Tag Archives: non-business

VAT – Work on farm buildings

By Marcus Ward 14 November 2017

I am quite often asked if there are any VAT reliefs for farming businesses carrying out work to farm buildings.

Indeed, there are some areas of the VAT rules which may be of assistance to owners of farms and farm buildings. Clearly, the best position is to avoid VAT being charged in the first place. If this is not possible, then we need to consider if the VAT may be recovered.

Repairs and Renovations of Farmhouses

The following guidelines apply to businesses VAT registered as sole proprietors or partnerships. Where the occupant of the farmhouse is a director of a limited company (or a person connected with the director of the company) it is unlikely that any VAT incurred on the farmhouse may be recovered. The following notes are provided by HMRC after consultations with the NFU:

Where VAT is incurred on repairs, maintenance and renovations, 70% of that VAT may be recovered as input tax provided the farm is a normal working farm and the VAT-registered person is actively engaged full-time in running it. Where farming is not a full-time business for the VAT-registered person, input tax claimable is likely to be between 10%–30% on the grounds that the dominant purpose is a personal one.
Where the building work is more associated with an alteration (eg; building an extension) the amount that may be recovered will depend on the purpose for the construction. If the dominant purpose is a business one then 70% may be claimed. If the dominant purpose is a personal one HMRC would expect the claim to be 40% or less, and in some cases, depending on the facts, none of the VAT incurred would be recoverable.

Other farm buildings

As a general rule, when VAT is incurred on non-residential buildings, then, as long as they are used for business purposes, it would be expected that 100% of the VAT is recoverable. Care should be taken if any buildings are let and it may be that planning is necessary in order to achieve full recovery.

It should be noted that if any work to a building which is not residential results in the building becoming residential, eg; a barn conversion, then the applicable VAT rate should be 5%. If the resulting dwelling is sold then generally the 5% VAT is recoverable. If the dwelling is to be lived in by the person converting it; the VAT incurred may be recovered, but the mechanism is outside the usual VAT return and a separate claim can be made. In these circumstances it is not necessary for the “converter” to be VAT registered.

As may be seen, in many cases it will be necessary to negotiate a percentage of recovery with HMRC. We can assist with this, as well as advising on VAT structures and planning to ensure as much input tax as possible is either not chargeable to you, or is recoverable.

VAT: Don’t forget to make EC 13th Directive claims

By Marcus Ward 6 November 2017

The deadline for a business to make a 13th Directive claim is fast approaching – don’t miss out!

What is a 13th Directive claim?

A non-EU based business may make a claim for recovery of VAT incurred in the UK. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, imports of goods, training, purchases of goods in the UK, and clinical trials etc.

Who can claim?

The scheme is available for any businesses that are not VAT registered anywhere in the EU, have no place of business or other residence in the EU and do not make any supplies in the UK.

What cannot be claimed?

The usual rules that apply to UK business claiming input tax also apply to 13th Directive claims. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.

Process

The business must obtain a “certificate of business status” from its local tax or government department to accompany a claim. Claims must via hard copy submission to HMRC as online filing is not yet available. The application form is a VAT65A and is available here Original invoices which show the VAT charged must be submitted with the claim form and business certificate. Applications without a certificate, or certificates and claim forms received after the deadline are not accepted by HMRC. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.

Deadline

Claim periods run annually up to 30 June and must be submitted by 31 December of the same year. Consequently, any UK VAT incurred in the twelve months to 30 June 2017 must be submitted by 31 December 2017.

With the usual Christmas rush and distractions it may be easy to overlook this deadline and some claims may be significant. Unfortunately, this is not a rapid process and even if claims are accurate and the supporting documents are in all in order the claim often takes some time to be repaid.

Note

Please note; there is a similar scheme for businesses incurring VAT in the UK which are based in other EU Member States. However, the process and deadlines are different. Additionally, if you are a UK business incurring VAT (or its equivalent) overseas, there are mechanisms for its recovery. Please contact us if you would like further information.

VAT: Extent of zero rating for a construction by a charity

By Marcus Ward 9 October 2017

Latest from the courts

In the First Tier Tribunal (FTT) case of The Trustees of Litton & Thorner Community Hall the issue was whether certain construction works were a completion of an initial build or whether they were an extension or an annex to a pre-existing building. And if an annex, whether it was capable of functioning independently from the existing building and whether there is a main access to the annex.

