Category Archives: Agent/principal

VAT Self-billing. What is it? The pros and cons

By   7 September 2020
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Self-billing is an arrangement between a supplier and a customer. Both customer and supplier must be VAT registered.  Rather than the supplier issuing a tax invoice in the normal way, the recipient of the supply raises a self-billing document. The customer prepares the supplier’s invoice and forwards a copy to the supplier with the payment.

If a business wants to put a self-billing arrangement in place it does not have to tell HMRC or get approval from them, but it does have to get its supplier or customer to agree to the arrangement and meet certain conditions.

The main advantage of self-billing is that it usually makes invoicing easier if the customer (rather than the supplier) determines the value of the purchase after the goods have been delivered or the services supplied.  This could apply more in certain areas such as; royalties, the construction industry, Feed-In-Tariff, and scrap metal.  A further benefit is that accounting staff will be working with uniform purchase documentation.

However, there is a high risk of errors, significant confusion and audit trail weaknesses. The wrong rate of VAT may easily be applied, documents can go missing, invoices may be raised as well as self-billing documents, the conditions for using self-billing may easily be breached (a common example is a supplier deregistering from VAT) and essential communication between the parties can be overlooked.  As the Tribunal chairman in UDL Construction Plc observed: “I regard the self-billing procedure as a gross violation of the integrity of the VAT system. It permits a customer to originate a document which enables him to recover input tax and obliges his supplier to account for output tax. It goes without saying that such a dangerous procedure should be strictly controlled and policed.”

The rules

For the customer

You can set up self-billing arrangements with your suppliers as long as you can meet certain conditions, you’ll need to:

  • Enter into an agreement with each supplier
  • Review agreements with suppliers at regular intervals
  • Keep records of each of the suppliers who let you self-bill them
  • Make sure invoices contain the right information and are correctly issued. This means including all of the details that make up a full VAT invoice – details here

If a supplier stops being registered for VAT then you can continue to self-bill them, but you can’t issue them with VAT invoices (and you cannot claim any input tax). Your self-billing arrangement with that supplier is no longer covered by the VAT regulations.

The Agreement

A self-billing arrangement is only valid if your supplier agrees to put one in place. If you don’t have an agreement with your supplier your self-billed invoices won’t be valid VAT invoices – and you won’t be able to reclaim the input tax shown on them.

You’ll both need to sign a formal self-billing agreement. This is a legally binding document. The agreement must contain:

  • Your supplier’s agreement that you, as the self-biller, can issue invoices on your supplier’s behalf
  • Your supplier’s confirmation that they won’t issue VAT invoices for goods or services covered by the agreement
  • An expiry date – usually for 12 months’ time but it could be the date that any business contract you have with your supplier ends
  • Your supplier’s agreement that they’ll let you know if they stop being registered for VAT, get a new VAT registration number or transfer their business as a going concern
  • Details of any third party you intend to outsource the self-billing process to.

An example of an agreement here

Reviewing self-billing agreements

Self-billing agreements usually last for 12 months. At the end of this you’ll need to review the agreement to make sure you can prove to HMRC that your supplier agrees to accept the self-billing invoices you issue on their behalf. It’s very important that you don’t self-bill a supplier when you don’t have their written agreement to do so.

Records

If you are a self-biller you’ll need to keep certain additional records:

  • Copies of the agreements you make with your suppliers
  • The names, addresses and VAT registration numbers of the suppliers who have agreed that you can self-bill them

If you don’t keep the required records, then the self-billed invoices you issue won’t be proper VAT invoices.

Invoices

Once a self-billing agreement is in place with a supplier, you must issue self-billed invoices for all the transactions with them during the period of the agreement.

As well as all the details that must go on a full VAT invoice you will also need to include your supplier’s:

  • name
  • address
  • VAT registration number

All self-billed invoices must include the statement “The VAT shown is your output tax due to HMRC” and you must clearly mark each self-billed invoice you raise with the reference: ‘Self Billing’ (This rule has the force of law).   Details required on invoice here

Input tax

You’ll only be able to reclaim the input tax shown on self-billed invoices if you meet all the record keeping requirements.  When you can reclaim the input tax depends on the date when the supply of the goods or services takes place for VAT purposes.  This is known as the the tax point, details here

For the supplier

If one of your customers wants to set up a self-billing arrangement with you, they will be required to agree to this with you in writing. If you agree, they’ll give you a self-billing agreement to sign.

