Category Archives: VAT commentary

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.

I have to charge myself VAT?!

By Marcus Ward 1 July 2015

I have to charge MYSELF VAT?!

How comes?!

Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!

Here are just some of the situations when you have to charge yourself VAT:

Purchasing services from abroad

These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.

Accounting for VAT and recovery of input tax.

Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must

1. 1. account for output tax, calculated on the full value of the supply received, in Box 1;
  2. (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
  3. include the full value of the supply in both Boxes 6 and 7.

Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.

Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

Purchasing goods from another EC Member States

Something similar to reverse charge; called acquisition tax, applies to goods purchased from other EC Member States. These are known as acquisitions (they are imports if the goods come from outside the EC and different rules apply). The full value of the goods is subject to output tax and the associated input tax may be recovered by the business acquiring if the goods are used for taxable purposes. If you‘re not already registered for VAT in the UK and acquire goods worth £82,000 or more in the UK from other EC countries, you will have to register for VAT in the UK on the strength of the value of the acquisition tax. A business will also have to complete an Intrastat Supplementary Declaration (SDs) if its acquisitions of goods from the EC exceed an annual amount – currently £1.5 million.

More details on Intrastat Supplementary Declarations here

Deregistration

Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.

Flat Rate Scheme

There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).

Mobile telephones

In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile ‘phones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.

Land and buildings…. and motor cars

There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.

Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair. However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!

VAT treatment of vouchers, gifts and discounts – How business promotions work

By Marcus Ward 25 June 2015

Business promotions are an area of VAT which continues to prove complex. This is further exacerbated by changes to the legislation at EC and domestic level and ongoing case law.

The VAT position is summarised here. Part of this commentary has been taken directly from HMRC guidance on the subject and is the most up to date authority on the matter. I thought it may be useful if the VAT treatment of various business promotion schemes is summarised in one place.

…I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT problem!”

Summary

Offer	How to charge VAT
Discounts	Charged on the discounted price (not the full price)
Gifts	Charged on the gift’s full value – there are some exceptions listed below
Multi-buys	Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc	No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
Face value vouchers that can be used for more than one type of good or service (multi-purpose)	No VAT due, if sold at or below their monetary value
Face value vouchers that can only be used for one type of good or service (single-purpose)	VAT due on the value of the voucher when issued
Redeemed face value vouchers	Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher

Exceptions for gifts

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

Free goods and services

You don’t have to pay VAT on things like free samples if they meet certain conditions.

Supplies	Condition to meet so no VAT due
Free samples	Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets	The cost of hiring the asset is included in something else you sell to the customer
Free gifts	The total cost of all gifts to the same person is less than £50 in a 12 month period
Free services	You don’t get any payment or goods or services in return

Background

Face value vouchers

Recent changes, radically alter the UK rules for face value vouchers. Face value vouchers are vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.

Examples of face value vouchers would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.

Single or multi-purpose

The most important distinction for face value vouchers is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now charge VAT when it is issued.

Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.

For example:

a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to either books (zero rated) or an e-book download (standard rated) from the same seller will be multi-purpose
a voucher which entitles you to £10 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and you can buy a take away with the voucher (or hot food) then it would be multi-purpose.

The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.

VAT – Retrospective input tax claim opportunity for charities and not for profit bodies.

By Marcus Ward 22 June 2015

The Upper Tribunal has decided In the University Of Cambridge case that costs incurred on running its endowment fund relate to the university’s overall economic activity in general and consequently it is possible to recover an element of it. The full judgement here

This will impact on all charities and similar bodies which have non-business activities that support their business activities.

Please contact us if your charity is in a similar position because if past input tax claims have been restricted as a result of HMRC’s interpretation (which is highly likely) it is possible to make a claim which covers the last four years’ VAT costs.

VAT on Crowdfunding?

By Marcus Ward 28 May 2015

The EC is has begun an investigation into whether VAT should apply to crowdfunding activities.

An alternative is for the Commission to consider whether crowdfunding should be covered by the exemption for financial services. In my view this seems unlikely.

So what could the outcome be if VAT is applicable to crowdfunding? Well, a large number of UK projects will face a 20% VAT liability on investor returns. This is especially relevant to the popular “rewards crowdfunding”, where payments by investors are made in return for products or services to be developed as a result of the fundraising. These rewards projects may include; films, albums, or software development, which are offered “free” or at a reduced rate. It would appear that in these cases, consideration is flowing in both directions.