Background

The appellant began construction of a hall in 2008. It was intended that the hall would be available for a school to use and also for it to be available at for village use and other activities, such as by local youth clubs and a scout group. There was no dispute that the original construction was zero rated via VAT Act 1994, Schedule 8, Group 5, item 2 (The supply in the course of the construction of a building designed for a relevant charitable purpose).

A decision was made to install ground source heat pumps to feed the heating system. However the space occupied to accommodate the system meant that there was insufficient storage space in the hall. So at the time of construction, but before planning permission was obtained, it was decided with the builder that a steel joist should be incorporated within the east wall of the hall in order to facilitate the necessary support and access when the envisaged storage facility was added. The additional planning permission was granted in November 2011, three years after building work commenced. The facility was eventually able to be used when work was completed in 2014. The delay was caused (not surprisingly) by funding issues. It was the VAT treatment of work relating to the addition of the storage area which was the subject of the appeal, with HMRC considering that it was either standard rated work to the building or was a standard rated extension to it.

Technical background

The provisions relevant to the appeal are VAT Act 1994, Schedule 8, Group 5, Notes 16 and 17. It is worthwhile taking a moment to consider these in their entirety:

Note 16

For the purpose of this Group, the construction of a building does not include

(a ) the conversion, reconstruction or alteration of an existing building; or

(b) any enlargement of, or extension to, an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings; or

(c) subject to Note (17) below, the construction of an annexe to an existing building.

Note 17

Note 16(c) above shall not apply where the whole or a part of an annexe is intended for use solely for a relevant charitable purpose and;

(a) the annexe is capable of functioning independently from the existing building; and

(b) the only access or where there is more than one means of access, the main access to:

(i) the annexe is not via the existing building; and

(ii) the existing building is not via the annexe.

The Appeal

The Trustees appealed on two separate and distinct bases:

(1) That the additional building was the completion of the original building and neither an extension nor an annex to it. It was their case that the temporal disconnect between the two building processes must be seen in the factual context, with particular reference to the decision to put in a lintel to allow the building to be completed when additional monies and planning permission were available. Additionally, alongside this fact was that the appellant was a non-commercial organisation and so things could not progress as expeditiously as they might have done if those things were being undertaken by a commercial organisation.

(2) The second basis is that, in any event, the additional building is zero rated by reference to paragraphs 16(c) and 17 of Group 5 to Schedule 8. It was the appellant’s case that the additional building is an annex intended for use solely for relevant charitable purposes and it meets the conditions set out in paragraph 17(a) & (b).

Decision

The FTT decided that the work was subject to zero rating. Not only was it part of the original construction (albeit that there was a significant time period between the building original work and the work on the storage area) but also, even if the storage area is considered as being separate, it was ruled that, on the facts, it was an annex rather than an extension, so it also qualified for zero rating on this basis.

Commentary

The date a building is “completed” is often an issue which creates significant disputes with HMRC, not only for charities, but for “regular” housebuilders. I have also encountered the distinction between an annex and an extension representing a very real topic, especially with academy schools. Even small changes in circumstances can create differing VAT outcomes. My advice is to seek assistance form a VAT consultant at the earliest stage possible. It may be that with a slight amendment to plans, zero rating may be obtained in order to avoid an extra 20% on building costs which charities, more often than not, are unable to reclaim.

Links to what we can offer to schools here, and charities here

Additionally, our offering to the construction industry here

VAT: Latest from the courts – extent of education exemption

By Marcus Ward 7 August 2017

In the case of SAE Education Ltd (SAE) at the Court of Appeal, the court was required to decide on whether the exemption for education services extended to a “Special Associate College”.

Background

At the relevant time here was relationship between SAE and Middlesex University which has existed since 1998 when the first Memorandum of Co-operation was signed. This was a contractual document which provided for certain BA courses to be taught by SAE at specified campuses as “validated collaborative programs” of the university. Subsequently the university and SAE entered into further Memoranda of Co-operation which replaced the earlier agreement and provided for the validation of additional courses. Tuition was provided by SAE subject to quality assurance safeguards. SAE provided library, computer and other facilities but SAE students would not normally be entitled to access or use of the university’s Learning and Resource Services unless negotiated at extra cost. Nor were they to be entitled to access university’s accommodation and other social welfare services or to apply for financial support from the University’s Access to Learning Fund. They were however, entitled to access the university’s Disability Support Services but again at an additional cost.