The terms of the agreement are a matter between you and your customer, but there are certain conditions you’ll both have to meet to make sure you comply with VAT regulations:

  • Sign and keep a copy of the self-billing agreement
  • Agree not to issue any sales invoices to your customer for any transaction during the period of the agreement
  • Agree to accept the self-billing invoices that your customer issues
  • Tell your customer at once if you change your VAT registration number, deregister from VAT, or transfer your business as a going concern.

Accounting for output tax

The VAT figure on the self-billed invoice your customer sends you is your output tax.

You are accountable to HMRC for output tax on the supplies you make to your customer, so you should check that your customer is applying the correct rate of VAT on the invoices they send you. If there has been a VAT rate change, you will need to check that the correct rate has been used.

Tips

  • As a supplier, take care not to treat self-billed invoices as purchase invoices and reclaim the VAT shown as input tax
  • As a customer, carry out an instant check of VAT registration numbers here
  • As a supplier or customer regularly check that the conditions for self-billing continue to be met and ensure good communications
  • As a supplier or customer ensure that the documentation accurately reflects the relevant transactions and the correct VAT rate is applied
  • As a supplier or customer ensure that there is a clear audit trial and that all documentation is available for HMRC inspection
  • It is possible to use self-billing cross-border intra-EC, but additional rules apply.

VAT: New HMRC policy papers on tax debt

By   25 August 2020
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HMRC has published two new policy papers covering their position on VAT debts.

The first covers HMRC’s approach to tax debt and covers:

  • contact and discussion on ways to settle debt
  • tailored support offered
  • the role of agents/supporters
  • general debt advice
  • actions against taxpayers who do not engage with HMRC, or refuse to pay
  • HMRC enforcement powers
  • removal of assets
  • recovery of debt directly from a taxpayer’s bank account
  • County Court proceedings
  • use of debt collection agencies

The second provides guidance on HMRC’s support for taxpayers with tax debt and includes:

  • contact with HMRC
  • ways in which HMRC can assist
  • payments options, including Time To Pay (TTP)
  • bespoke TTP arrangements
  • how affordable payments are calculated
  • the role of honesty
  • the use of the Citizens Advice Bureau
  • treatment of assets
  • expectations of first contact with HMRC
  • what happens after a time to pay arrangement has been agreed
  • enforcement powers

Interestingly (well, it is all relevant I suppose!) HMRC say that it typically has more than half a million TTP arrangements in place at any one time, and nine out of ten are completed successfully.

Planning

There are a number of schemes and methods to legitimately defer or reduce VAT payable. These include the Flat Rate Scheme, Cash Accounting, margin schemes, global accounting. Other basic planning may involve; tax point planning, invoice timing, ad use of Bad Debt Relief (BDR).

Advice

Our advice is always to contact HMRC as soon as possible if a business has tax payment problems. In some cases, the department is surprisingly helpful. As the statistics demonstrate TTP arrangements are, on the whole, a very successful method for both sides to deal with tax debt.

Reminders

  • if HMRC has no idea of the cause of debt, and no contact has been made by the taxpayer. the usual assumption is that the taxpayer is ignoring it and the full force of debt action usually follows
  • tax debt never goes out of time, as there is no statute bar
  • paying taxes late usually results in penalties but these may be avoided if a TTP agreement is in place at the appropriate time
  • A TTP agreement usually means that HMRC will not use its enforcement powers
  • the length of TTP agreements depend on the quantum and nature of the debt, however for VAT unlikely to be beyond 12 months

These policy papers provide helpful guidance and explanation of HMRC’s approach, especially in these difficult economic times as a result of COVID 19 and Brexit.

