Category Archives: Compliance

Imports – The jargon explained

By Marcus Ward 1 March 2018

The minefield of importing

VAT is only one consideration when importing goods.

Further to my article on proposed changes to imports and exports I have been asked what some terms used in the import of goods mean. So below is, what I hope, a helpful explanation of UK import terms.

We are happy to assist with any general queries and we provide a comprehensive Customs Duty service via our associates with specialised, in-depth knowledge of this complex area.

We recommend regular reviews of a business’ import procedures. This may highlight deficiencies but also provide opportunities to save money or improve cashflow.

Term	Description
Anti-Dumping Duty	A customs duty on imports providing a protection against the dumping of goods in the EU at prices substantially lower than the normal value
ATA carnet	An international customs document for temporary importation and exportation regulated under the terms of the ATA or Istanbul Convention
C 88 (SAD)	The UK version of the Single Administrative Document (SAD) for making import, export and transfer declarations
CAP	Common Agricultural Policy
CDS	Customs Declaration Service to be launched from August 2018. Replaces CHIEF
CFSP (Customs Freight Simplified Procedures)	Simplified procedure for the importation of third country goods including the simplified declaration procedure and local clearance procedure
CHIEF	(Customs Handling of Import and Export Freight). The Customs entry processing computer system. Soon to be replaced
CIE	Customs input of entries to CHIEF
Community	Member States of the European Union
Community Transit	A customs procedure that allows non EU goods on which duty has not been paid to move from one point in the EU to another
Countervailing duty	A customs duty on goods which have received government subsidies in the originating or exporting country
CPC (Customs Procedure Code)	A 7-digit code used on C88 (SAD) declarations to identify the type of procedure for which the goods are being entered and from which they came. Details of CPCs can be found in The Tariff
Customs charges	customs duties import VAT specific customs duty (previously CAP charges) Anti-Dumping Duty Countervailing Duty excise duties
Customs duty	An indirect tax that provides protection for Community industry. Raised on imported goods, it does not include excise duty or VAT
Customs warehouse	A system or place authorised by customs for the storage of non-Community goods under duty and/or VAT suspension
EU	European Union
EU Country	Member country of the European Union
Euro (€)	European currency unit
Excise duty	A duty chargeable, in addition to any customs duty that may be due, on certain goods listed in The Tariff, volume 1 part 12 paragraph 12.1
Free Circulation	Goods imported from outside the EU are in free circulation within the EU when: all import formalities have been complied with all import duties, levies and equivalent charges payable have been paid and have not been fully or partly refunded goods that originate in the EU are also in free circulation
Free Zone	A designated area into which non-EU goods may be moved and remain without payment of customs duty and/or VAT otherwise due at importation
INF6 (C1245)	Information sheet 6 is a document used when TA goods travel between EU Countries. It provides details of the goods at the time of their first entry to TA in the EU. It does not replace the C88 (SAD)
IP (Inward Processing )	A customs procedure providing relief from import duty on goods imported to the EU or removed from a customs warehouse, for process and export outside the EU
Member State	Member country of the European Union
PCC (Processing under Customs Control)	A system of import duty relief for goods imported or transferred from another customs regime for processing into products on which less or no duty is payable
Person established in the EU	In the case of a natural person, any person who is normally resident there. In the case of a legal person or an association of persons, any person that has, in the EU: its registered office its central headquarters or a permanent business establishment
Person established outside the EU	In the case of a natural person, any person who is not normally resident there. In the case of a legal person or an association of persons, any person that has, outside the EU its registered office its central headquarters or a permanent business establishment
Pre-entry	Notification to customs of your intention to export the goods by the submission of an entry
Preference	Arrangements which allow reduced or nil rates of customs duties to be claimed on eligible goods imported from certain non-EU countries
SAD (Single administrative document)	Document used throughout the EU for making import/export declarations – the UK version is Form C88
TA goods	Temporary Admission goods
Tariff	The Tariff consists of 3 volumes Volume 1 contains essential background information for importers and exporters, contact addresses for organisations such as Department for Business, Innovation and Skills, Department of Environment, Food and Rural Affairs and Forestry Commission. It also contains an explanation of Excise duty, Tariff Quotas and many similar topics Volume 2 contains the 16,000 or so Commodity Codes set-out on a Chapter by Chapter basis. It lists duty rates and other directions such as import licensing and preferential duty rates Volume 3 contains a box-by-box completion guide for C88 (SAD) entries, the complete list of Customs Procedure Codes (CPCs), Country / Currency Codes, lists of UK ports and airports both alphabetically and by their legacy Entry Processing Unit (EPU) numbers, and further general information about importing or exporting. The Tariff is available on an annual subscription and is also available at some larger libraries. You can buy the Tariff in printed and CD ROM formats or subscribe to the new e-service from the Stationary Service referred to in paragraph 1.5
Third country	Any country that is outside the Customs Territory of the EU

It is likely that some of these terms will change in the future and with the uncertainty of Brexit who knows what changes will be required.

