Oils and fats used for animal food is zero-rated, unless it is waste oil from a fish and chip shop – which is standard rated… even if it is used to feed animals.
Category Archives: Compliance
VAT treatment of lost, stolen, damaged or destroyed goods
Is output tax due on goods that, for various reasons, cannot be sold, or are sold at a discount?
HMRC says that the VAT treatment depends on whether or not there was actually a supply of goods, what happened to them, who was responsible for them at the time and whether a VAT invoice was issued. The value of any supply will also need to recognise any credit given to the customer.
So, as often is the case with the tax, the answer is: “It depends”. So, let’s look at the categories to find out:
Lost goods
This depends on who lost the goods.
Sometimes a business will sell goods to a customer, but they did not receive them because they went astray. This could happen, for example, if goods are lost in the post.
- customer is responsible for loss
If the customer is responsible for any losses before the goods are delivered, then VAT is due on the full amount of the sale.
- supplier responsible for loss
If the supplier is responsible for any losses before the goods are delivered, then the way VAT is dealt with will depend on whether an invoice has been issued.
If an invoice has been issued, output tax is due on the amount invoiced, less the value of any credit given to the customer. So, if credit has been given a full refund, no VAT will be due.
If no invoice has been issued, there is no VAT due. This is because nothing has been supplied. It is prudent to make a note in the business records that the goods were lost an no invoice was raised.
Stolen goods
If goods are stolen from a business’ premises no VAT is due – as long as any customer has not been invoiced. HMRC are very likely to examine such circumstances as it is sometimes used as an ‘excuse’ for underdeclarations. Consequently, we always advise businesses to hold as much evidence as possible to support a claim that theft has taken place.
Goods stolen from a supplier’s premises after they have been sold to a customer- If the contract with the customer means that they are responsible for the goods while they are on the supplier’s premises – there has been a supply and output tax is due.
If the customer is not responsible for the goods when they are stolen, then if:
- a VAT invoice issued – VAT is due on the amount invoiced (but subject to subsequent amendment to the quantum)
- no invoice has been issued – there is no VAT due because there is no supply
NB: If cash is stolen from a business, this does not reduce the value of output tax on any supply.
Fraud
If goods are lost due to fraud it can be difficult to demonstrate or evidence. To avoid paying output tax on goods lost to a fraud a business is required to:
- report the incident to the police
- contact HMRC and give them the case details – this will entail providing a crime or case reference number given by the police. HMRC will consider each case and advise appropriately
Damaged goods
Damaged goods may be sold on at a discounted price, or they might have some scrap value. Output tax is due on whatever income is received for the goods sold. If an insurer makes a payment in respect of the damage, no VAT is due on this income.
Destroyed goods
If goods are destroyed such that they cannot be sold, and these are handed over (or what is left of them) to the insurer, no VAT is due on the disposal. Furthermore, there is no output tax due on any money received from the insurer. HMRC will need to see evidence of the insurance claim, and details of any insurance payment, on their next inspection of the business.
Records
Maintaining meticulous records is crucial for VAT compliance and it is very likely that such issues will be examined closely on HMRC inspections. This is because unexpected reductions in output tax will usually trigger enquiries. Input tax claims for the original purchase of the goods will be unaffected, so any mark-up type exercise will flag up the discrepancy.
More on illegal activities here.
VAT: Insolvency update
HMRC has updated its Insolvency Practitioner Bulletin.
It sets out changes that have been made to form VAT 7 to help insolvency practitioners provide important information and provides explanations of questions on the form.
HMRC has changed the way it issues VAT repayments to insolvency practitioners from Monday 10 March 2025.
An update of the VAT 7 form includes a section to input bank details. It is important to ensure that the most recent version of the VAT 7 is used. This may be found at section 6.2 on Insolvency VAT Notice 700/56.
VAT stats released
HMRC has released its annual VAT statistics from 2023 to 2024.
