Author Archives: Marcus Ward

VAT and sales promotion vouchers – Latest

By Marcus Ward 5 October 2015

HMRC has appealed to the Upper Tribunal against the First-Tier Tribunal’s decision in the Associated Newspapers matter. The FTT decided that Associated Newspapers could recover input tax incurred on vouchers given away in its sales promotion schemes.

A previous decision by the FTT that no output tax is due on the vouchers when given away as part of a sales promotion is subject to an appeal and both cases will be heard together this week.

This is likely to have a significant impact on the VAT treatment of vouchers and sales promotion schemes and will be watched with interest by many businesses. The outcome may also affect staff incentive schemes where vouchers are provided.

The interaction between vouchers and VAT has had a turbulent past and the matter is complex. I hope that we obtain some clarity from the courts before too long.

VAT Land and Property – Why Opt To Tax?

By Marcus Ward 5 October 2015

Opting to tax provides a unique situation in the VAT world. It is the sole example of where a supplier can choose to add VAT to a supply….. or not.

VAT free supplies

The sale or letting of a property is, in most cases, exempt by default. However it is possible to apply the option to tax (OTT) to commercial property. This has the result of turning an exempt supply into a taxable supply at the standard rate. (It is not possible to OTT a residential property).

Why opt?

Why would a supplier then deliberately choose to add VAT on a supply?

The only purpose of OTT is to enable the optor to recover or avoid input tax incurred in relation to the relevant land or property. The OTT is a decision solely for the property owner or landlord and the purchaser or tenant is not able to affect the OTT unless specific clauses are included in the lease or purchase contracts. Care should be taken to ensure that existing contracts permit the OTT to be taken. Despite a lot of misleading commentary and confusion, it is worth bearing in mind that the recovery or avoidance of input tax is the sole reason to OTT.

Once made the OTT is usually irrevocable for a 20 year period (although there are circumstances where it may be revisited within six months of it being taken). There are specific rules for circumstances where the optor has previously made exempt supplies of the relevant land or property. In these cases H M Revenue & Customs’ (HMRC) permission must usually be obtained before the option can be made.

Two part process

The OTT is a two part process.

The first part is a decision of the business to take the OTT and it is prudent to minute this in Board meeting minutes or similar. Once the decision to OTT is taken VAT may be added to a sale price or rent and a valid tax invoice must be raised.

The second part is to formally notify HMRC (after obtaining permission if necessary). The form on which this is done is a VAT1614A. Here

There can be problems in cases where the OTT is taken, but not formally notified.

Disadvantages

The benefit of taking the OTT is the ability to reclaim input tax which would otherwise fall to be irrecoverable. However, one disadvantage is that opting the sale or rent of a property may reduce its marketability as it is likely that entities which are unable to recover VAT would be less inclined to purchase or lease an opted property.

Another is that the payment of VAT by the purchaser may necessitate obtaining additional funding. This may create problems, especially if a VAT charge was not anticipated. Even though, via opting, the VAT charge is usually recoverable, it still has to be funded up front.

Also, an OTT will increase the amount of SDLT payable when a property is sold. This is always an absolute cost.
Transfer Of a Going Concern (TOGC)

I always say that advice should be taken in all property transactions and also in cases of a Transfer of A business as a Going Concern (TOGC). This is doubly important where an opted building is being sold, because TOGC treatment only applies to a sale of property when specific tests are met.

Property transactions are high value and often complex. The cost of getting VAT wrong, or overlooking it can be very swingeing indeed. I have also seen deals being aborted over VAT issues. For these reasons, please seek VAT advice at an early stage of negotiations.

More on our land and property services here

VAT Payment Problems – Q & As

By Marcus Ward 29 September 2015

If you can’t pay your VAT bill, please do not put your head in the sand, the problem will not go away. Here are some answers to the most commonly asked VAT payment problems.

Q: I have received a demand notice for payment of VAT. Why?

A: HMRC have not received payment of the VAT liability that is described in the demand notice. You should therefore pay the outstanding debt without delay so as to avoid further recovery action. HMRC take prompt action to recover debts.

Q: I am not able to pay the debt immediately because of a temporary cash-flow problem. What should I do?

A: You should make urgent contact with your bank or your financial adviser to explore means of overcoming these temporary financial difficulties.

Q: I have consulted the bank/financial adviser but they are unable to help. What else can I do?

