Tag Archives: marcus-ward

VAT – Medical practices and property

By   18 November 2014
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This article is specific to medical practices (or any other professional practice which makes predominantly exempt supplies) which wants to buy or improve property.

Registration when purchasing practice property – what you need to know:

The majority of the services provided by medical practices are exempt from VAT.  Good news one would think; there is no need to charge VAT on most goods and services supplied, and no need to deal with VAT returns, records and inspections.  Additionally, there is no exposure to the increasingly widely applied and swingeing penalty regime. However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?”  This is an even more pressing question when the VAT incurred (input tax) is on significant expenditure such as purchasing a property of undertaking a major refurbishment. This article looks at the basic VAT rules applying to practices and what opportunities are available. 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.  This is called a voluntary registration and provides the practice with the ability to reclaim, at least some, input tax.  Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £81,000 pa, 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 is zero-rated.
  • drugs dispensed against private prescriptions is standard-rated.
  • Signing passport applications.
  • 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
  • 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 or quarterly basis.  You will 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 and the range of services which may become VATable in the future is likely to grow.  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.

Specific considerations

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. Therefore, any accounting system must be capable of attributing input tax to the following headings; taxable (at 20% or zero) exempt and overhead (attributable to both taxable and exempt).

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 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 EC cases.
  • Potential increased costs to the practice in respect of professional fees.

How to register

Practices will need to consider how they should be registered, for example individually as sole proprietors or jointly as partnerships. The legal entity chosen should reflect actual working arrangements, so if several doctors work together in a practice, they would normally be registered together as a partnership. VAT registration will cover all the supplies made by the doctors involved in the registered legal entity. For example, where a doctor is registered as a sole proprietor all the income he or she receives, for both medical and non-medical purposes, is subject to the VAT rules relating to such supplies. It may also be possible to VAT register as a company or an LLP depending on the structure of a practice and associated entities. Registration may be applied for using a form VAT1 on-line.

Specific VAT issues for property transactions

Purchase

If possible, it would obviously be preferable to purchase a property without VAT.  These properties are likely to be older buildings as new commercial properties (under three years old) will be mandatorily standard rated.  If the property being purchased is residential, then it will be VAT free.  It is also possible for a vendor to “opt to tax” a commercial property, meaning that a unilateral choice has been made to add VAT to the sale price.  If the property is subject to VAT on the sale or long lease then we must consider the ability to recover this. If there is VAT on a property, it may be used as a lever to reduce the agreed sale price. Assuming a VAT registration is in place for a practice the VAT on the purchase will be an “overhead” for partial exemption purposes so the input tax will feed into the partial exemption calculation and some of it will be recoverable.  If the property is >£250,000 then something known as the Capital Goods Scheme (details Capital Goods Scheme – Guide) will apply and the amount of input tax claimed will need to be adjusted annually over a ten year period. If part of the property is to be sub-let to a third party, it is possible for the practice to opt to tax the rent.  This will improve the practice’s ability to recover input tax on the purchase. Alternatively, a third party entity (eg; a company, an LLP or an individual doctor – the entity must not be “connected” to the entity occupying the premises) may purchase the property, VAT register, opt to tax the building itself, and charge rent to the practice which uses the property.  This means that the purchasing party may immediately recover 100% of the VAT incurred on the purchase, but will need to add VAT to the rent to the practice.  Care should be taken with a structure such as this and professional help should be sought.

Sale

The sale of a property will be VATable if it has been subject to the option to tax and exempt if there is no option and the property is over three years old.  If the property was purchased by a third party (as above) it may be possible to treat the sale of the building as a VAT free “transfer of a going concern”.

Summary

As may be seen; VAT is not straightforward for doctors’ practices but it is worthwhile looking to see if it is possible to reduce or mitigate the actual cost that VAT represents to practices

Tax Points (Time Of Supply)

By   30 October 2014
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The tax point for a transaction is the date the transaction takes place for VAT purposes.

You need to know this because it’s included on VAT invoices and it tells you in which VAT period the transaction should be accounted for.  The tax point may be summarised (in most circumstances) as the earliest of:

  • The date an invoice is issued
  • The date payment is received
  • The date title to goods is passed, or services are completed.