Digitisation of the VAT Retail Export Scheme – Update

By Marcus Ward 23 February 2018

What is the VAT Retail Export Scheme (VAT RES)?

The VAT RES allows:

overseas visitors (generally, persons who live outside the EC) to receive a refund of VAT paid on goods exported to destinations outside the EC
retailers to zero-rate goods sold to entitled customers when they have the necessary evidence of export and have refunded the VAT to the customer

Such treatment is subject to a number of conditions:

the customer must be entitled to use the scheme
the goods must be eligible to be purchased under the scheme*
the customer must make the purchase in person and complete the form at the retailer’s premises in full
the goods must be exported from the ECby the last day of the third month following that in which the goods were purchased
the customer must send the retailer or the refund company evidence of export stamped by Customs on an official version of Form VAT 407, an approved version of Form VAT 407 or an officially approved invoice
the retailer or the refund company must not zero-rate the supply until the VAT has been refunded to the customer

Typically, a retailer will charge UK VAT to an overseas visitor until the visitor has returned the appropriate documentation which has been suitably stamped at the port of departure from the UK.

* Certain goods are excluded from VAT RES. These include; motor vehicles for personal export, boats sold to visitors who intend to sail them to a destination outside the EC, goods over £600 in value exported for business purposes, goods exported as freight or unaccompanied baggage, unmounted gemstones, bullion, goods consumed in the UK and goods purchased by mail order including those purchased over the Internet. (This list is not exhaustive).

Full details of VAT RES scheme here https://www.gov.uk/government/publications/vat-notice-704-vat-retail-exports/vat-notice-704-vat-retail-exports

VAT RES is a voluntary scheme and retailers do not have to operate it. Those who do must ensure that all the conditions set out in the above notice are met. In certain areas (such as the West End of London) businesses which offer VAT RES have a commercial/price advantage over those shops which do not.

So what is new?

HMRC has recently (this month) provided an update on their project to digitise the VAT RES system, to improve the efficiency for both retailers and travellers, and also to help reduce fraud. Details here

https://www.att.org.uk/sites/default/files/180213%20VAT%20Retail%20Export%20Scheme.pdf

We are able to advise further on this matter if required.

VAT: Latest from the courts – Hastings Insurance Place Of Supply

By Marcus Ward 22 February 2018

In the First Tier Tribunal (FTT) case of Hastings Insurance the issue was where was the place of supply (POS) of services?

The POS rules determine under which VAT regime the supply is treated, whether the associated input tax may be recovered and how the services are reported. Consequently, determining the POS for any supply is vitally important because getting it wrong may not only mean that tax is overpaid in one country, but it is not declared in the appropriate country so that penalties and interest are levied. Getting it wrong also means that the input tax position is likely to be incorrect; meaning that VAT can be over or underclaimed. The rules for the POS of services are notoriously complicated and even subtle differences in a business’ situation can produce a different VAT outcome.

Background

Hastings is an insurance services company operating in the UK. The appeal relates to whether the appellant was able to recover input tax it incurred in the UK which was attributable to supplies of; broking, underwriting support and claims handling services made to a Gibraltar based insurance underwriter (Advantage) which supplied motor insurance to UK customers through Hastings. In order to obtain credit for the relevant input tax, the supply to Advantage must have a POS outside the EU, eg: the recipient had a place of belonging in Gibraltar and not the UK. HMRC argued that Advantage belonged in the UK so that the input tax could not have been properly recoverable. Consequently, the issue was where Advantage “belonged” for VAT purposes.

The POS rules set out where a person “belongs”.

A taxable person belongs:

where it has a business establishment, or;
if different, where it has a fixed establishment, or;
if it has both a business establishment and a fixed establishment (or several such establishments), where the establishment is located which is most directly concerned with the supply

Further details on this point are explained here

Contentions

It was not disputed that Advantage had a business establishment in Gibraltar. The question was whether it also had a fixed establishment in the UK and, if so, whether the supplies of services were made to that fixed establishment rather than to its business establishment in Gibraltar. HMRC contended that Advantage had a fixed establishment in the UK which was “more directly concerned with the supply of insurance” such that the POS was the UK. This was on the basis that Advantage had human and technical resources in the UK which were actually used to provide its services to UK customers. Hastings obviously argued to the contrary; that Advantage had no UK fixed establishment and that services were supplied to, and by, Advantage in Gibraltar.