A: Without further delay contact the Regional Debt Management Unit whose address appears on the demand notice. They may be able to help you by agreeing a brief period in which to pay the debt. They are usually helpful and will consider carefully all practical options for settlement. However, if these do not produce a solution or they do not receive a response to their request for payment, they may, like other creditors, take action to recover the money they are owed.

Q: What is the Default Surcharge?

A: Default Surcharge is a civil penalty to encourage businesses to submit their VAT returns and pay the tax due on time.

Q: When will a Default Surcharge be issued?

A: A business is in default if it sends in its VAT return and or the VAT due late. No surcharge is issued the first time a business is late but a warning (a Surcharge Liability Notice) is issued. Subsequent defaults within the following twelve months (the “surcharge period”) may result in a surcharge assessment. Each time that a default occurs the surcharge period will be extended. There is no liability to a surcharge if a nil or repayment return is submitted late, or the VAT due is paid on time but the return is submitted late (although a default is still recorded).

Q: How much is it?

A: The surcharge is calculated as a percentage of the VAT that is unpaid at the due date. If no return is submitted the amount of VAT due will be assessed and the surcharge based on that amount. The rate is set at 2 per cent for the first default following the Surcharge Liability Notice, and rises to 5 per cent, 10 per cent and 15 per cent for subsequent defaults within the surcharge period. A surcharge assessment is not issued at the 2 per cent and 5 per cent rates if it is calculated at less than £200 but a default is still recorded and the surcharge period extended. At the 10 per cent and 15 per cent the surcharge will be the greater of the calculated amount or £30.

Q: What sort of assessments are sent out?

A: An assessment may be issued if a VAT return is not submitted by the due date. The amount may be based on previous returns. If a business does not submit its returns time after time, the assessment value will increase. An officer may also issue an assessment after a visit, if they have found errors in the amount of tax declared on previous returns.

Both types are included in the traders’ debt and are collected in the normal way if they are not paid promptly.

Help

There are a number of schemes available which may help cashflow or possibly reduce the amount of VAT you pay.

Cash Accounting – where you only pay VAT to HMRC when you have received payment from your customer.
Annual Accounting – where you make set monthly payments and make one return a year with an adjusting payment.
Flat Rate Scheme – where you pay a set percentage of your turnover rather than calculating output tax less input tax.
Bad Debt Relief – where you are able to reclaim VAT relief on your bad debts.

Please contact us if VAT payments are proving a problem for your business. Negotiation with HMRC is possible.

VAT – Proof of evidence of Intra-EC supplies

By Marcus Ward 23 September 2015

A B2B supply of goods from one Member State to another (a dispatch) is VAT free (with the recipient dealing with acquisition tax in the Member State of receipt). However, in order to VAT free treatment to apply evidence that the goods have moved cross-border must be provided and satisfy the authorities in the Member State of dispatch.

The level of evidence and type of documents required to support the right to VAT free treatment varies significantly between Member States. This has led to confusion and difficulties for businesses.

As a result the EC VAT Expert Group* have, this week, produced a paper (paper 46) named “‘Proof of evidence of Intra-EU supplies’” Here: 46 – Proof of IC Supplies

As well as identifying the wide discretion afforded to Member States as to the type of documents required, it notes that this discretion and lack of clarity often leads to disproportionate compliance burdens for businesses involved in the cross border supply of goods. This also results in the fundamental principle of fiscal neutrality and the free movements of goods being impaired.

In summary

The Group’s findings may be summarised:

Diversity of documentation

Most Member States rely on a myriad of documents which may not be listed in national legislation. Such diversity is a problem and may require businesses to provide documentary evidence that cannot be reasonably obtained. This practice does not reconcile with principles established by the ECJ. The paper adds that tax authorities tend to focus on certain formalities and not permit alternative evidence.

Local initiatives

The paper notes that based on Article 131 of the VAT Directive, and often in light of the fight against fraud, tax authorities are introducing local initiatives. The compatibility of these with the EC framework may be questioned and is causing increasing burdens and costs on legitimate taxpayers.

Importance given by tax authorities to the “knowledge test”

The paper considers that the level of demand from tax authorities to document intra-EC trade should not be upgraded because of fraud cases. Documentary evidence is of a type fraudsters would typically provide. The wide margin of interpretation left to tax authorities and judges regarding concepts such as “good faith” means that further guidance may be required. This, however, should not extend up to a requirement for suppliers to show evidence to authorities that their customers acted in good faith.