Some brief examples:

Situation Tax point
No invoice needed Date of supply
VAT invoice issued Date of invoice
VAT invoice issued 15 days or more after the date of supply Date the supply took place
Payment or invoice issued in advance of supply Date of payment or invoice (whichever is earlier)
Payment in advance of supply and no VAT invoice yet issued Date payment received

The date of supply is:

  • for goods – the date they’re sent, collected or made available (eg installed in the customer’s house)
  • for services – the date the work is finished

There are certain exceptions, so care should be taken when establishing a tax point.

MOSShop opens!

By   7 October 2014
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Just a reminder that the Mini One Stop Shop (MOSS) will open on 20 October 2014.

The MOSS is for suppliers of digital services to customers across the EC.

Official notification here

A full explanation of MOSS and digital supplies here

We advise that any provider of; telecoms, broadcasting and electronic services seeks specialist professional advice before the changes come into effect.  We have many clients that are involved in cross-border provision of digital services so are ideally placed to assist with whatever query you may have on this issue.

With the Scottish vote approaching….

By   10 September 2014
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What happens if Scotland gains independence?

A VAT what if….

If the Scots vote for, and gain, full independence from the UK, it is likely that the country will become a separate Member State of the EU. According to David Cameron; It’s currency will become the Euro and it will need to form its own authority for administering VAT. Although cross border controls will not be introduced, the VAT treatment of cross-border transactions will change significantly. Apart from the usual currency exchange issues, UK businesses will also be required to complete additional EC Sales Lists, Intrastat Declarations, and potentially a lot of other administrative and statistical documentation.

UK businesses will also need to determine the status of its Scottish customer, which in turn will establish the place of supply, which will dictate whether UK VAT, Scottish VAT, or no VAT is chargeable. Then there are the Distance Selling rules to consider. Some UK businesses will be required to register in Scotland as well as the UK if they sell goods by mail order. And don’t forget the changed VAT treatment of goods and services purchased from Scotland; in most cases a UK reverse charge will be applicable. Depending on circumstances though, UK businesses and residents will incur Scottish VAT and if they do, only some will be able to recover it. This will not be via a usual UK VAT return, but via an alternative VAT claim method which also adds complexity. Then there is the increase in triangulation cases, never the most straightforward VAT subject!

A simple supply from Carlisle to Ayr would will need to be analysed with a massive amount more information required plus the additional bureaucratic form filling. This added complexity will also increase the possibility of errors on which penalties will be levied.

John Swinney, the cabinet secretary for finance in the Scottish Government has pointed out that an independent Scotland would be able to choose its own levels of income tax and VAT, as well as taking control of other sources of revenue such as alcohol and tobacco duty, air passenger duty and landfill tax.

From a practical point of view, will shops and other business establishments in the North of England start accepting both Sterling and Euros? Will invoices routinely show both Sterling and Euro values? Will excise and duty rates be similar to the UK? Will there be opportunities for enterprising individuals to take advantage of any differences? Will we see smugglers coming up against modern day Robert Burns in his Exciseman incarnation? At what rate will the Scots set VAT? Will it be possible that cross border VAT rate shopping will take place? Will the Scots lose the zero rating reliefs which they currently enjoy as part of the UK? Will the Scottish people be forced to pay VAT on new houses, food, books and children’s clothing after independence? One thing is for sure, the Scots will need a whole new set of domestic legislation to cover VAT and indirect taxes.

Also: What about groups of companies with Scottish and English subsidiaries currently in the same UK VAT Group? Were independence to happen, it would be a riot unpicking that lot.

Good luck everybody!

VAT Invoices – A Full Guide

By   28 August 2014
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The subject of invoices is often misunderstood and can create serious issues if mistakes are made.  VAT is a transaction tax, so primary evidence of the transaction is of utmost importance. Also, a claim for input tax is not valid unless it is supported by an original valid invoice; no other documentation is acceptable.  HMRC can, and often do, reject input claims because of an inaccurate invoice.  There are a lot of misconceptions about invoices, so, although a rather dry subject, it is very important and I thought it would be useful to have all the information in one place, so here is my guide:

 

Obligation to provide a VAT invoice

With certain limited exceptions a VAT registered person must provide the customer with an invoice showing specified particulars including VAT in the following circumstances.

(a) He makes a supply of goods or services in the UK (other than an exempt supply) to a taxable person.

(b) He makes a supply of goods or services to a person in another EC country for the purposes of any business activity carried on by that person. But no invoice is required where the supply is an exempt supply which is made to a person in another EC country which does not require an invoice to be issued for the supply. (Because practice varies widely across the EC, HMRC guidance is that businesses should be guided by their customers as to whether invoices are required for exempt supplies.)