Technical

It may be helpful to look briefly at CJEU case law which considered what an establishment other than a business establishment is. It is: “characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources”, where looking at the location of the recipient of the supply, “to enable it to receive and use the services supplied to it for its own needs” or, where looking at the location of the supplier, “to enable it to provide the services which it supplies”.

Decision

The FTT concluded that the input tax in dispute is recoverable because it was attributable to supplies made to Advantage on the basis that it belonged outside the EU (as interpreted in accordance with the relevant EU rules and case law). After a long and exhaustive analysis of the facts the summary was;

The appellant’s human and technical resources, through which it provided the services to Advantage, did not comprise a fixed establishment of Advantage in the UK, whether for the purposes of determining where Advantage made supplies of insurance or where the appellant made the supplies of its services.
Even if, contrary to the FTT’s view, those resources comprised a fixed establishment in the UK, there is no reason to depart from the location of Advantage’s business establishment in Gibraltar as the place of belonging/supply in the circumstances of this case.

Summary

If this case affects you or your clients it will be rewarding to consider the details of the arrangements which are helpfully set out fully in the decision. This was, in my opinion, a borderline case which could have been decided differently quiet easily. A significant amount of the evidence produced was deemed inadmissible; which is an interesting adjunct to the main issue in itself. Whether HMRC take this matter further remains to be seen. It is always worthwhile reviewing a business’ POS in depth and we are able to assist with this.

The ABC of VAT

By Marcus Ward 12 February 2018

VAT Basics

Jargon Buster

Unfortunately, VAT is littered with phrases, acronyms and jargon which can be impenetrable to people that have to deal with the tax. I have explained the main terms used below and tried to demystify the gobbledygook!

Accounting period

This is the period of time reported in your VAT Return, usually three months.

Acquisitions

Goods brought into the UK from other EC countries (different from goods brought into the UK from outside of the EC; which are known as imports).

Capital Goods Scheme (CGS)

A mechanism for spreading the input tax incurred on certain goods exceeding £50,000 or property exceeding £250,000 of standard-rated cost.

Consideration

Something that is done or given in exchange for something else. Consideration can be in monetary or non-monetary form. If there is no consideration there is no supply.

Corporate body

An incorporated body, eg; a limited company, limited liability partnership, friendly, industrial or provident society.

Distance sales

When a business in one EC country sells and ships goods directly to consumers in another EC country, eg; internet sales.

Exempt supply

A supply that is exempt from VAT by law eg; rent, insurance and financial services. It is not a taxable supply and generally does not allow the recovery of VAT incurred on associated expenditure.

Exports

Goods sent to countries outside of the EC.

Dispatches

Goods sent to another EC country.

Imports

Goods brought into the EC from countries outside of the EC.

Input tax

Refers to the VAT you pay on your purchases – goods or services you use when running your business.

Invoice

Document provided by a taxable person to customer/client. It must contain certain information.

New building

A commercial building less than three years old where a freehold disposal is compulsorily standard-rated.

Non-residential

A building not used as a dwelling.

Option to tax

Changes the supply of a commercial property from exempt to standard rated. This is done solely to recover or avoid input tax attributable.

Output tax

Refers to the VAT you charge on your sales which your clients/customers pay you.

Outside the scope of VAT

Goods and services that are completely outside the scope of VAT altogether, eg; taxes, supplies in other countries, TOGCs and wages paid to employees.

Partial exemption

A business which incurs input tax relating to both taxable and exempt activities is partially exempt and will probably not be able to recover all of its input tax.

Place of supply

The country where a supply of goods or services is deemed to be made for VAT purposes. This is the country in which VAT must be accounted for.

Reduced rate

The rate applied to essential goods and services, such as gas and electricity for residential purposes. Currently at 5%.

Registration

Being VAT registered – accounting for output tax on sales and recovering input tax. A business needs to VAT register when its turnover exceeds certain limits.

Self-billing

Where a customer raises a self-billing document and sends a copy to its supplier with its payment – rather than the supplier issuing an invoice.

Standard rate

A taxable supply subject to UK VAT at the current standard rate of 20%.

Supply

Providing goods or services in return for consideration, normally monetary.