Diversity of practices; timing versus legal certainty

The diversity of approaches across EC Member States generates costs and increase risks for businesses operating in different Member States.

Conclusion

The paper considered some recent ECJ case law on cross-border transactions and concluded VAT free treatment should be granted to the supplier when:

1) It demonstrates that the transaction meets the substantive criteria of that provision, namely that it is entered into with another taxable person in a Member State other than that in which dispatch or transport of the goods begins. This would be done with the supplier holding at least three non-contradictory documents or elements certifying the transport or dispatch to another Member State.

2) In this context, a reasonable customer assessment could be expected from taxpayers when tax authorities audit whether the transactions are taking place in the context of fraud and/or abuse.

Next Steps

It is recommended that new guidance could be adopted in an Implementing Regulation or an explanatory note to the relevant Articles in the VAT Directive could be prepared by the Commission.

It will be interesting to see if these recommendations are adopted. It would make life a lot more straightforward for businesses who trade cross-border in the EC. Although the UK has one of the most practical regimes in this respect, even genuine movements of goods from the UK can result in an unexpected and unwelcome VAT charge because of a lack of specific documentation.

* The VAT Expert Group assists and advises the European Commission on VAT matters. Details here

Announcement

By Marcus Ward 11 September 2015

Marcus Ward Consultancy Ltd is pleased to announce the acquisition of the professional services practice of the consultancy called: VATAdvice. This longstanding and highly regarded practice based in Cambridgeshire is owned by Les Howard a well-known face in the VAT world. Les will continue his VAT support for charities and involvement with the Tax Tribunal.

Director Marcus Ward commented “There is a definite synergy between the two companies and I am pleased that I can continue to help Les’ clients with the highest level of service that I know they have been accustomed to. This will expand the practice’s existing offering to accountancy and legal firms. We are able to continue to offer VAT advice in the specific areas of; land and property, international transactions, and not for profit bodies as well as dealing with any other VAT issues. We are happy that Les has chosen us to carry on looking after his numerous clients and we aim to make the handover as smooth as possible for all of them”.

Marcus Ward Consultancy Ltd was formed two years ago to help businesses through the increasingly complex VAT regime. It has grown quickly in London and East Anglia and has clients across the world. It is a professional practice committed to providing the highest quality indirect tax advice in a timely and understandable way. It has expertise in both EC and UK legislation and over 25 years of indirect tax experience.

It is extremely commercially minded and works on the principle of “Leave VAT to us and you can concentrate on growing your business”.

It prides itself in defending businesses against unfair attacks from HMRC.

Enquires: marcus.ward@consultant.com

Telephone: 07748 117935

Charities and VAT

By Marcus Ward 7 September 2015

Overview

Surely charities don’t have to pay taxes?

This is a common myth, and while charities do enjoy some VAT reliefs, they are also liable for a number of VAT charges.

Charities have a very hard time of it in terms of VAT, since not only do they have to contend with complex legislation and accounting (which other businesses, no matter how large or complicated do not) but VAT represents a real and significant cost.

By their very nature, charities carry out “non-business” activities which means that VAT is not recoverable on the expenses of carrying out these activities. Additionally, many charities are involved in exempt supplies, eg; fundraising events, property letting, and certain welfare and educational services, which also means a restriction on the ability to recover VAT on attributable costs.

These two elements are distinct and require separate calculations which are often very convoluted. The result of this is that charities bear an unfair burden of VAT, especially so since the sector carries out important work in respect of; health and welfare, poverty, education and housing etc. Although there are some specific reliefs available to charities, these are very limited and do not, by any means, compensate for the overall VAT cost charities bear.

Another issue is legal uncertainty over what constitutes “business income” for charities, especially the VAT status of grants. It’s worth bearing in mind here the helpful comment in the EC case of Tolsma translated as: “…the question is whether services carried on by [a person] were carried on for the payment or simply with the payment”.

Many charities depend on donations which, due to the economic climate have fallen in value at a time when there is a greater demand on charities from struggling individuals and organisations.

What can be done?

Ensure any applicable reliefs are taken advantage of.
If significant expenditure is planned, ensure that professional advice is sought to mitigate any tax loss.
Review the VAT position to ensure that the most appropriate partial exemption methods and non-business apportionment is in place.
Review any land and property transactions. These are high value and some reliefs are available. Additionally it is possible to carry out planning to improve the VAT position of a property owning charity.
Review VAT procedures to ensure that VAT is declared correctly. Penalties for even innocent errors have increased recently and are incredibly swingeing.
Consider a VAT “healthcheck” which often identifies problems and planning opportunities.