VAT: Staff costs – The San Domenico Vetraria SpA case

By   24 August 2020
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Latest from the courts

In the San Domenico Vetraria SpA CJEU case the issue was the treatment of the secondment of staff by an Italian parent company to its subsidiary and the reimbursement by the subsidiary company of the costs incurred. Was there a VAtable supply?

Background

The issue was whether the relevant payment represented a supply of services ‘for consideration’. The parent company seconded one of its directors to its subsidiary and a charge was made based solely on a reimbursement of actual costs. The Italian domestic court ruled that the transaction was outside the scope of VAT on the basis that there was no consideration paid or received and therefore no supply of services.

Decision

The court ruled that despite the fact that the value of the payment to the parent company was limited to the parent company’s costs this did not mean that consideration for the director’s secondment was absent. Therefore, as consideration flowed in both directions, a taxable supply took place such that VAT was due, the claim of input tax made by the subsidiary was correct and the Italian authorities were incorrect to deny credit for it.

The President of the Chamber stated in the ruling that “The amount of the consideration, in particular the fact that it is equal to, greater or less than, the costs which the taxable person incurred in providing his service, is irrelevant in that regard”. It was immaterial that no profit was made, and the absence of such profit did not affect the VAT treatment.

There was a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.

Commentary

This is a useful clarification/confirmation. The supply was not a disbursement (details here) so it was a supply by the parent company. More on inter-company charges here.

Planning

If the recipient company was partly exempt or unable to reclaim the input tax for any reason, the VAT would have represented a real cost. So, would there be a way to avoid this charge? The answer (in the UK at least) is yes. If the director had a joint contract of employment with both companies, there would be no supply. Also, if the two companies were part of the same VAT group, the “supply” would be disregarded, so there would be no VAT cost for the subsidiary.

VAT: Post Brexit – low value consignments. New rules

By   27 July 2020
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From 1 January 2021 there will be changes to the VAT treatment of low value consignments (LVC). These are goods with a value up to £135 – the threshold for customs duty liability. The HMRC guidance states that VAT will be collected at the point of sale rather than on import.

The changes are intended to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports.

Brief summary

  • LVC Relief, which relieves import VAT on consignments of goods valued at £15 or less will be abolished
  • Online marketplaces, where they are involved in a sale, will be responsible for collecting and accounting for VAT
  • If no online marketplace is involved, the overseas seller will be required to register in the UK
  • LVC B2B sales will be subject to the new rules. However, where the business customer is VAT registered in the UK VAT will be accounted for by the customer by a reverse charge
  • Although the new rules mean that there will no longer be any VAT to collect at the border, Customs declarations will still be required at import, although these will be simplified
  • For goods imported by UK VAT registered businesses which are not covered by the provisions will be able to use postponed VAT accounting
  • Sales made by persons who are not in business are outside the scope of the new measures. This includes gifts and consignments sent from consumer to consumer

VAT: New government guide to imports and exports from/to the EU post Brexit

By   20 July 2020
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On 13 July 2020 the Government published new guidance which sets out procedures for businesses moving goods between GB and the EU from 1 January 2021. These do not cover the movement of goods between GB and Northern Ireland which are covered by different rules.

On 1 January 2021 the transition period with the EU will end, and the UK will become a “third country” and as such, it will be required to operate a full, external border, in a manner similar to the UK’s current position with the Rest of World (ROW). This means that controls will be placed on the movement of goods between GB and the EU for the first time in decades.

The principles of the so-called “Core Model” will apply to all goods movements between GB and the EU, regardless of the mode of transport of the movement.

HMRC has stated that, to afford industry extra time to make necessary arrangements, it has taken the decision to introduce the new border controls in three stages up until 1 July 2021.

The guidance covers the core process of;

  • customs declarations
  • customs duty
  • import VAT
  • safety and security declarations (imports and exports)

It sets out actions that businesses should take now (especially in light of the coronavirus position), as they will be required regardless of the outcome of continuing negotiations (which, let’s face it, are likely to amount to nothing).

Some other changes will affect only specific goods movements, eg; foodstuffs which will include the need for special certifications, entering the country via specific locations, and undergoing
additional checks at the border.