The Commission may also decide that crowdfunding intermediary services offered by many platforms will become liable to VAT.

The current position is that the Commission has now referred the question of crowdfunding to the EU VAT Committee.

More on this subject as soon as we have it.

VAT – Business Entertainment Flowchart. What input tax may I recover?

By Marcus Ward 11 May 2015

VAT – Recovery of input tax incurred on entertainment

One of the most common questions asked on “day-to-day” VAT is whether input tax incurred on entertainment is claimable. The answer to this seemingly straightforward question has become increasingly complex as a result of; HMRC policy, EC involvement and case law. Different rules apply to entertaining; clients, contacts, staff, partners and directors depending on the circumstances. It seems reasonable to treat entertaining costs as a valid business expense. After all, a business, amongst other things, aims to increase sales and reduce costs as a result of these meetings. However, HMRC sees things differently and there is a general block on business entertainment. It seems like HMRC does not like watching people enjoying themselves at the government’s expense!

If, like me, you think in pictures, then a flowchart may be useful for deciding whether to claim entertainment VAT. It covers all scenarios, but if you have a unique set of circumstances or require assistance with some of the definitions, please contact me.

I thank my friend and colleague Leila Ong for help with this, and also with the series of presentations we have recently carried out and which, amongst other subjects, covered business entertainment. Should you require VAT training or presentations, don’t forget our comprehensive service here which can be tailored to your needs.

VAT -Business Entertainment Flowchart

Download here: VAT Business Entertainment Input tax recovery flowchart

VAT: Global Accounting simplification

By Marcus Ward 27 April 2015

VAT: Second Hand Scheme – Global Accounting simplification

Overview

The problem with the VAT Second-Hand Goods Scheme is that details of each individual item purchased, and then later sold, has to be recorded. This requirement can lead to a lot of paperwork and an awful lot of administration which, obviously, many businesses are not too keen to comply with.

Global Accounting is an optional, simplified variation of the Second Hand Margin Scheme (Margin Scheme).

It differs from the standard Margin Scheme because rather than accounting for the margin achieved on the sale of individual items VAT is calculated on the margin achieved between the total purchases and total sales in a particular accounting period without the requirement to establish the mark up on each individual item. It is beneficial if a business buys and sells bulk volume, low value eligible goods, and is unable to maintain the detailed records required of businesses who use the standard Margin Scheme

There two significant differences in respect of Global Accounting compared to the standard Margin Scheme. The first difference is that losses on an item are automatically offset against profits on items. Thus losses and profits are offset together in the period. In the standard Margin Scheme no VAT is due if a loss is made on an item, but that loss cannot be offset against any other profit. There is also a timing advantage with Global Accounting because all purchases made in the period are included, even if those goods are not actually sold in the same period.

Goods which may be included in Global Accounting

Global Accounting can be used for all items which are eligible under the standard Margin Scheme. However, the following goods cannot be included in Global Accounting:

individual items costing more than £500 (although these can be accounted for via the standard Margin Scheme)
aircraft, boats and outboard motors,
caravans and motor caravans,
horses and ponies, and
motor vehicles, including motorcycles; except those broken up for scrap.

Starting to use the scheme

When a business starts using Global Accounting, it may find that it already has eligible stock on hand. It may include the value of this stock when it calculates the total purchases at the end of the first period. If a business does not take its stock on hand into account, it will have to pay VAT on the full price, rather than on the margin achieved, when it is sold.

Valuation of stock

A business must be able to identify:

stock which is eligible for Global Accounting, and
its purchase value

It would normally be possible to establish the value from the original purchase documentation, ie; invoices.

But if a business is newly VAT registered, or it does not have original purchase records it may determine the purchase value using another method. There is no set way of doing this, but a business must be able to demonstrate that the method used has produced a fair and reasonable total.

Note: any goods bought on an invoice which shows a separate VAT figure are not eligible for resale under the scheme.