We have considerable expertise in the not for profit sector and would be pleased to discuss any areas of concern, or advise on ways of reducing the impact of VAT on a charity.

More detail on VAT and Charities for guidance

Business activities

It is important not to confuse the term ‘trading’ as frequently used by a charity to describe its non-charitable commercial fund-raising activities (usually carried out by a trading subsidiary) with ‘business’ as used for VAT purposes. Although trading activities will invariably be business activities, ‘business’ for VAT purposes can have a much wider application and include some or all of the charity’s primary or charitable activities.

Registration and basic principles

Any business (including a charity and NFP entity or its trading subsidiary) that makes taxable supplies in excess of the VAT registration threshold must register for VAT. Taxable supplies are business transactions that are liable to VAT at the standard rate, reduced rate or zero rate.

If a charity’s income from taxable supplies is below the VAT registration threshold it can voluntarily register for VAT but a charity that makes no taxable supplies (either because it has no business activities or because its supplies or income are exempt from VAT) cannot register.

Charging VAT

Where a VAT-registered charity makes supplies of goods and services in the course of its business activities, the VAT liability of those supplies is, in general, determined in the normal way as for any other business. Even if VAT-registered, a charity should not charge VAT on any non-business supplies or income.

Reclaiming VAT

This is a two stage process. The first stage in determining the amount of VAT which a VAT-registered charity can reclaim is to eliminate all the VAT incurred that relates to its non-business activities. It cannot reclaim any VAT it is charged on purchases that directly relate to non-business activities. It will also not be able to reclaim a proportion of the VAT on its general expenses (eg; telephone, IT and electricity) that relate to those non-business activities.

Once this has been done, the remaining VAT relating to the charity’s business activities is input tax.

The second stage: It can reclaim all the input tax it has been charged on purchases which directly relate to standard-rated, reduced-rated or zero-rated goods or services it supplies.

It cannot reclaim any of the input tax it has been charged on purchases that relate directly to exempt supplies.

It also cannot claim a proportion of input tax on general expenses (after adjustment for non-business activities) that relates to exempt activities unless this amount, together with the input tax relating directly to exempt supplies, is below the minimis limit.

Business and non-business activities

An organisation such as a charity that is run on a non-profit-making basis may still be regarded as carrying on a business activity for VAT purposes. This is unaffected by the fact that the activity is performed for the benefit of the community. It is therefore important for a charity to determine whether any particular transactions are ‘business’ or ‘non-business’ activities. This applies both when considering registration (if there is no business activity a charity cannot be registered and therefore cannot recover any input tax) and after registration. If registered, a charity must account for VAT on taxable supplies it makes by way of business. Income from any non-business activities is not subject to VAT and affects the amount of VAT reclaimable as input tax.

‘Business’ has a wide meaning for VAT purposes based upon Directive 2006/112/EC (which uses the term ‘economic activity’ rather than ‘business’), UK VAT legislation and decisions by the Courts and VAT Tribunals. An activity may still be business if the amount charged does no more than cover the cost to the charity of making the supply or where the charge made is less than cost. If the charity makes no charge at all the activity is unlikely to be considered business.

An area of particular difficulty for charities when considering whether their activities are in the course of business is receipt of grant funding.

Partial Exemption

The VAT a business incurs on running costs is called input tax. For most businesses this is reclaimed on VAT returns from HMRC if it relates to standard rated or zero rated sales that that business makes. However, a business which makes exempt sales may not be in a position to recover all of the input tax which it incurred. A business in this position is called partly exempt. Generally, any input tax which directly relates to exempt supplies is irrecoverable. In addition, an element of that business’ general overheads are deemed to be in part attributable to exempt supplies and a calculation must be performed to establish the element which falls to be irrecoverable.

Input tax which falls within the overheads category must be apportioned according to a so called; partial exemption method. The “Standard Method” requires a comparison between the value of taxable and exempt supplies made by the business. The calculation is; the percentage of taxable supplies of all supplies multiplied by the input tax to be apportioned which gives the element of VAT input tax which may be recovered. Other partial exemption methods (so called Special Methods) are available by specific agreement with HMRC.