If not already in place, businesses need to:

  • apply for a GB eori number
  • apply for a duty deferment Account
  • prepare to pay or account for VAT on imported goods
  • ensure drivers have correct International Driving Permits
  • consider commercial arrangements
  • consider incoterms
  • obtain the Commodity Code of goods
  • establish the customs value of goods
  • consider how customs declarations to HMRC systems will be made and the use of an Customs intermediary

The EC has published a new version of the Guidance on Customs on 14 July 2020.

This a comprehensive guide is absolutely essential reading for any business which imports or exports goods cross border (transactions known as acquisitions and dispatches from/to the EU pre-Brexit). The publication demonstrates that there will be considerably more red tape and delays which will not reduce in the future. The marketability of GB goods in the EU is unlikely to increase and, if there is no alternative to importing goods from the EU, the cost and time taken to purchase will grow.

Good luck everybody!

#VAT #Value-Added-Tax #marcus-ward #Marcus-ward-vat #VAT-business #VAT-place-of-supply #VAT-POS #business #VAT-supply #penalty #VAT-penalty #VAT-penalties #VATable #HMRC #EC #EU #European-Union #VAT-Law #VAT-legislation #tax #GST #SME #start-up #new-business #newbiz  #VAT-registration #tax-law #VAT-invoice #VAT-return #VAT-declaration #VAT-return #VAT-reporting #VAT-rules #EC-sales-list #VAT-cross-border #VAT-services #VAT-goods #VAT-international #International-tax #export #import #customs-duty #excise-duty #VAT-guide #indirect-tax #VAT-planning #tax-planning #VAT-compliance #tax-legislation #VAT-agent #VAT-principal #VAT-agent-principal #VAT-input-tax #VAT-output-tax #VAT-underdeclaration #VAT-overclaim #VAT-online #VAT-digital #VAT-distance-selling #VAT-HMRC #Brexit #covid19 #coronavirus

VAT: New EU Action Plan – The “Tax Package”

By   16 July 2020
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The EU has announced on 15 July 2020 a new Action Plan for fair and simple taxation. The Tax Action Plan is a set of 25 initiatives the European Commission will implement between now and 2024 to make tax “fairer, simpler and more adapted to modern technologies”. Full details of the ‘Tax Package” here.

The main areas may be summarised as:

  • a single EU VAT registration to replace non-resident registrations to eliminate the need for non-resident VAT registrations. The registration number would enable a taxpayer to provide services and/or sell goods anywhere in the EU
  • plans to complement existing national and international programmes on co-operative compliance including agreements with third-countries (including the UK post Brexit)
  • reforms of VAT on Financial Services including measures for e-digital economy (Fintech) and financial and insurance outsourcing
  • proposals to change Tour Operators Margin Scheme (TOMS) rules to simplify what is recognised as a complex and distortive VAT area
  • platform economy; a review of the role of marketplaces in collecting VAT on behalf of individuals on their platforms
  • simplification of the place of supply of passenger transport services (said to be for for greener taxation)
  • advances in e-payment facilities for VAT for small and medium sized businesses
  • extension of MOSS to all B2C sales across the EU (in addition to the proposals announced in respect of the 2021 extension for Distance Selling)
  • measures to combat cross-border VAT fraud including improved analysis of EU level data and a move to automated VAT data sharing
  • a reduction of the regulatory burden for e-commerce Distance Sales of goods subject to excise
  • consideration of the treatment of crypto-assets and e-money which is considered a threat to tax transparency and which poses “substantial risks for tax evasion”
  • proposals for reducing tax disputes and monitoring the effectiveness of the dispute resolution mechanisms in Member States

This list is not exhaustive and is a guide only.

The Commission says it aims “to lead the transition into a greener and more digital world that is compatible with the principles of our social market economy”. And that “Fair, efficient and sustainable taxation is central in delivering on those ambitions”. It added that this “will be even more important in the months and years ahead, as the EU and the global community seek to recover from the fallout of the COVID-19 crisis”.

Comment

How these intended changes impact the UK after Brexit remains to be seen, however, in an increasingly worldwide marketplace lead by technology, it is difficult to understand how the UK can live in isolation.