The headlines are:
- total VAT receipts in the financial year 2023 to 2024 increased by 6% to £169 billion compared to £160 billion in 2022 to 2023
- the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
- the total net VAT liability in 2023 to 2024 was £173 billion
- the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
- businesses with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion)
Overall, it isn’t really a riveting read…
VAT Returns: A box-by-box guide
VAT Basics
Return boxes explained – what goes where? A general overview.
Box 1 VAT due in the period on sales and other outputs
The amount of VAT due on all goods and services supplied in the period covered by the return. This is output tax. The value of output tax may be affected by VAT:
- on credit notes issued
- when refunds are made
- on goods taken in part-exchange
- underdeclared or overdeclared on previous returns within certain de minimis
VAT may also be due on supplies outside the mainstream of a business, eg:
- fuel used for private motoring where VAT is accounted for using a scale charge
- the sale of stocks and assets
- goods taken out of the business for private use
- VAT due under a reverse charge
- supplies to staff
- gifts of goods that cost more than £50
- certain distance sales to Northern
- commission received for selling something on behalf of a third-party
- VAT shown on self-billed invoices issued by your customer
- VAT due on imports accounted for through postponed VAT accounting
Box 2 VAT due in the period on acquisitions of goods made in Northern Ireland from the EU
Since 1 January 2021, a business is only allowed to make acquisitions on goods brought into Northern Ireland from the EU. For acquisitions, the VAT due on all goods and related costs bought from VAT-registered suppliers in the EU should be included.
Box 3 total VAT due
Show the total VAT due, the total of boxes 1 and 2. This is the total output VAT for the period.
Box 4 VAT reclaimed in the period on purchases and other inputs
Show the total amount of deductible VAT charged on business purchases. This is input tax for the period.
This will include:
- VAT paid on imports
- imports accounted for through postponed VAT accounting.
- claims for bad debt relief (BDR)
- payments on removals from a warehousing regime or a free zone
- VAT shown on self-billed invoices issued by you
- acquisitions of goods into Northern Ireland from the EU
Certain VAT paid by a business should not be included in box 4, some examples here.
Adjustments to the amount claimed may be required for
- VAT on any credit notes received
- certain VAT underdeclared or overdeclared on earlier returns
- partial exemption
Box 5 net VAT to pay or reclaim
Deduct the smaller from the larger of values in boxes 3 and 4 and enter the difference in box 5.
If the figure in box 3 is more than the figure in box 4, the difference is the amount payable to HMRC. If the figure in box 3 is less than the figure in box 4, HMRC will repay this.
Box 6 total value of sales and all other outputs excluding any VAT
Show the total VAT exclusive value of all business sales and other specific outputs. These will include:
- zero-rated, reduced rate and exempt supplies
- fuel scale charges
- exports
- distance sales to Northern Ireland which are above the distance selling threshold or, if below the threshold the overseas supplier opts to register for VAT in the UK
- reverse charge transactions
- supplies which are outside the scope of UK VAT (this is debateable, but HMRC require this information)
- deposits that an invoice has been issued for
- net value of the road fuel scale charge
Box 7 total value of purchases and all other inputs excluding any VAT
Show the total net value of expenditure. This will include:
- imports
- acquisitions of goods brought into Northern Ireland from the EU
- reverse charge transactions
- capital assets
Boxes 8 and 9 only need to be completed goods cross the Northern Ireland border.
Box 8 value of supplies of goods to the EU
For supplies of goods and related costs, excluding any VAT, from Northern Ireland the EU made from 1 January 2021.
Box 9 value of acquisitions of goods from the EU
For acquisitions of goods and related costs, excluding any VAT, from the EU into Northern Ireland from 1 January 2021.
NB: If a business uses one of the following schemes there may be different rules for completing some of the boxes on returns.
- flat rate scheme
- cash accounting
- annual accounting
- margin schemes for second hand goods, works of art, antiques and collectors’ items
- payments on account.
VAT Domestic Reverse Charge procedure Notice updated
HMRC has updated – VAT Notice 735: Domestic reverse charge procedure
The Notice sets out how the Domestic Reverse Charge (DRC) makes supplies of standard or reduced rated construction services between construction or building businesses subject to the charge. This means that the recipient of the supply will be liable to account for VAT due, instead of the supplier. Consequently, the customer in the construction industry receiving the supply of construction services will be required to pay the VAT directly to HMRC rather than paying it to the supplier. It will be able to reclaim this VAT subject to the normal VAT rules. The DRC will apply throughout the supply chain up to the point where the customer receiving the supply is no longer a business that makes supplies of construction services (a so-called end user).