My flowchart may be of use: partial exemption flowchart

De Minimis

There is however relief available for a business in the form of de minimis limits. Broadly, if the total of the irrecoverable directly attributable (to exempt suppliers) and the element of overhead input tax which has been established using a partial exemption method falls to be de minimis, all of that input tax may be recovered in the normal way. The de minimis limit is currently £7,500 per annum of input tax and one half of all input tax for the year. As a result, after using the partial exemption method, should the input tax fall below £7,500 and 50% of all input tax for a year it is recoverable in full. This calculation is required every quarter (for businesses which render returns on a quarterly basis) with a review at the year end, called an annual adjustment carried out at the end of a business’ partial exemption year. The quarterly de minimis is consequently £1,875 of exempt input tax.

Should the de minimis limits be breached, all input tax relating to exempt supplies is irrecoverable.

Summary

One may see that this is a complex area for charities and not for profit entities to deal with. Certainly a review is almost always beneficial, as are discussions regarding partial exemption methods.

Please click here for more information on our services for charities.

Some Odd VAT Facts

By Marcus Ward 3 September 2015

The weird side of VAT

We all know that the VAT rules throw up some oddities which are mainly the result of new products, technology and the way people live their lives now. I do think that the law needs a significant, consistent overhaul rather than a piecemeal approach, but let’s just consider some of the weird results the present system throws up. This is a MOSS* for all tabloid journalists….

* Mini One-Stop Shop

An odd rule applies to gingerbread men. No VAT is charged if the figure has two chocolate spots for its eyes, but any chocolate-based additions, such as buttons or a belt, mean VAT is payable.

The sale of a horse is standard rated. However, the sale of a dead one (for horse meat) is zero rated. I wouldn’t really want to dwell on the VAT planning aspects of this…

A downloaded purchase of the bible is standard rated while “saucy” top shelf magazines are VAT free.

So that’s what it’s called….. From HMRC guidance – “For the purposes of establishing the place of supply of services, stallion nominations (The right to nominate a mare to be covered by a stallion in one breeding season) and the covering of mares is treated as ‘work carried out on goods’”.

Food for wild birds is zero rated while food for caged birds is at 20%.

Well, what do you know?! Jaffa cakes are cakes, Pringles are crisps and now Lucozade Sport is a beverage. That’s what the Upper Tribunal has ruled, so the drink is now subject to VAT. So now we know.

(And since this is VAT, we have to mention Jaffa cakes – again!) It was ruled as a fact that cakes go hard when stale whereas biscuits go soft.

Food that is too hot to eat can be classed as cold food for VAT purposes.

Orange juice is zero rated. Lemon juice is zero rated. Mix them, and you have a standard rated product.

Peanuts in shells are zero rated, salted peanuts are standard rated.

If your shop is burgled, it’s best to let the robbers take your stock. Goods lost to theft are not subject to VAT, but if cash (which customers have paid for goods) is taken from the till a VATable supply has still been made and VAT is due on it.

The sales of kangaroos are standard-rated but kangaroo steaks are zero-rated.

Rabbits are zero-rated, even if sold as pets. Sales of pets are standard rated.

The sales of counterfeit (illegal) goods are subject to 20% VAT, but the sale of counterfeit banknotes are not.

There was a planning scheme called the golden toothbrush, but it didn’t matter what colour the toothbrush was.

Ferret food has recently been ruled to be subject to 20% when it was VAT free from 1973.

Caviar is deemed a necessity in terms of VAT, while orange squash is a luxury item.

Buying a coffin is standard-rated but hiring a hearse is VAT free.

Children’s clothing with rabbit and gazelle fur (and even dog skin) is zero-rated but if it has Tibetan goat fur it is subject to VAT.

Tuition provided by a sole practitioner is exempt, but if the tutor incorporates then their supplies become standard-rated.

In the Spearmint Rhino case it was ruled that there is no VAT on lap dances.

Under some VAT schemes, zero rated and exempt supplies are subject to VAT (and even some which are “Outside the scope of UK VAT”).

Dog food for a poodle is subject to VAT but exactly the same food can be zero rated if it is for a Labrador.

Very basic VAT Q & As for a fledgling business

By Marcus Ward 25 August 2015

There is a lot of information about VAT on the web, but some of it may seem confusing or conflicting. I hope my simple VAT guide to a complex tax may be of help.

Q: I run a business – do I have to charge VAT on my sales?