#VAT #Value-Added-Tax #marcus-ward #Marcus-ward-vat #VAT-business #VAT-place-of-supply #VAT-POS #business #VAT-supply #VAT-supply #penalty #VAT-penalty #VAT-penalties #VATable #HMRC #EC #EU #European-Union #VAT-Law #VAT-legislation #tax #GST #SME #start-up #new-business #newbiz  #VAT-registration #tax-law #VAT-invoice #VAT-return #VAT-declaration #VAT-return #VAT-reporting #VAT-rules #EC-sales-list #VAT-cross-border #VAT-services #VAT-goods #VAT-international #International-tax #export #import #customs-duty #excise-duty #VAT-fraud #VAT-guide #VAT-MOSS  #tax- digital #indirect-tax #tax-refund #VAT-refund #VAT-planning #tax-planning #VAT-compliance #tax-claim #VAT-claim #tax-legislation #VAT-financial-services #VAT-FS #VAT-agent #VAT-principal #VAT-agent-principal #VAT-input-tax #VAT-output-tax #VAT-underdeclaration #VAT-overclaim #VAT-online #VAT-digital #VAT-distance-selling #VAT-HMRC #Brexit

VAT: Latest on overseas claims from the UK

By   15 July 2020
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HMRC has announced in Revenue and Customs Brief 9 (2020) that there are delays in processing and refunding claims submitted under the Overseas Refund Scheme (EU 13th directive claims). These refunds are for VAT incurred in the UK by businesses belonging outside the EU and relate to the period ending 30 June 2019.

The delays are as a result of the COVID19 pandemic. HMRC say that they hope to make all payments 30 September 2020.

Certificate of status

HMRC says that it is aware that some overseas businesses may not be able to obtain the required certificate of status from their official issuing authorities due to the coronavirus.

If a business has submitted a claim without a certificate of status, it will not be rejected, but it will be put on hold until 31 December 2020.

If, in these circumstances, a business is unable to obtain the relevant certificate of status by 1 October 2020, it needs to write to HMRC to let them know and the specifics of the case will be considered.

VAT: Where do I belong?

By   7 May 2020
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The place of belonging

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

  • the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
  • if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
  • otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted)

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to a supplier and the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is also not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

  • for suppliers, from which establishment the services are actually provided
  • for recipients; at which establishment the services are actually consumed, effectively used or enjoyed
  • which establishment appears on the contracts, correspondence and invoices
  • where directors or others who entered into the contract are permanently based, and
  • at which establishment decisions are taken and controls are exercised over the performance of the contract

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues.  It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

For more on our International Services







VAT: Consignment and call-off stock

By   5 May 2020
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Consignment, call-off stock and sale or return goods

If a business is required to provide regular sales of goods to customers, a prudent business structure is to keep inventory in a warehouse near the customer, or which belongs to the customer. This is likely to reduce transport costs and provides quicker access to the goods thus reducing time in the supply chain. This practice is likely to increase after Brexit with the predicted delays at borders.  There are specific VAT rules for businesses which hold stock in foreign countries. They stipulate when, and what VAT should be charged, and if a business needs to VAT register as a non-resident trader in another EU country in which it is warehousing its goods.

Call off and consignment stock have been in the news recently (see below) so now seems a good time to consider what the terms mean, the differences and the VAT treatment applicable.

Differences 

There is often confusion over the terms; consignment and call-off stock, and they are sometimes used interchangeably. They are differentiated based on who controls access to, and use of, the goods. The difference determines the VAT requirements and compliance rules, so it is important to identify the actual arrangements a business has in place, or plan for the most beneficial outcome. Both of these measures involve the transfer of a business’ own goods – for the purposes of this article; cross-border. The transfer of goods within the same legal entity from one country to another is a deemed supply. This fact is sometimes missed, which can lead to problems.  The VAT rules differ from country to country and create legal uncertainty for businesses. Call-off stock is one of the four “quick fixes” announced by the EC aiming for uniformity. UK implementation here. However, reports mention difficulties and disharmony on a number of issues and these fixes are likely to be irrelevant in the case of a no-deal Brexit.