Supply of goods

When exclusive ownership of goods passes from one person to another.

Supply of services

Supply, for consideration, of something provided which is not goods.

Tax period

(Also known as accounting period) The period of time covered by your VAT return. Usually quarterly or monthly.

Taxable person

Any business which supplies goods or services and is required to be registered for VAT. This includes; individuals, partnerships, companies, clubs, associations and charities etc.

Taxable supplies

Goods and services supplied by a taxable person which are liable to VAT at the standard, reduced or zero rate. They usually permit the recovery of VAT incurred on the costs incurred in making them.

Taxable turnover

Taxable turnover is the total value, net of VAT, of the taxable supplies you make in the UK within one year. It is used to establish whether registration is necessary.

Tax point (Time of supply)

The date when a business must account for VAT on supplies and when input tax may be reclaimed. This dictates on what VAT return the transaction is accounted for.

Transfer Of A Going Concern (TOGC)

A sale of a business which continues after transfer. This is a VAT free transaction if certain tests are met.

Zero-rated

Is a taxable supply but subject to UK VAT at a rate of 0%.

VAT Error Disclosure under £10,000 – Draft Letter To HMRC

By Marcus Ward 12 February 2018

Error Correction – belt and braces

If an error is discovered on a past VAT return it is only usually necessary to report it to HMRC (on form VAT652) if it is £10,000 (net of all errors) or more of VAT.

However, because of the current penalty regime it is important to ensure that any adjustment qualifies as an unprompted disclosure. Consequently, we recommend that a letter similar to that below is sent to HMRC in cases where errors below £10,000 have been adjusted on a current return.

“RE: Letter of disclosure; error on return for period XXXX

We disclose, (on behalf of our above named client), that the VAT return for the period XX/XX contained an inaccuracy.

Reason, eg; Due to a processing error, three sales invoicing totalling……

This resulted in the net VAT due for the period being understated by £XX

As the error is within the limits for correction on the next VAT return, this error has been corrected on the return for the period in which the error was discovered, namely the period XX/XX. No further action to correct the error is therefore necessary.

Please treat this letter as an unprompted disclosure of an inaccuracy. Alternatively, please advise me of any further details that you may require in order that that this letter may be treated as such.”

It is accepted that this course of action may prompt enquiries, but it is our view that that is preferable to having a potential ticking time bomb.

Please contact us should you have any queries on error disclosure.

VAT: Doctors and healthcare professionals

By Marcus Ward 29 January 2018

VAT and Doctors

I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.

(This article refers to doctors, but applies equally to most healthcare professional entities.)

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.

However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?”

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of the value of them. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.

Examples of services and goods which may be taxable are:

Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
Dispensing drugs against an NHS prescription (zero-rated)
Drugs dispensed against private prescriptions (standard-rated)
Medico legal services that are predominately legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
Paternity testing
Certain rental of rooms/spaces
Car parking
Signing passport applications
Providing professional witness evidence
Any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to partial exemption rules (see below). You will have to keep records in a certain way and your accounting system needs to be able to process specific information.

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. There is a set way in which the recoverable portion of this VAT is calculated. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in.

VAT registration in summary

Benefits

Recovery of input tax; the cost of which is not claimable in any other way
Potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
Only a small amount of VAT is likely to be chargeable by a practice
May provide opportunities for pre-registration VAT claims

Drawbacks

Increased administration, paperwork and staff time
Exposure to VAT penalties and interest
May require VAT to be added to some services provided which were hitherto VAT free
Likely that only an element of input tax is recoverable as a result of partial exemption
Uncertainty on the VAT position of certain services due to current EU cases
Potential increased costs to the practice in respect of professional fees.

Please contact us if any of the above affects you or your clients.

VAT: More flexibility on VAT rates, less red tape for small businesses

By Marcus Ward 18 January 2018

The European Commission (EC) has today proposed new rules which it is claimed will give Member States more flexibility to set VAT rates and to create a better tax environment to help SMEs flourish.

The proposals are the final steps of the EC’s overhaul of VAT rules, with the creation of a single EU VAT area to dramatically reduce the €50 billion lost to VAT fraud each year in the EU, while supporting business and securing government revenues.

Further details: “Action Plan on VAT – Towards a single EU VAT“

VAT: Disclosure of Avoidance Schemes – new rules

By Marcus Ward 15 January 2018

What needs to be disclosed, and by whom?