A: If a business’s turnover exceeds £82,000 in any 12 month period it is likely that it ought to be VAT-registered and charging VAT on its income. It is the business’s responsibility to monitor its turnover and register with HM Revenue & Customs if necessary. However, not all income counts towards the turnover limit, for instance you can ignore exempt income (see below for a description of exempt sales).

VAT registration may also be necessary if you know that your income will exceed the limit in the next 30 days (the future test). This may because you have signed a contract for work for instance.

A business can also VAT register voluntarily. This is usually done to reclaim VAT it has incurred.

Finally, a business must VAT register if it receives certain goods and services form overseas worth more than £82,000.

Q: What happens if I don’t register for VAT when I should?

A: In addition to paying VAT from the date a business should have registered, there will be penalties and interest to pay. HM Revenue & Customs may carry out further investigations if they consider that failure to register was more than an innocent error.

Q: Why is paperwork so important in VAT?

A: Since VAT is a transaction-based tax, it is important to have evidence of those transactions.

Q: Are there any benefits to being VAT-registered?

A: Yes, you will usually be able to claim the VAT you incur on expenditure for your business.

Q: Can’t I recover all the VAT I incur?

A: Some VAT is specifically blocked, such as: cars for most businesses and business entertainment. In addition, if a business makes exempt supplies, it is usually unable to recover any VAT it incurs in relation to those supplies. Apart from this, as long as the expenditure is for business (not private) purposes, and the business has supporting documentation to support the claim, most VAT is recoverable from HMRC.

Q: Do I charge VAT on everything?

A: No, some sales such as food, books and children’s clothing are zero-rated, and some activities including certain property rental and sales, insurance and health services are exempt from VAT. In addition, sales to most overseas business purchasers may be treated as VAT-free. The difference between exempt and zero-rated is that there is no block on the recovery of VAT incurred in relation to zero-rated supplies so usually a business making solely or substantially zero-rated supplies will actually receive payments from HMRC.

Q: Are there any short-cuts to accounting for, and paying VAT?

A: There are a number of schemes aimed at simplifying VAT. These range from annual (rather than the more usual quarterly) returns, cash accounting (where you don’t need to pay HMRC until you have been paid) to simplified flat rate schemes whereby you pay over an element of your turnover without the need for further calculations

Q: What if I get it wrong?

A: Unfortunately, as with everything connected to VAT, there are penalties and interest for even innocent errors. If HMRC find an error before you have notified them of it, there can be quite swingeing extra amounts to pay over. If HMRC consider that there is deliberate evasion, and evidence is found, a prison sentence of up to seven years is possible.

Q: What should I do if I am uncertain about what the VAT treatments of my sales are, or when I should register for VAT?

A: Please contact me! Not only can I assist with the technical side, but there is often planning that may be put in place to mitigate the cost of VAT or penalties.

VAT Reliefs for Charities. A brief guide.

By Marcus Ward 3 August 2015

Charity and Not For Profit entities – a list of VAT reliefs.

Unfortunately, charities have to contend with VAT in much the same way as any business. However, because of the nature of a charity’s activities, VAT is not usually “neutral” and becomes an additional cost. VAT for charities often creates complex and time consuming technical issues which a “normal” business does not have to consider.

There are only a relatively limited number of reliefs specifically for charities and not for profit bodies, so it is important that these are taken advantage of. These are broadly:

Advertising services received by charities;
Purchase of qualifying goods for medical research, treatment or diagnosis;
New buildings constructed for residential or non-business charitable activities;
Self-contained annexes constructed for non-business charitable activities;
Building work to provide disabled access in certain circumstances;
Building work to provide washrooms and lavatories for disabled persons;
Supplies of certain equipment designed to provide relief for disabled or chronically sick persons;

There are also special exemptions available for charities:

Income from fundraising events;
Admissions to certain cultural events and premises;
Relief from “Options to Tax” on the lease and acquisition of buildings put to non-business use.
Membership subscriptions to certain public interest bodies and philanthropic associations;
Sports facilities provided by non-profit making bodies;

The reduced VAT rate (5%) is also available for charities in certain circumstances:

Gas and electricity in premises used for residential or non-business use by a charity;
Renovation work on dwellings that have been unoccupied for over two years;
Conversion work on dwellings to create new dwellings or change the number of dwellings in a building;
Installation of mobility aids for persons aged over 60.