In 2010 a decision by the university to grant SAE accredited status was made. This meant that SAE was accredited to validate, monitor and review courses of study leading to university undergraduate awards in certain subjects. This gave SAE the ability to validate the specified programmes itself (although Middlesex University staff continued to be involved in the assessment of the programmes).

The issue

SAE claimed that its supplies were exempt on the basis that it was a college of Middlesex University and therefore an “eligible body” (see below) and that the services supplied were educational as the university outsourced certain courses to it.

HMRC disagreed and assessed for output tax on the appellant’s services on the basis that exemption did not apply and the supplies were standard rated.

Legislation

The relevant legislation: VAT Act 1994, Schedule 9, Group 6, item 1 insists that in order for exemption to apply the provision of education (inter alia) must be by an “eligible body”. The matter to be considered therefore was; is SAE Education Ltd an eligible body. An “Eligible body” is defined in Note (1). It includes a long list of different types of school and higher education establishments but the appeal concerned paragraph (b): “a United Kingdom university, and any college, institution, school or hall of such a university;”

Decision

So was the appellant a UK university, college, instruction, school or hall of such a university? The judges concluded that it was not.

It was decided that although Middlesex University outsourced certain courses to it, and that SAE was appointed as a Special Associate College, this fell short of making it a college in a constitutional or structural sense. In their view a college means entities which are a constituent part of an university. The example given was of Cambridge and Oxford colleges which have been organised for centuries on a federal system under which the colleges and private halls, although legally independent and self-governing, have provided the students of the university and have assumed the primary responsibility for their tuition. The universities themselves are corporations and are regulated by statute with their own separate legal identity and status. “The colleges and private halls are therefore an integral part of the structure of the university and their members make up the university’s teaching staff and students.”

Commentary

It would appear that as a result of the approach in this case, the exemption for education may be more restrictive than previously understood. It is vital that providers of education review their VAT status as soon as possible. I would advise that a VAT consultant is used because this is an area where small details may affect the VAT treatment of the services. The ruling in this case is not helpful.

VAT – Latest from the courts: Fleming claims

By Marcus Ward 26 July 2017

In the First Tier Tribunal (FTT) case of NHS Lothian Health Board “the Board” the judge was asked to consider whether the Board had a valid Fleming claim* in respect of certain laboratory services performed from 1974 to 1997. The relevant services were, inter alia; Nequas work, food-testing, water-testing, non-medical testing of samples, especially for public health, and research and development.

Decision

The appeal was rejected. Although the Tribunal accepted the considerable evidence and testimony from members of staff working for the Board during the relevant years, and had decided that the relevant supplies were subject to VAT (they were not exempt of non-business) unfortunately, there was insufficient documentary evidence to actually quantify the amount of input tax claimed. Of course, in order to recover input tax, it had to relate to taxable (business) supplies made by the appellant. The Tribunal was required to consider whether the business income of the laboratories could be calculated. The FTT considered that whilst the evidence was helpful in determining that taxable supplies were made, that evidence fell short of facilitating its quantification. While the business income was almost certainly significant, the Tribunal did not consider that it has been quantified satisfactorily for the whole period.

The appellant contended that a set percentage representing business income could be projected backwards to earlier VAT periods. The Tribunal did not consider such an approach “reasonable or acceptable” and that the timescale involved also undermined the likely accuracy of the process of extrapolation. (The Tribunal suggested that there is a need to have a verifiable percentage, calculated by reference to prime records at regular intervals. For example, it might well be acceptable in a 25 year period to have verifiable figures every five years, and if there is not significant variation, to use extrapolated figures for the intervening years). There was also uncertainty about the Board’s partial exemption position and how, historically, apportionment was carried out.

Commentary

This case demonstrates the difficulty of making retrospective claims that go back to the early 1970s, that’s over 40 years ago! It is to be expected that certain records may be absent and HMRC has previously agreed that the required information may be established by other methods, however, a claim has to be made on the basis of “something more concrete” than a backwards projection of a percentage figure calculated from more contemporary records. The judge gave an example of evidence that may be acceptable in these circumstances.

The outcome does seem somewhat unfair given the fact that all parties agree that VAT was overpaid due to an error made by HMRC, but the level of evidence required to support a Fleming claim has to be of a certain standard to be accepted.

As always in VAT – record keeping is of the utmost importance.