The Disclosure of Avoidance Schemes (VAT & Other Indirect Taxes) rules came into effect this month. HMRC Notice 799 sets out the new disclosure rules which are wider than the previous rules and now apply to all indirect taxes (ie; Insurance Premium Tax, General betting Duty, Pool Betting Duty, Remote Gaming Duty, Machine Games Duty, Gaming Duty, Lottery Duty, Bingo Duty, Air Passenger Duty, Hydrocarbon Oils Duty, Tobacco Products Duty, Duties on Spirits, Beer, Wine, Made-Wine and Cider, Soft Drinks Industry Levy, Aggregates Levy, Landfill Tax, Climate Change Levy and Customs Duties) – not just VAT.

The Notice contains information on what to do if a person promotes or uses arrangements (including any scheme, transaction or series of transactions) from 1 January 2018 that will, or are intended to, provide the user with a VAT or other indirect tax advantage when compared to adopting a different course of action.

The information includes:

What arrangements must be disclosed to HMRC
Who has responsibility to disclose notifiable proposals or arrangements to HMRC
Deciding who is a promoter of notifiable proposals or arrangements
Deciding who is an introducer of a notifiable proposal
What the obligations are as a promoter of notifiable proposals or arrangements
What the obligations are as an introducer of a notifiable proposal
What the obligations are as a user of notifiable arrangements including when there is a responsibility to disclose
How to make a disclosure to HMRC

It is crucially important to establish who is required to notify HMRC and of what. The rules do not just cover tax advisers but may also affect businesses directly.

The effect of disclosure

A disclosure under the new rules has no effect on the tax position of any person who uses the arrangements. However, a disclosed arrangement may be challenged by HMRC or may be rendered ineffective by legislative action by Parliament.

Please contact us if you think any of the above affects you.

VAT: How well did HMRC perform?

By Marcus Ward 15 January 2018

The Public Accounts Committee has published its report on HMRC’s Performance in 2016–17. Things are far from rosy…

The report highlights concerns for customer service from growing challenges facing HMRC. It states that HMRC is undertaking 15 major transformation programmes and comments that “With Brexit it faces additional pressures and is having to consider how to change priorities. It needs to be clear about what it will do differently, or not do, and what the impact will be on customer service.”

“Together with the Treasury, HMRC has to make tough decisions on how it allocates limited resources to its operations to increase tax revenues, protect performance levels, prioritise its transformation and estate programmes, and invest in measures to tackle tax evasion, fraud and error.”

Comments from the Committee Chair, Meg Hillier MP do not hold back:

“HMRC’s transformation programme would have been less risky had it not attempted to do everything at the same time. What was already a precarious high-wire act is now being battered by the winds of Brexit, with potentially catastrophic consequences. Action arising from allegations in the so-called Paradise Papers could also significantly increase the authority’s workload. HMRC accepts something has to give and it now faces difficult decisions on how best to use its limited resources—decisions that must give full consideration to the needs of all taxpayers. In particular we are concerned about the effect on people simply trying to pay their fair share. HMRC’s customer service has improved on the appalling levels of recent years but its claims about call-answering times don’t stack up. Any new deterioration would be wholly unacceptable.”

There are concerns too about the impact of changes in the welfare system, which could increase the financial risks faced by vulnerable Tax Credits claimants. At the same time, the level of Tax Credits fraud and error has gone up and is only going to get worse.

These are serious, pressing challenges for HMRC, requiring swift and coordinated action in Government. As a matter of urgency the authority must set out a coherent plan and demonstrate it is fit for the future.”

Conclusions and recommendations

Specifically, there are eight conclusions and recommendations which are summarised below:

The ‘Paradise Papers’ leak suggests potentially serious and extensive allegations of tax evasion and avoidance.

Recommendation: HMRC should obtain the information from the ‘Paradise Papers’ as soon as possible, and report back to the Committee by March 2018 to set out its response, including any additional revenue likely to be at stake.

HMRC is unclear how far it can close the tax gap with existing resources.

Recommendation: HMRC should set target levels for reduction of the tax gap, including for the SME sector, and set out how HMRC will be more responsive to emerging risks.

HMRC’s transformation programme is not deliverable as planned due to unrealistic assumptions, and increased pressure from the additional workload caused by Brexit.

Recommendation: HMRC should report back to the Committee by March 2018 with clear plans on how it will manage the many challenges it faces due to Brexit and its ongoing transformation programmes and update its original assumptions and amend its forecasts for its transformation programme, particularly those concerning customer demand for its various services.

The committee is not convinced that HMRC will obtain value for money from long-term leases, without break clauses, for its new estate of 13 large regional centres.