Although treating certain income as exempt from VAT may seem attractive to a charity, it nearly always creates an additional cost as a result of the amount of input tax which may be claimed being restricted. Partial exemption is a complex area of the tax, as are calculations on business/non-business activities which fundamentally affect a charity’s VAT position. I strongly advise that any charity seeks assistance on dealing with VAT to ensure that no more tax than necessary is paid. Charities have an important role in the world, and it is unfair that VAT should represent such a burden and cost to them.

VAT – Intrastat; what is it? If you don’t know, you may be committing a criminal offence…

By Marcus Ward 15 July 2015

Although often viewed as a necessary evil, Intrastat can be used by a business to obtain valuable information on markets in the EC. …Oh, and it may be quite useful to understand it to avoid getting a criminal record! In this article I summarise the basics, provide useful links and look at the pros and cons of the regime.

So, what is Intrastat?

Intrastat is the name given to the system used for collecting statistics on the trade in goods between all 28 Member States of the EC. If certain conditions are met a business must, by law, submit monthly Intrastat Supplementary Declarations (SDs). Intrastat does not cover services, nor is it required for exports to recipients outside the EC.

The data collected under the Intrastat system forms a large part of overall UK trade statistics totals which in turn are an important part of the UK Balance of Payment account and an important indicator of the health of ‘UK plc’. This data is published at uktradeinfo and is used by a wide range of government and international organisations and is particularly useful in helping businesses gauge import penetration and establish new markets for their goods.

Intrastat responsibilities

If a VAT registered business trades with any of the other EC Member States, it will have a responsibility to report the trade to HMRC. How detailed that report is required to be depends on the value of its trade with other EC Member States for either purchases (arrivals) or sales (dispatches). If a business’ trade in goods falls below the Intrastat thresholds then EC Sales Lists may be required.

Reporting Thresholds for SDs

The limits are:

£1,500,000 for arrivals, and;
£250,000 for dispatches

In a calendar year.

Intrastat should not be confused with EC Sales Lists which are used to collect information on all sales from UK VAT registered businesses to business recipients in other EC Member States. A guide to EC Sales Lists here

Classification of goods for Intrastat

Finding the right commodity code for goods is one of the most important aspects of Intrastat. An online classification tool, the Intrastat Classification Nomenclature (ICN) is available to assist businesses find the right commodity code for its goods. Here

The ICN is a fully searchable facility which can be used by everyone from beginner to expert.

Value for SDs

Only the value of goods are included in SDs (plus any related freight or insurance charges where they form part of the invoice or contract price of the goods).

The value does not include:

Commission, legal and financial services
Insurance, freight and/or carriage (unless it is included with the cost of the goods)
Labour
Goods bought and sold within the EU but which do not actually enter or leave the UK
Maintenance costs
Repairs

Submission of SDs

This may be done online or offline (which is preferred for large amounts of data).

Online submission details here

Offline submissions are via pre-prepared Excel spreadsheets available here

Via an email attachment – the file must be converted into the message format Electronic Data Interchange for Commerce and Transport (EDIFACT). Details here

Deadlines for submission of SDs

Intrastat declarations must be submitted on a monthly basis. Complete and accurate declarations must be received by the 21st day of the month following the reference period to which they relate.

Now, the scary part.

Penalties

It is perhaps surprising that if you fail to submit SDs by the due date, or send data that is inaccurate, a business will be committing a criminal offence (Statistics of Trade [C&E] Regulations 1992).

Penalties may be levied in cases where SDs are persistently late, missing, inaccurate or incomplete.

Although the penalty regime is a criminal one and could result in proceedings in a Magistrates Court, HMRC state that it normally prefers to “compound” alleged offences. This involves the offer of an administrative fine in lieu of Court proceedings. However, an administrative fine is only offered when, after receiving a Warning of Possible Criminal Proceedings letter, a business has brought its Intrastat declarations completely up to date. If any declarations remain outstanding Court proceedings will be instigated.

The plus side.

How to use Intrastat for your business

It is possible for a business to find out about; trade markets, competition, suppliers, customers and competitors using data collected via Intrastat. Additionally, the information may be used to create a bespoke data table to suit a business’ specific needs. Information here

Intrastat pros and cons

Yes, businesses are being used as unpaid providers of trade information as well as unpaid collectors of tax. It then does seem rather draconian that HMRC “coerce” businesses to provide information on pain of a criminal record. But the information is then there for a business trading within the EC to use for its commercial advantage. It’s another chore on the VAT checklist I’m afraid.