The supplies to which the DRC applies are set out here
The update includes information on recipients of DRC supplies that are not VAT registered. Broadly; if a business buys specified goods or services, it may make it liable to VAT registered on the strength of the value of the DRC.
A VAT Did you know?
Under one VAT scheme, zero-rated and exempt supplies are subject to VAT – as are those which are “Outside the scope of UK VAT”.
Which, or course, makes entire sense.
VAT: Time to pay guidance updated
HMRC’s guidance: How to pay a debt to HMRC with a Time to Pay arrangement was updated on 17 February 2025. This covers businesses which owe a debt to the department.
The updates cover:
- Information about when a payment plan can be set up without contacting HMRC has been added.
- Section ‘How we work out debt repayments’ has been removed as the information is covered in the section
- Information to work out what businesses can afford to pay has been updated in the section ‘How we work out what you can afford to pay’.
If a business owes VAT
It can set up a payment plan to spread the cost of its latest VAT bill online without calling HMRC if it:
- has missed the deadline to pay a VAT bill
- owes £100,000 or less
- plan to pay its debt off within the next 12 months
- has a debt for an accounting period that started in 2023 or later
- does not have any other payment plans or debts with HMRC
- has filed all your tax returns
More information here: set up a payment plan online.
How to contact HMRC to discuss a Time to Pay arrangement
If a business cannot pay its tax bill and needs assistance (ie; the online arrangements above are not applicable) we recommend that it should contact HMRC as soon as possible.
VAT: When is a bar a bar? – The Anglia Ruskin Students’ Union case
Latest from the courts
A student union tried to argue that a bar is not a bar. It did not go well.
In the case of The Anglia Ruskin Students’ Union the High Court considered the appellant’s application for judicial review of HMRC’s decision that “92” which was operated on the university’s campus was a bar.
The importance of this description of the venue was that if it was indeed a bar, the supplies from it would be standard rated. This is because the supplies of catering to students by eligible bodies, including universities”, are exempt from VAT, on the basis that the supplies are closely related to exempt supplies of education, however, the exemption does not cover food and drink sold in bars.
The union contended that ‘bar’ means a place that does not supply catering, or, alternatively, predominantly or mainly serves alcohol.
HMRC, predictably argued that a bar is “somewhere where one can buy and drink alcoholic and other drinks, as well as food”, and that 92 met that definition.
The court agreed with HMRC that the bar was indeed a bar and did not grant permission to appeal.
So, now we know, a bar is a bar, not a café… or anything else really.
Technical
* Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.
VAT: e-invoicing consultation published
HMRC and the Department for Business and Trade have published their UK e-invoicing consultation paper.
Background to this development here and here.
E-invoicing is the digital exchange of invoice information directly between buyers’ and suppliers’ financial systems, even if these systems are different. The outcome is an invoice which is automatically written into the buyer’s financial system without manual processing.
E-invoicing automates the exchange of invoices between buyers and suppliers. The government says that increased e-invoicing uptake may support economic growth, business productivity, improve business cashflow and reduce errors in tax returns. It has the potential to both support businesses and tax administration.
The consultation aims to understand how e-invoicing aligns with businesses and their customers. Responses from businesses of all sizes – whether they use e-invoicing or not – as well as interest groups, representative bodies, industry bodies and individuals are encouraged.
The purpose of the consultation is to seek input on how the government can support the increased adoption of e-invoicing. The main points are:
- different models of e-invoicing
- whether to take a mandated or voluntary approach to e-invoicing
- what scope of mandate might be most appropriate in the UK and for businesses
- whether e-invoicing should be complemented by real time digital reporting
This would be a significant change to VAT and all businesses should understand the impact.
More on VAT in the Digital Age (ViDA), including Real-time digital reporting here.