The calculation

VAT is calculated at the end of each tax period. Because you can take account of opening stock in your scheme calculations, you may find that you produce a negative margin at the end of several periods. In other words, your total purchases may exceed your total sales. In such cases, no VAT is due. But you must carry the negative margin forward to the next period as in the following example:

Period One

a) Total purchase value of stock on hand 10,000

b) Total purchases 2,000

c) Total sales 8,000

Margin = c – (a+b) = (4,000)

Because this is a negative margin there is no VAT to pay. However, negative margin must be carried forward into the next period as follows:

Period Two

a) Negative margin from previous period 4,000

b) Total purchases 1,000

c) Total sales 7,000

d) Margin = c – (a + b), sales minus (purchases plus negative margin), £7,000 – (£1,000 + £4,000) 2,000

e) VAT due = margin (£2,000) × VAT fraction (1/6) 333.33

There is no negative margin to carry forward this time. Therefore, in the third period, the margin is calculated solely by reference to sales less purchases.

The negative margin may only be offset against the next Global Accounting margin. It cannot be offset against any other figure or record.

Global Accounting Records and Accounts

A business does not need to keep all the detailed records which are required under the normal Margin Scheme – for instance, you do not have to maintain a detailed stock book.

Global Accounting records do not have to be kept in any set way but they must be complete, up to date and clearly distinguishable from any other records. A business must keep records of purchases and sales as set out below, together with the workings used to calculate the VAT due.

If we HMRC cannot check the margins declared from the records, VAT will be due on the full selling price of the goods sold, even if they were otherwise eligible for the scheme.

Buying goods under Global Accounting

When a business buys goods which it intends to sell under Global Accounting it must:

check that the goods are eligible for Global Accounting
obtain a purchase invoice. If a business buys from a private individual or an unregistered entity, the purchaser should make out the invoice at the time the goods are purchased. If purchased from another VAT-registered dealer, the dealer must make out the invoice at the time of sale, and
enter the purchase details of the goods in your Global Accounting purchase records. The purchase price must be the price on the invoice which has been agreed between you and the seller.

You cannot use the scheme if VAT is shown separately on the invoice.

Details to be included on purchase invoices

Purchase invoices must include:

your name and address

the seller’s name and address
invoice number
date of transaction
description of goods (this must be sufficient to enable HMRC to verify that the goods are eligible for Global Accounting)
total price, you must not show VAT separately, and
for goods purchased from another VAT-registered dealer: the statement “Global Accounting Invoice”

Remember: if you are buying from a private individual or an unregistered business, you must make out the purchase invoice yourself.

When selling goods under Global Accounting

If the purchase conditions above apply, Global Accounting may be used when the goods are sold by:

recording the sale in the usual way
issuing a sales invoice for sales to other VAT-registered dealers and keeping a copy of the invoice, and
transferring totals of copy invoices to the Global Accounting sales record or summary
you must be able to distinguish at the point of sale between sales made under Global Accounting and other types of transaction

Details to be included on sales invoices

A sales invoice must be issued to other VAT-registered customers. These invoices and any other Global Accounting sales invoice issued must show the following details:

your name, address and VAT registration number
the buyer’s name and address
invoice number
date of sale
description of goods (this must be sufficient to enable HMRC to verify that the goods are eligible for Global Accounting)
total price – you must not show VAT separately
the statement “Global Accounting Invoice”
you are selling an item for more than £500 and you don’t want the purchaser to know that you bought it under Global Accounting, you may use one of the Margin Scheme sales invoice statements.

Details to be included in purchase and sales summaries

Although a business does not have to keep purchase and sales records or summaries in any particular way, they must include the following details taken from the purchase invoices and any sales invoices you issue:

invoice number (where the purchase invoice shows one)
date of purchase/sale
description of goods, and total price

Cessation of using the scheme

If a business stops using Global Accounting for any reason, it must make a closing adjustment to take account of purchases for which it has taken credit, but which have not been sold (closing stock on hand). The adjustment required does not apply if the total VAT due on stock on hand is £1,000 or less. In the final period for which the business uses the scheme, it must add the purchase value of its closing stock to the sales figure for that period. In this way VAT will be paid (at cost price) on the stock for which the business previously had credit under the scheme.

