Burying a deceased person is exempt, but exhumation is standard rated.
Monthly Archives: March 2021
VAT – Top 10 Tax Point Planning Tips
VAT Tax Point Planning
If a business cannot avoid paying VAT to the HMRC, the next best thing is to defer payment as long as legitimately possible. There are a number of ways this may be done, dependent upon a business’ circumstances, but the following general points are worth considering for any VAT registered entity.
A tax point (time of supply) is the time a supply is “crystallised” and the VAT becomes due to HMRC and dictates the VAT return period in which VAT must be accounted for. Very broadly, this is the earliest of; invoice date, receipt of payment, goods transferred or services completed (although there are quite a few fiddly bits to these basic rules as set out in the link above).
The aims of tax point planning
1. Deferring a supplier’s tax point where possible. It is sometimes possible to avoid one of these events or defer a tax point by the careful timing of the issue of a tax invoice.
2. Timing of a tax point to benefit both parties to a transaction wherever possible. Because businesses have different VAT “staggers” (their VAT quarter dates may not be the co-terminus) judicious timing may mean that the recipient business is able to recover input tax before the supplier needs to account for output tax. This is often important in large or one-off transactions, eg; a property sale.
3. Applying the cash accounting scheme. Output tax is usually due on invoice date, but under the cash accounting scheme VAT is only due when a payment is received. Not only does this mean that a cash accounting business may delay paying over VAT, but there is also built in VAT bad debt relief. A business may use cash accounting if its estimated VAT taxable turnover during the next tax year is not more than £1.35 million.
4. Using specific documentation to avoid creating tax points for certain supplies. If a business supplies ongoing services (called continuous services – where there is no identifiable completion of those services) if the issue of a tax invoice is avoided, VAT will only be due when payment is received (or the service finally ends). More details here.
5. Correctly identifying the nature of a supply to benefit from certain tax point rules. There are special tax point rules for specific types of supplies of goods and services. Correctly recognising these rules may benefit a business, or present an opportunity for VAT planning.
6. Generate output tax as early as possible in a VAT period, and incur input tax as late as possible. This will give a business use of VAT money for up to four months before it needs to be paid over, and of course, the earlier a claim for repayment of input tax can be made – the better for cashflow.
7. Planning for VAT rate changes. Rate changes are usually announced in advance of the change taking place. There are specific rules concerning what cannot be done, but there are options to consider when VAT rates go up or down.
8. Ensure that a business does not incur penalties for errors by applying the tax point rules correctly. Right tax, right time; the best VAT motto! Avoiding penalties for declaring VAT late is obviously a saving.
9. Certain deposits create tax points, while other types of deposit do not. It is important to recognise the different types of deposits and whether a tax point has been triggered by receipt of one. Also VAT planning may be available to avoid a tax point being created, or deferring one.
10. And finally, use duty deferment for imports. As the name suggests, this defers duty and VAT to avoid it having to be paid up front at the time of import.
Always consider discussing VAT timing planning for your specific circumstances with your adviser. It should always be remembered that it is usually not possible to apply retrospective VAT planning as VAT is time sensitive, and never more so than tax point planning.
I have advised a lot of clients on how to structure their systems to create the best VAT tax point position. Any business may benefit, but I’ve found that those with the most to gain are; professional firms, building contractors, tour operators, hotels, hirers of goods and IT/internet businesses.
VAT: Certificate of Status
Claiming VAT in another country
If a UK business wishes to claim VAT incurred in a country outside the UK it will need a Certificate of Status (a “Certificate of Status of Taxable Person”). This certificate, known as a VAT66A, may be obtained from HMRC and certifies that an entity is in business (engaged in an economic activity).
Changes from 8 March 2021
HMRC has announced HMRC changes to the way it issues VAT66As to UK businesses. From 8 March 2021, HMRC will send the certificate by email. A small, but helpful nod to 21st Century technology. A business must first complete an informed consent form before HMRC will correspond by email. The VAT66A only lasts for 12 months, so it is prudent to set a reminder to renew.