In summary

  • Consignment stock

Consignment stocks are created when a business transfers its own goods to another Member State to create a stock over which it has control and from which it makes supplies. Typically, there are multiple potential customers for consignment stock.

Note: Goods sent to an overseas customer on sale or return are treated in the same way as consignment stocks.

  • Call-off stock

Call-off stock is the transfer of goods by a business from one Member State to another to create a stock of goods from which its customers can ‘call-off’ ie; use and pay for the goods as and when they require them.

Not call-off stock

Goods delivered to storage facilities operated by the supplier, rather than the customer, should be treated as consignment stocks (see above). If stocks of goods are dispatched by a supplier for call-off by more than one customer, this is also likely to be consignment stock.

VAT treatment

Consignment stock

There is an initial deemed supply of own goods to form the stock which takes place in the Member State from which the goods are originally shipped. This is usually VAT free as a dispatch and the usual documentary requirements apply.

The place of subsequent supplies of the goods, once a buyer has been found (change of ownership) is usually the Member State in which the stock is held.

Because the business is transferring its own goods “to itself” in another Member State it will be making an acquisition of goods in that Member State. The business is likely to be liable to register for VAT there (or appoint a fiscal representative in the country of arrival) and to account for acquisition tax in the other Member State. Output tax will also be due (at the rate of VAT applicable in the Member State in which the goods are located) on the sale to a third party.

Consignment stock – reporting requirements

If a UK VAT registered business transfers goods to another Member State to create a consignment stock it must complete boxes 6 and 8 on the VAT return and an EC Sales List declaration reporting a value based on the cost of the goods – see HMRC Public Notice 725. The supply must be reported on an Intrastat dispatch Supplementary Declaration (SD) at the time the goods are dispatched.

As this is a supply of own goods, the value to be declared for Intrastat purposes is the amount that would have been realised in the event of a sale under normal market conditions. If the business is required to register for VAT in the partner Member State, it will have to comply with the VAT and Intrastat requirements in that Member State.

Call-off stock

As the customer has control of the goods in storage, is aware of stock movements, and may take stock whenever he requires this does not generally require the seller to VAT register in the foreign country as a non-resident trader. Such sales are treated as a “regular’ dispatch and the seller is required to show the customer’s VAT number etc on invoices and other documentation in order to treat it as VAT free in the usual way. With effect 1 January 2020 the time of supply for the intra-EC supply is the date the goods are called off by the customer. Before this date the time of supply was the date the goods were physically dispatched.

Call-off stock – reporting requirements 

The supply of call-off stock from the UK to a VAT registered business in another Member State is VAT free (subject to the normal rules). Boxes 6 and 8 of the VAT return and the EC Sales list declaration should be completed using a value based on the cost of the goods as above. An Intrastat dispatch Supplementary Declaration (SD) should also be completed at the time the goods are dispatched from the UK, again using a value based on the cost of the goods.

Latest

Following the introduction of the four VAT ‘Quick Fixes’ across the EU, HMRC published specific draft legislation regarding the ‘Call-off stock Quick Fix’. Additionally, HMRC has updated its policy paper on changes to the rules for call-off stock arrangements between the UK and EU Member States. In particular, new information on the accounting of small losses has been added.

Brexit

Unless a deal can be negotiated with the EC to replicate the current arrangements, movements between the UK and the EU27 will follow the third country rules. This means goods will be treated as imports with VAT and duty, plus a local VAT registration in most, if not all cases. Of course, this will likely mean delays and additional administration at borders, plus the addition of duty. A small ray of light (which will be of little compensation) is the removal of Intrastat and SD reporting.

This article considers UK suppliers selling goods outside the UK only. Please contact me if you have any queries on an overseas business using a consignment of call-off stock arrangement in the UK.







VAT: Crowdfunding – What is taxable?

By   9 April 2020
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What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.

VAT Treatment

The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.

Examples

Donations

  • where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar

Goods and/or services

  • where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due

Combination

  • where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable

Investment

  • where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes

Royalties

  • if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due

VAT registration 

If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £85,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.

Input tax recovery

If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities.

Commentary

There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.