Here is an example of a closing adjustment under Global Accounting: At the end of the period calculate:

(a) value of purchases during the period – £5,000

(b) value of sales during the period – £10,000

(d) add purchase value of closing stock to sales for period (c+b) – £18,000

(e) subtract purchases in this period from sale (d-a) – £13,000

(f) VAT due on margin (e x 1/6) – £2,166.66

You must make a similar adjustment if you transfer goods as part of a transfer of a going concern (TOGC). In that case, you should add the purchase value of goods included in the scheme to your sales figure for the period in which the TOGC takes place. This adjustment is separate from the TOGC itself, which is not subject to VAT.

Items sold outside the scheme

If goods are sold which had been included in a business’ Global Accounting purchase (for example, they are exported), a business must adjust its records accordingly. This is done by subtracting the purchase value of the goods sold outside the scheme from the total purchases at the end of the period.

Stolen or destroyed goods

If a business loses any goods through breakage, theft or destruction, it must subtract their purchase price from your Global Accounting purchase record.

Repairs and restoration costs?

A business may reclaim the VAT it is charged on any business overheads, repairs, restoration costs, etc. But it must not add any of these costs to the purchase price of the goods sold under the scheme.

EC Sales List, Intrastat and VAT returns

VAT registered businesses in the UK who make supplies of goods to VAT-registered businesses in other EC Member States are required to complete lists (form VAT 101) of their EC supplies.

But a business should not include any margin schemes transactions on an EC Sales list because they will be subject to VAT in the UK.

Intrastat is the system for collecting statistics on the trade in goods between EC Member States. But, because margin scheme goods are subject to VAT in the country of origin, there is no requirement either:

to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return, or
to complete a supplementary declaration

For further advice on any global accounting, used goods schemes, or any other special VAT schemes please contact me.

VAT Planning Overview – The Four “A”s

By Marcus Ward 23 March 2015

To a degree, VAT planning may be considered as something of an abstract concept. It may be straightforward, or very complex, but what does all successful VAT planning have in common? What process should be applied in order to get the right solution and to ensure that nothing is missed? Well this is my technique and it helps me to focus on what is necessary:

The planning process may be broken down into four distinct elements:

Planning process – The four As

Ascertainment
Analysis
Alternatives
Action

One must initially obtain all relevant information and consider the appropriate legislation, case law and HMRC documents etc – Ascertainment

In my experience, the most difficult part of this is obtaining all of the relevant information. It is not always clear if you have received everything available – so it is often difficult to establish what is relevant and what is not. The skill is asking the right questions of course. Any competent VAT adviser should be able to “get the answer” if (s)he has the full picture.

Then one must analyse the information – Analysis

Whether it is reading contracts closely, considering EC legislation, reviewing audit trails, searching case law, looking at documentation or carrying out calculations a full analysis is vital in the process of delivering accurate, useful and relevant advice.

The next step is to use the analysis to construct some various alternatives on how to proceed – Alternatives

The most appropriate solution may present itself immediately, or various structures may need to be considered in detail in order to find some workable alternatives. It is important not to miss anything at this point and to communicate properly with one’s client. Consideration is required of a client’s attitude to, inter alia; complexity, risk, time invested and tax in general in order to properly tailor VAT advice.

Finally, consideration is given to the alternatives and a decision made on what action to take – Action

This is another point at which good communication with one’s client is important. The client needs to understand the technicalities, the risks, the impact on business, the resources required etc in order to make an informed decision. A good adviser will also be aware of the appropriate level of assistance required with implementation. I also find it helps if the worst case scenario is explained in each alternative and the level of resistance form HMRC one is likely to encounter. I also always bear in mind that most people do not “speak VAT jargon”, spend their waking hours studying indirect tax legislation or reviewing VAT cases, so clear and straightforward English is needed! (Also, I find my diagrams and flowcharts created at meetings a help, even if just to amuse clients with my artistic skills!)