(c) He receives a payment on account from a person in another EC country in respect of a supply he has made or intends to make.

 Exceptions

The above provisions do not apply to the following supplies.

• Zero-rated supplies (other than supplies for acquisition by a person registered in another EC country, see (b) above).

• Supplies where the VAT charged is excluded from credit under VATA 1994, s 25(7) (eg business entertaining and certain motor cars) although a VAT invoice may be issued in such cases.

• Supplies on which VAT is charged but which are not made for a consideration. This includes gifts and private use of goods.

• Sales of second-hand goods under one of the special schemes. Invoices for such sales must not show any VAT.

• Supplies that fall within theTour Operators’ Margin Scheme(TOMS). VAT invoices must not be issued for such supplies.

• Supplies where the customer operates a self-billing arrangement.

• Supplies by retailers unless the customer requests a VAT invoice.

• Supplies by one member to another in the same VAT group.

• Transactions between one division and another of a company registered in the names of its divisions.

• Supplies where the taxable person is entitled to issue, and does issue, invoices relating to services performed in fiscal and other warehousing regimes.

Documents treated as VAT invoices

Although not strictly VAT invoices, certain documents listed below are treated as VAT invoices either under the legislation or by HMRC.

(1) Self-billing invoices

Self-billing is an arrangement between a supplier and a customer in which the customer prepares the supplier’s invoice and forwards it to him, normally with the payment.

(2) Sales by auctioneer, bailiff, etc.

Where goods (including land) forming part of the assets of a business carried on by a taxable person are, under any power exercisable by another person, sold by that person in or towards satisfaction of a debt owed by the taxable person, the goods are deemed to be supplied by the taxable person in the course or furtherance of his business.

The particulars of the VAT chargeable on the supply must be provided on a sale by auction by the auctioneer and where the sale is otherwise than by auction by the person selling the goods. The document issued to the buyer is treated as a VAT invoice.

(3) Authenticated receipts in the construction industry.

(4) Business gifts

Where a business makes a gift of goods on which VAT is due, and the recipient uses the goods for business purposes, that person can recover the VAT as input tax (subject to the normal rules). The donor cannot issue a VAT invoice (because there is no consideration) but instead may provide the recipient with a ‘tax certificate’ which can be used as evidence to support a deduction of input tax. The tax certificate may be on normal invoicing documentation overwritten with the statement:

“Tax certificate – No payment is necessary for these goods. Output tax has been accounted for on the supply.”

Full details of the goods must be shown on the documentation and the amount of VAT shown must be the amount of output tax accounted for to HMRC.

 

Invoicing requirements and particulars

A VAT invoice must contain certain basic information.

A VAT invoice must show the following particulars.

(a) A sequential number based on one or more series which uniquely identifies the document.

The ‘invoice number’ can be numerical, or it can be a combination of numbers and letters, as long as it forms part of a unique and sequential series. Where there is a break in the series, eg; where an invoice is cancelled or spoiled and never issued to a customer, this is still acceptable as long as the relevant invoice is retained.

(b) The time of the supply, ie tax point.

(c) The date of issue of the document.

(d) The name, address and registration number of the supplier.

(e) The name and address of the person to whom the goods or services are supplied.

(f) A description sufficient to identify the goods or services supplied.

(g) For each description, the quantity of the goods or extent of the services, the rate of VAT and amount payable, excluding VAT, expressed in any currency.

(h) The unit price.

This applies to ‘countable’ goods and services. For services, the countable element might be, for example, an hourly rate or a price paid for standard services. If the supply cannot be broken down into countable elements, the total VAT-exclusive price is the unit price.

(i) The gross amount payable, excluding VAT, expressed in any currency.

(j) The rate of any cash discount offered.

(k) The total amount of VAT chargeable expressed in sterling.

(l) Where the margin scheme forSECOND-HAND GOODSor theTOMS is applied, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the margin scheme has been applied.

The way in which margin scheme treatment is referenced on an invoice is a matter for the business and but we recommend:

• “This is a second-hand margin scheme supply.”

• “This supply falls under the Value Added Tax (Tour Operators) Order 1987.”

The requirement only applies to TOMS invoices in business to business transactions.

(m) Where a VAT invoice relates in whole or in part to a supply where the person supplied is liable to pay the VAT, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the supply is one where the customer is liable to pay the VAT.