Recommendation: HMRC and the Government Property Unit should use their strong negotiating position to ensure they gain sufficient flexibility in the terms for the four regional centre leases yet to be signed, and should examine ways to build in greater flexibility from the eight regional centre leases already signed.

The committee recognises the improvements in customer service since the unacceptable levels of 2015−16, but are concerned about HMRC’s ability to maintain this level of performance.

Recommendation: HMRC should ensure it continues to deliver a consistent and reasonable level of service to all its customers. The committee will be monitoring performance and will return to this issue.

The average time it takes for customers to speak to an adviser when they call is longer than HMRC claims.

Recommendation: HMRC should introduce a new set of measures that better reflect the actual experience of customers. Automated telephony time should be included within the five minute speed to answer target.

Vulnerable people receiving Tax Credits are at increased risk of financial problems as they transfer to Universal Credit.

Recommendation: HMRC to report back to the committee by March 2018 to explain how it will take care of the interests of vulnerable people receiving Tax Credits. This should include how it will work with DWP to manage claimants’ transition to Universal Credit, and protect them against aggressive departmental activity to reclaim overpayments due to error and fraud.

We are alarmed to hear that the level of Tax Credits error and fraud has risen and is only going to get worse.

Recommendation: HMRC should set out its strategy for tackling Tax Credits error and fraud, given the additional risks posed by transfer to Universal Credit, including a cost-benefit analysis of its approach.

From a VAT perspective, it does seem that customer service has slightly improved from what was a completely awful level the year before. Unfortunately, this service is still unacceptable and frankly, I also find that the time waiting for a telephone call to be answered as stated by HMRC is highly dubious. Personal experience insists that they still have a great deal of work to do in this area and this is reinforced by discussions with other advisers in all areas of tax.

VAT – What records must be kept by a business?

By Marcus Ward 9 January 2018

Requirements for VAT records by taxable persons

I thought that it may be useful to round-up all the record-keeping requirements in one place and focus on what HMRC want to see. It is a good time to review record-keeping requirements as Making Tax Digital (MTD) is on the horizon. More on MTD in a later article.

General requirements

Every taxable person must keep such records as HMRC may require. Specifically, every taxable person must, for the purposes of accounting for VAT, keep the following records:

business and accounting records
VAT account
copies of all VAT invoices issued
VAT invoices received
certificates issued under provisions relating to fiscal or other warehouse regimes
documentation relating to acquisitions of any goods from other EC countries
copy documentation issued, and documentation received, relating to the transfer, dispatch or transport of goods by him to other EU countries
documentation relating to imports and exports
credit notes, debit notes and other documents which evidence an increase or decrease in consideration that are received, and copies of such documents issued
copy of any self-billing agreement to which the business is a party
where the business is the customer party to a self-billing agreement, the name, address and VAT registration number of each supplier with whom the business has entered into a self-billing agreement

Additionally

HMRC may supplement the above provisions by a Notice published by them for that purpose. They supplement the statutory requirements and have legal force.

Business records include, in addition to specific items listed above, orders and delivery notes, relevant business correspondence, purchases and sales books, cash books and other account books, records of daily takings such as till rolls, annual accounts, including trading and profit and loss accounts and bank statements and paying-in slips.

Unless the business mainly involves the supply of goods and services direct to the public and less detailed VAT invoices are issued, all VAT invoices must also be retained. Cash and carry wholesalers must keep all till rolls and product code lists.

Records must be kept of all taxable goods and services received or supplied in the course of business (standard and zero-rated), together with any exempt supplies, gifts or loans of goods, taxable self-supplies and any goods acquired or produced in the course of business which are put to private or other non-business use.

All records must be kept up to date and be in sufficient detail to allow calculation of VAT. They do not have to be kept in any set way but must be in a form which will enable HMRC officers to check easily the figures on the VAT return. Records must be readily available to HMRC officers on request. If a taxable person has more than one place of business, a list of all branches must be kept at the principal place of business.

Comprehensive records

In addition, we always advise businesses to retain full information of certain calculations such as; partial exemption, the Capital Goods Scheme, margin schemes, TOMS, business/non-business, mileage and subsistence claims, promotional schemes, vouchers, discounts, location of overseas customers, MOSS, and distance selling amongst other records. The aim is to ensure that any inspector is satisfied with the records and that any information required is readily available. This avoids delays, misunderstandings and unnecessary enquiries which may lead to assessments and penalties.

If you have any doubts that your business records are sufficient, please contact us.