What I’ve learned about VAT – The Top 10 lessons

By Marcus Ward 13 March 2015

I know that anybody who has ever met me will find it difficult to believe (!) but I have been involved with VAT for over 20 years. So what are some of the things that I have learned in this time? Here are ten of the biggest lessons I’ve learned so far:

Errors – If you get it wrong it can be very, very expensive. Not only in terms of paying back tax, penalties and interest, but also the time and resources needed to deal with VAT issues. It can often have a profound impact on business transactions too. If VAT isn’t properly considered during negotiations or the contact stage it could be that a business suffers an unexpected 20% reduction of income or an added burden of irrecoverable input tax.
HMRC Errors – HMRC sometimes get it wrong. One only has to look at case law to find that HMRC’s interpretation of the legislation and their introduction of new domestic legislation has resulted in unfair burdens on the taxpayer. Consequently, it is always worthwhile looking to challenge any “unhelpful” decisions by HMRC and indeed, past errors by the department often provide an opportunity to make retrospective claims for VAT plus interest.
Complexity – VAT was introduced all those years ago as a “simple tax”. The fact is that VAT is now, and has always really been, extremely complex and ever-changing. It is likely that this complexity will increase. As a comparatively “young tax” it will continue to develop, be challenged, be abused, be open to conflicting interpretation and need to change as a result of technology, new products and trading patterns.
Timing – More than any other tax, legal issue or accounting procedure timing is critical in VAT. Because VAT is a transaction based tax timing is crucial and there is rarely the opportunity to carry out retrospective planning. If a taxpayer is even “one day out” in certain circumstances it could add VAT to a hitherto VAT free transaction. Of course, filing or paying VAT late also results in surcharges. The best VAT motto is: Right tax, right time.
Exemption – For a business exemption is a burden not a relief. It will, in nearly all cases, mean that any business which makes exempt supplies will suffer the burden of irrecoverable input tax. Added to this is the complexity of partial exemption calculations and often the rigmarole of agreeing a partial exemption method with HMRC.
Doubt – Increasingly obtaining a ruling from HMRC is difficult. Changes to the way that HMRC approach requests for a determination or clearance means that a taxpayer who is eager to get the technicalities correct will just be referred to a published guidance. This is very unhelpful and uncertainty is a very dangerous thing in the VAT world.
Compliance – The vast majority of businesses want, and try, to get it right. This is hardly an earth-shattering observation, but it is often not a view shared by HMRC – despite some published statements. It is reasonable that HMRC inspectors should challenge VAT treatments and establish whether declarations are credible, after all we as individual taxpayers have an interest that all VAT due is collected, but experience insists that sometimes it is difficult to dislodge an opinion formed by an inspector in cases where a business has actually accounted for VAT correctly.
Charities – Charities have a hard time of it with VAT. It is an unfortunate fact that VAT wasn’t really designed for them, so they have to “fit in” with the VAT system. This means that, compared to most businesses, they have to deal with more complex issues and ultimately, in nearly all cases, VAT will represent a real cost to them, thus reducing the available funds for them to carry out their work. There are some reliefs for charities, but these are of limited value and are very specific.
Planning – The objective of VAT planning is to legitimately defer payment to HMRC until the latest time possible. The converse of this of course, is to obtain any repayments of VAT due from HMRC as soon as possible. It is also important to avoid VAT representing an actual cost and taking advantage of any beneficial UK and EC legislation, determinations, guidance, case law and Business Briefs etc available. There are “off the shelf” – one size fits all schemes and also aggressive planning available BUT these should be approached with the utmost caution. I have often been called in to deal with the aftermath of such schemes and have seen the consequences of a business signing up to these products without a full understanding of their impact and the business’ relationship with HMRC.
VAT Bubble – It is sometimes tempting to look at VAT in isolation. However, it is important to remember that VAT does not exist in a vacuum and that structures/planning may impact on other tax and/or commercial positions. I am fortunate to work with great direct tax people and it is important to us that our clients get a proper holistic advice.

On advisers – I will leave the last word to the famous Red Adair (younger readers – ask your parents) “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”

So there you have it – what I’ve learned about VAT in 10 lessons. Make sure you are aware! (Or know a VAT consultant who is!).

VAT – Overseas Holiday Lets: A Warning

By Marcus Ward 27 February 2015

Do you own property overseas which you let to third parties when you are not using it yourself?

It is important to understand the VAT consequences of owning property overseas.

The position of UK Holiday Lets

It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £81,000 pa. and this is only likely if a number of properties are owned.

It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.

Overseas Holiday Lets

Other EC Member States have nil thresholds for foreign entrepreneurs. This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located. Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs. This may be restricted if the home is used for periodical own use.

Given that every EC Member State has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.