This covers UK supplies where the customer accounts for the VAT (eg under the gold scheme or any reverse charge requirement under the missing trader intra-community rules). The way in which margin scheme treatment is referenced on an invoice is a matter for the business and we recommend: “This supply is subject to the reverse charge”.

Exempt or zero-rated supplies

Invoices do not have to be raised for exempt or zero-rated transactions when supplied in the UK. But if such supplies are included on invoices with taxable supplies, the exempt and zero-rated supplies must be totalled separately and the invoice must show clearly that there is no VAT payable on them.

Leasing of motor cars

Where an invoice relates wholly or partly to the letting on hire of a motor car other than for self-drive, the invoice must state whether the car is a qualifying vehicle

 

VAT invoices to persons in other EC countries

Unless HMRC allow otherwise, where a registered person provides a person in another EC country with

• A VAT invoice or,

• Any document that refers to a VAT invoice and is intended to amend it (eg a credit note)

It must show the following particulars.

(a) A sequential number based on one or more series which uniquely identifies the document.

(b) The time of the supply, ie tax point.

(c) The date of issue of the document.

(d) The name, address and registration number of the supplier. The letters ‘GB’ must be shown as a prefix to the registration number.

(e) The name and address of the person to whom the goods or services are supplied.

(f) The registration number, if any, of the recipient of the supply of goods or services containing the alphabetical code of the EC country in which the recipient is registered

(g) A description sufficient to identify the goods or services supplied. Where the supply is of a new means of transport a description sufficient to identify it as such.

(h) For each description, the quantity of the goods or the extent of the services, and where a positive rate of VAT is chargeable, the rate of VAT and the amount payable, excluding VAT, expressed in sterling.

(i) The unit price.

(j) The gross amount payable, excluding VAT.

(k) The rate of any cash discount offered.

(l) Where the supply of goods is a taxable supply, the total amount of VAT chargeable expressed in sterling.

(m) where the margin scheme forSECOND-HAND GOODSor TOMS is applied, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the margin scheme has been applied.

The way in which margin scheme treatment is referenced on an invoice is a matter for the business and we recommend: “This is a second-hand margin scheme supply.” And: “This supply falls under the Value Added Tax (Tour Operators) Order 1987”.

The requirement only applies to TOMS invoices in business to business transactions.

(n) Where a VAT invoice relates in whole or in part to a supply where the person supplied is liable to pay the VAT, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the supply is one where the customer is liable to pay the VAT.

The way in which margin scheme treatment is referenced on an invoice is a matter for the business and we recommend the following indication:

“This supply is UK VAT free and subject to the reverse charge in the Member State of receipt”.

(o) Where the supply is an exempt or zero-rated supply, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the supply is exempt or zero-rated as appropriate.

For these purposes, an exempt supply is a supply that, if made in the UK, would be exempt under VATA 1994, Sch 9.

The way in which the intra-EC exempt or zero-rated treatment is referenced on an invoice is a matter for the business and we recommend: “This is an exempt supply.” And: “Zero-rated intra-EC supply.”

Retailers

Retailers may issue a “less detailed tax invoice” if a customer requests one.  the supply must be for £250 or less (including VAT) and must show:

  • your name, address and VAT registration number
  • the time of supply (tax point)
  • a description which identifies the goods or services supplied
  • and for each VAT rate applicable, the total amount payable, including VAT and the VAT rate charged.

Summary

As may be seen, it is a matter of law whether an invoice is valid and there are no dispensations.  Therefore it is important for a business to understand the position and for its system to be able to produce a valid tax invoice.  As always, please contact us should you have any queries.

VAT bits. Is it the “EU” or the “EC”? Which term is correct?

By   11 August 2014
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The European Union (EU) is a collective term. It does not, strictly speaking, have a legal personality.

With reference to Community legislation it is correct to refer to the European Community (EC).

Mind you, my Father has only just stopped calling it the Common Market……..

Disbursements – VAT

By   5 August 2014
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One of the most common queries regarding VAT is “my client passes on charges incurred on behalf of his customer, does he add VAT?”  In other words, does the payment qualify as a disbursement?

Does it matter if the original supply has VAT on it?

Yes. Whether a payment is a disbursement is only a practical issue if the charge involved is initially VAT free since, if it were VATable, there would be no benefit to the final customer in passing the charge on “in the same state”.  The points below assume that the charge in question is VAT free, eg; statutory fees (land registry, stamp duty, search fees, MOTs etc) insurance, financial products etc although benefits may also be obtained if the original supply is reduced rated.

