value of imported services to which the reverse charge would apply.

Supplies that are exempt from VAT or outside the scope of VAT are ignored as far as the threshold is concerned.  This would mean that a client who only provides services to overseas business customers, where the place of supply is the customer’s country, is not required to register; for those clients who only make exempt supplies, registration is not allowed.

When you have narrowed it down to the clients whose taxable supplies have exceeded the threshold, then you can consider those clients that only make zero-rated supplies. These clients would be receiving regular repayments of input tax. By ticking the relevant box on the VAT1 HMRC can be requested to grant exemption from registration, and this should be considered where the cost of submitting returns exceeds the amount of any repayment HMRC Notice 700/1, para. 3.11refers

https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat

For those remaining clients, you will now need to establish the correct date of registration. There are two tests for compulsory registration- the backward look and the forward look.

When considering the backward look, the registration test is carried out on a rolling 12-month basis and a business has a liability to be registered when it has exceeded the threshold at the end of any historic 12-month period. The effective date of registration or EDR is the first day of the second month after the limit has been exceeded.  The forward look applies if the threshold is exceeded in any one 30 day period alone and then the registration date is the beginning of the 30 day period.

You should now consider whether the increase in sales was due to a one-off event outside the normal trading pattern of the business as it is possible to ask for an exception from registration. Where this has occurred and you can demonstrate that sales in the following 12 months did not exceed the deregistration threshold of £83000 HMRC may grant an exception from registration.  HMRC Notice 700/1, para. 3.11 refers.

For those clients who are required to be registered, it is worth considering whether an even earlier date than the EDR established would be beneficial. A business has the option to voluntarily register on a retrospective basis for up to four years from the application date. Where the customers are VAT registered and happy to accept VAT only invoices then related input tax can be recovered. Additionally, the business can also recover pre-registration input tax. In the case of goods, the time window for pre-registration extends to four years before registration, as long as the goods were used in the business during that time and are still owned on the first day of VAT registration, for services these can be recovered up to 6 months before.  This effectively means that VAT on assets purchased up to 8 years before could be recovered thus reducing overall VAT due to HMRC on the first return.  Value Added Tax Regulations 1995 (SI 1995/2518) reg111– Exceptional claims for VAT relief refers

A final point to consider is whether turnover fell below the threshold for deregistration subsequently, so the client would not be registerable at the current date. In those circumstances rather than registering HMRC can treat your client as Liable No Longer Liable and issue an assessment for a Crown debt, this treatment is worth considering where there is minimal input tax to be reclaimed it is HMRC’s policy to allow 15% for input tax recovery against any output tax due.

VAT Question of the Week: Dry January? Input Tax Recovery on Alcohol

Q- My client company is a wholesale vintner of long-standing reputation. To capitalize on the current popularity of botanical gins they have recently opened a micro-distillery. To promote and celebrate this new venture the company held a party for staff and business associates, both suppliers and customers. Hospitality was provided at the event in the form of bought-in catering, as well as alcohol from their own stock, some of which were consumed at the event and some of which was given as gifts to take away. Please, could you clarify the input tax recovery position? 

A- It is a common misconception that where the provision of alcohol is involved, input tax recovery is denied. This may be due to the direct tax rules, which are more restrictive, but for VAT purposes, the fact it is alcohol is not necessarily material to the VAT recovery position. Read More

VAT Question of the Week: The Timeline and Compliance Requiremets for Making Tax Digital

Q- My client runs a small VAT registered business, whose taxable turnover is just over the VAT threshold. They have concerns about using Making Tax Digital (MTD) and the costs involved in ensuring they comply; they currently operate a very simple spreadsheet to keep their records, and do not want to spend thousands on new software.

A- Compliance with Making Tax Digital is mandatory for most businesses trading over the VAT threshold with effect from 1 April 2019. A small number of businesses have been deferred to October 2019. The timeline confirming those businesses that are deferred and those businesses eligible to join the pilot can be found here: Read More

VAT Question of the Week: Moss Changes

Q- My client is a dietician and weight loss specialist and she has produced an online course that she sells worldwide, comprising pre-recorded videos and downloadable PDFs. She is presently trading below the UK threshold but has had to register for VAT in order to complete MOSS returns in respect of her sales to the EU. What will happen after Brexit?

A- The Mini-One-Stop-Shop regime (MOSS) is an online service that allows EU businesses selling digital services to consumers (B-C) in other EU member states to report and pay VAT via a single return and payment in their home Member State. Businesses not established in the EU can also use the system by registering in an EU member state (non-Union MOSS). Alternatively, a business can register in each EU Member State where sales are made. You can find further information about registering for VAT in EU member states on the EU Commission website https://ec.europa.eu/taxation_customs/business/vat/eu-country-specific-information-vat_en Read More

VAT Question of the Week: Professional Fees and Design & Build Contracts

Q- My client is an architect, and always charges standard rate VAT as long as the property he is working on is in the UK. This has never been queried until recently when he invoiced a building contractor in respect of a new housing development. The contractor is saying that because this is a design and build contract, the professional services should be zero-rated. He is referring us to a paragraph in Notice 708 which he says backs up his request. Is he correct?

A- The reference to this in Notice 708 is section 3.4.

“3.4 Services excluded from zero-rating

 3.4.1 Architects, surveyors, consultants and supervisors

The supply of architectural, surveying, consultancy and supervisory services is always standard-rated.

These services are, however, procured in a number of ways: Read More

VAT Question of the Week: POA Regime

Q- My limited company client operates a commercial property rental business. They are VAT registered and have opted to tax each of their properties. Following a review of their portfolio, they made the decision to dispose of some of their properties and acquire new ones, and have sold a number of high-value properties over the last 12 months. They have recently received notice from HMRC that they have reached the Payments On Account threshold, and are required to make regular monthly payments in addition to the payments when the VAT returns are submitted. What is the POA regime, and when can we leave it? 

A- The Payments On Account regime applies to businesses required to make large payments of VAT to HMRC. Entry to the regime is based on the net payments shown as due to HMRC on the VAT returns, i.e. the box 5 figures calculated as output tax less input Tax.

The disposal of a number of opted to tax properties has meant that the net liability for your client has exceeded the POA threshold. All VAT-registered businesses with a VAT liability of £2.3 million or more in a period of 12 months or less, are required to make interim payments at the end of the second and third months of each VAT quarter in advance of their quarterly VAT returns. The amount of the interim payments is calculated at 1/24th of the annual VAT liability in the period in which the threshold was exceeded.  Read More

VAT Question of the Week: Sale of Business Assets

Q- My client is changing his business policy with respect to vehicles so that in future vehicles will be leased on contract-hire instead of owned by the company. Several employees are interested in buying the old vehicles. Will he need to charge VAT on the sale of those vehicles to the employees?

A- There are four possible VAT positions on the sale of assets by a VAT registered business:

Read More

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.

Read More

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