However, and there is usually a however, some countries require a “wet stamped” document to support a claim, in which case, HMRC will continue to issue these by post. It makes sense to check what actual documentation each country in which a claim is made requires, as it does vary. It is usually also necessary to make a claim in the language of the country in which the VAT was incurred.
Who can request a certificate of status?
The authorised persons (director or secretary) of the businesses which is registered in the UK for VAT, or an agent which has a letter of authority from a UK VAT-registered business – form 64-8 to act on its behalf.
Requesting a certificate
Send an email to vat66@hmrc.gov.uk with “VAT certificate of status request” in the subject line and the following information:
- business name
- VAT registration number
- business address
- applicant’s name and role in the business
- contact telephone number
- the country (or countries) where the VAT refund claim is being made
- number of certificates required (one for each country in which a claim is to be made)
- if the certificate should be sent to you by post or by email
Agent application
Write ‘VAT certificate of status – agent request’ in the subject line of the email, and provide the following information:
- agent’s name
- agent’s business address
- the name of the business to which the certificate relates
- an attachment with a letter of authority from an authorised signatory of the business you are requesting a certificate for – a list of authorised signatories here; VAT Notice 742A
- VAT registration number of the business
- business address
- the country (or countries) where the VAT refund claim is being made
- the number of certificates required
- if the certificate should be sent by post or by email to you or the business you are requesting a certificate for
HMRC say that a certificate will be sent within 15 working days of an application.
Oh for the days of a single electronic application to HMRC which covered all 27 Member States…
VAT: Changes to late returns and payments penalties announced
HMRC have announced changes to the penalties applied to failure to submit VAT returns on time. Similar changes will be made for late payment penalties. it is anticipated that these changes will apply from 1 April 2022. Changes will also be made to the way interest is charged.
The new penalty regime replaces the existing default surcharges. The new penalties use a points based system . Businesses will no longer receive an automatic financial penalty if they make a late return. Instead, it will incur penalty points for missed obligations before a financial penalty is levied.
Penalties for late submission of returns
VAT registered businesses will receive a point every time they miss a submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the business will be notified. A penalty will be charged for that failure and every subsequent failure to make a submission on time, but the points total will not increase.
The penalty thresholds will be:
- Annual returns – 2 points
- Quarterly returns – 4 points
- Monthly returns – 5 points
Points expiry
Points will have a lifetime of two years calculated from the month after the month in which the failure occurred.
However, points will not expire when a business is at the penalty threshold to ensure an achievement of a period of compliance to reset the points.
Penalties for late payment and interest harmonisation
The new Late Payment Penalties regime will replace the the Default Surcharge, which served as a combined late submission and late payment sanction.
There are two late payment penalties applicable; a first penalty and then an additional or second penalty, with an annualised penalty rate.
First Penalty
A business will not incur a penalty if the outstanding tax is paid within the first 15 days after the due date. If VAT remains unpaid after Day 15, the business incurs the first penalty. This penalty is set at 2% of the tax outstanding after Day 15. If any of this tax is still unpaid after Day 30, the penalty increases to 4% of the tax outstanding after Day 30.
Second Penalty
If tax remains unpaid on Day 31, a business will begin to incur an additional penalty on the VAT that remains outstanding. It accrues on a daily basis, at a rate of 4% per annum on the outstanding amount. This additional penalty will stop accruing when the taxpayer pays the tax that is due.
Time-to-Pay arrangements
HMRC offers the option of requesting a Time To Pay arrangement. This will enable a business to stop a penalty from accruing any further by approaching HMRC and agreeing a schedule for paying their outstanding tax.
Interest Harmonisation
HMRC will charge interest on tax that is outstanding after the due date, regardless of whether any Late Payment Penalties have been charged. Interest will apply from the date the payment was due until the date on which it is paid. It will be calculated as simple interest at a rate of 2.5% + the Bank of England base rate.
Where a business has overpaid tax, HMRC will pay Repayment Interest on any VAT due to be repaid either from the last day the payment was due to be received or the day it was received, whichever is later, until the date of repayment. Interest will be paid at the Bank of England base rate less 1% (with a minimum rate of 0.5%).