So only if a supply is a disbursement can I pass it on in the “same state; ie; VAT free?

Yes

So when can I pass on a payment VAT free? 

A disbursement is passed on without any alteration (eg; not marked up or changed in any way) and the supply must be to the final customer by the original provider.  If the supply is VAT free then the recovery of the costs is also VAT free.  The passing on of the payment from the final customer to the supplier is done as agent.  Therefore, in these circumstances, a supplier may be acting as principal for part of a supply, and agent for another part.  The disbursement should not appear on the “agent’s” VAT return.

When do I have to add VAT onto a supply which is originally VAT free?

When the onward supply is not a disbursement.

A distinction must be drawn between a necessary cost component of a supplier making a supply and a disbursement.  An example is zero-rated travel.  A supplier may incur a train fare in providing his service, but that is a cost component for him and not a disbursement, so VAT would be added to any onward charge.  It is clear that the supplier is not actually supplying train travel to his customer, but is consuming the cost in providing his overall VATable service.

What are the rules for treating a payment as a disbursement?

The following criteria must be met by a supplier to establish whether it qualifies as a disbursement:

  • you acted as the agent of your client when you paid the third party;
  • your client actually received and used the goods or services provided by the third party;
  • your client was responsible for paying the third party;
  • your client authorised you to make the payment on their behalf;
  • your client knew that the goods or services you paid for would be provided by a third party;
  • your outlay will be separately itemised when you invoice your client;
  • you recover only the exact amount which you paid to the third party; and
  • the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.

Please contact us if you have any queries on this matter.  Sometimes the matter is less than straightforward and getting it wrong can be very expensive for a business. If you have been charged VAT on what you believe to be a VAT free disbursement, it may also be worth challenging your supplier.

For full details and diagrams please see here

Follower Notices – a new HMRC weapon with a potentially dire impact on taxpayers

By   17 July 2014
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From Royal Assent of Finance Bill 2014 (expected within the next week) HMRC has a new weapon which challenges a taxpayer’s basic right to have its case heard by a Court.

This is by the introduction of “Follower Notices”. The new power allows HMRC to order one taxpayer to settle their dispute when, in HMRC’s view, a decision in another case is relevant to the issues in the first taxpayer’s case.  Since taxpayer’s circumstances are unlikely to be identical to another’s, the question of which decisions are relevant involves difficult decisions on issues of interpretation and questions of fact. These are points that ought to be considered by the Court, not unilaterally by one of the parties to the litigation.

A Follower Notice gives the taxpayer 90 days to concede its dispute and pay HMRC’s estimate of the tax due. The taxpayer has only limited rights to challenge the notice, and even then any such challenge is considered by HMRC and not the Court.

If the taxpayer does not concede following HMRC’s issue of a Follower Notice, additional penalties are levied. These penalties not only significantly increase the amount which the taxpayer has at stake in the dispute but must be challenged separately.

It is clear that the changes intend to reduce the backlog of similar disputes. However, these new rules are completely one-sided and has created an environment for yet further litigation and acrimony.

Please contact Marcus if you would like to discuss this further.

Taxpayer loses in “TNT” claims lead case.

By   9 July 2014
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In the recent FTT case of Zipvit the court considered retrospective claims by businesses in cases where Royal Mail (and Parcelforce) had treated individually negotiated supplies of postage etc as exempt. In the previous ECJ case of TNT it was ruled that these services should have been standard rated. The claims (said to be over £1billion in total stood behind Zipvit) were made on the basis that recipients of these services could reclaim the VAT as input tax that should properly have been charged by the Royal Mail.
The three salient points where:

1. Where the supplies taxable? – On this point the court agreed with the taxpayer, the UK legislation must be read with the same restrictions as in the relevant EC Directive.
2. Was VAT due from, or paid by, the appellant? – Curiously, the judge did not agree with either party and stated that both had been labouring under a misapprehension. No further submissions were requested however, and on this point the appeal failed.
3. Lack of VAT invoice – Although HMRC have the discretion to accept alternative evidence to support an input tax claim, it was not obliged to. The FTT supported HMRC’s refusal and noted that there would, in any event, be a windfall for the applicant. The appeal was dismissed.

The judge commented that it was likely that this case would be appealed to a higher court.
If you have an appeal stood behind Zipvit, or have previously received exempt supplies from Royal Mail or Parcelforce in respect of individually negotiated contracts – please contact us for further information.