Reviews and appeals
Businesses will be able to challenge a point or penalty through both an internal HMRC review process and an appeal to the courts (in a similar way to assessments for VAT are challengeable).
More on late returns here and on late payments here.
VAT registration delays – latest
Anecdotally, we understand that some businesses applying for registration are experiencing significant delays. Further, attempts to contact HMRC by email is often difficult, and telephones are regularly not answered (although we understand that some people have enjoyed more success with the webchat). Also, the Non-Established Taxable Persons (NETP) office has moved, right at the time when more EU businesses need to register in the GB due to Brexit. This has created an even longer backlog.
Confirmation
The Business Delivery Team at HMRC has confirmed that it is attempting to deal with a very high number of applications, which are being delayed for various reasons (not least by the sheer volume one expects). The department has also stated that the following actions and checks will assist with faster processing times and urges applicants to check that all information requested set out here is included with the application to avoid any further delays. The most salient being to use the online method rather than the hard copy. However, this is not always possible if additional documentation needs to be sent.
How to avoid common errors identified by HMRC
- ensure that the addresses provided on the VAT 1 form matches the business’s principal place of business (PPOB)
- check that the notification of a trade classification matches the supplies the business makes
- the VAT treatment of activities must be correctly identified
- the correct person must sign the application – eg; for a corporate body it must be a director, company secretary or authorised signatory or an authorised agent
- ensure the correct registration date (effective date of registration – EDR) is given. And that the EDR is accurate considering the circumstances that have been outlined for requesting registration elsewhere in the application
- the bank account details provided must be in the name of the taxable person
And I will add; do not forget form VAT5L when registering a business which is involved in land and property transactions.
The Business Delivery Team also stated that “We are also considering how we can improve the registration process by resolving more cases in real time by telephone and engaging with customers in a different way to gather any further required information. We’ll tell you more about this shortly.”
While any improvement in communication is to be welcomed, it remains to be seen what practical measures will be implemented to speed up registration processing and how soon these will be put in place.
VAT: Budget 2021 – hospitality, holiday accommodation and attractions
Further to my articles here and here the government have announced further measures for hospitality, holiday accommodation and tourist attractions.
These measures introduce
- an extension to the temporary reduced rate of VAT (5%) for a further 6 month period until 30 September 2021. A new reduced rate of will then be introduced until 31 March 2022.
- a new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.
Aims
These changes are aimed at supporting the reopening of the economy following the outbreak of the coronavirus pandemic and help to re-establish habits such as eating out in restaurants.
The measures will help to protect an estimated 2.4 million jobs in these industries.
A CASC is not a charity for VAT – The Eynsham Cricket Club case
Latest from the courts
In the Court of Appeal (CoA) case of Eynsham Cricket Club (ECC) the issue is whether a Community Amateur Sport Club (CASC) is able to take advantage of VAT reliefs in the same way as a charity.
Background
The question was whether supplies of construction services of building a new cricket pavilion for a CASC qualify for zero-rating via The VAT Act 1994, Schedule 8. Group 5, item 2 (a) “The supply in the course of the construction of a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose or a relevant charitable purpose…”Emphasis added.
The outcome depended on whether ECC was a charity. That in turn depends on whether:
- ECC was “established for charitable purposes only” pursuant to Schedule 6 to the Finance Act 2010
- Section 6 of the Charities Act 2011 applied and had the effect of preventing ECC from being treated as “established for charitable purposes”
- ECC satisfied the other conditions, and in particular, the “registration condition”
Decision
It was determined that CASCs cannot be treated as charities for VAT purposes as the above criteria were not met. Therefore, the construction of ECC’s new pavilion did not qualify for zero-rating and was standard rated. It was noted that becoming a CASC meant that certain charitable benefits were forgone in return for relief for certain administrative and management chores.
Commentary
It appears that ECC had the opportunity to register as a charity, but apparently, unlike a near neighbour cricket club, decided not to.
“Charity” is not defined in VAT legislation, so this case is a reminder that it should not be assumed that every entity which may have charitable objectives, or generally exist in order to benefit a section of the community qualifies as a charity for the tax.