* Background to Fleming claims

Fleming claims’ are claims for underdeclared or overpaid VAT, potentially going back as far as the inception of VAT in 1973. They followed the House of Lords judgements in January 2008 in the cases of Fleming and Conde Nast (Fleming) which concerned the way that the three year time limit on making claims had been introduced. In Revenue and Customs Brief 07/08, published on 20 February 2008, claims were invited in respect of overpaid output tax for accounting periods ending before 1 May 1997. Subsequent legislation in the 2008 Finance Act limited the scope for making claims for these accounting periods by introducing a new transitional period ending 1 April 2009, before which any such claims had to be made.

VAT: Latest from the courts – are services by a CIC business?

By Marcus Ward 19 May 2017

This case considers the perpetual difficulty of deciding whether activities represent a business… or not.

In the First Tier Tribunal (FTT) case of Healthwatch Hampshire CIC (HH) here the issue was whether HH made taxable supplies by way of business to a Local Authority – Hampshire County Council (HCC)

Background

Under certain prescribed new arrangements, local authorities, including HCC, were required to enter into contractual arrangements with a body corporate, which was required to be a social enterprise and a Community Interest Company (CIC) for the provision of various services.

These services comprised, inter alia:

Promoting, and supporting, the involvement of local people in the commissioning, provision and scrutiny of local care services
Information, signposting and advice
Advocacy services

HH is a company limited by guarantee but is not a charity. It is however non-profit making in its objectives, and any profits which do arise can only be spent for the benefit of the local community. HH was formed by a consortium comprising; three organisations all of which are charities. These charities effectively carried out the work via a sub-contract arrangement and charged HH with the addition of VAT. The issue is the VAT treatment of HH’s charge to HCC. Was this a business activity on which VAT is charged? Or, as HMRC contended, was the money paid to HH was outside the scope of VAT because it represented something which was not consideration for taxable supplies and thus non-business.

This was important as if the services provided by the CIC are deemed to be non-business, the VAT charged to HH by the three consortium members would represent an absolute VAT cost as it could not be VAT registered and therefore not able to recover the input tax.

Technical Note

Because of the special VAT rules which apply to local authorities, input tax incurred by them may be recovered if it relates to their non-business activities (their statutory activities). This is via VAT Act 1994, s33 and this legislation turns “normal” VAT rules on their head. In this particular case, if HH charged HCC VAT, HCC would be in a position to recover it meaning that VAT would be neutral for all parties.

Decision

The matter of whether HH’s activities amounted to a business was considered with significant references to the Longridge On The Thames. Case commentary here

As a starting point, the judge commented on previous CJEU cases that it “…would seem to be a clear demonstration that simply because an activity is normally carried on by the state does not automatically mean that, per se, it cannot be economic activity”. It was also decided that “we have come to the conclusion that HH is not a body governed by public law.” So this strand of HMRC’s argument did not lead anywhere.

The court decided in the taxpayer’s favour; which appears to be common sense all round. The supplies were by way of business despite the arrangements having features which may not necessarily be found in a more commercial environment (including the fact that LAs were legally required to outsource certain of its functions) . Ultimately, consideration was flowing in both directions; HCC paid for supplies which it required and those were supplied by a third party such that VAT was properly chargeable. The fact that HCC met its statutory obligations in structuring transactions in this way did not preclude them being an economic activity.

Action

This case (and Longbridge) demonstrates that where charities, LAs, CICs, NFP entities and similar bodies are concerned, it is crucial to review all agreements from a VAT perspective. It is insufficient to assume the correct VAT treatment is how it is desired and slight differences in arrangements can, and do, produce different VAT outcomes. After Longbridge HMRC are looking more closely at similar arrangements (not limited to LAs) and we expect more of these types of cases to be heard in the future.

For more on the EC aspect of business/non-business please see here

VAT: Latest from the courts – Brockenhurst College

By Marcus Ward 19 May 2017

The Court of Justice of the European Union (CJEU) has released its decision in Brockenhurst College here

Unusually, it has gone against the Advocate General (AG) Kokott’s opinion (here) and concurs with previous decisions reached by the UK courts. This is good news for the taxpayer and other providers of educational services. The decision has been referred back to the Court of Appeal (CoA) for it to consider points such as the distortion of competition and the fulfilment of a separate function, however, it is likely that this will not affect the decision by the CJEU and HMRC’s appeal will be dismissed.

Background

The case considered two types of supply made by Brockenhurst College:

The supplies made from its restaurant, used for training chefs, restaurant managers and hospitality students. The claim was made on the basis that these were exempt supplies of education and not standard rated supplies of catering
Tickets for concerts and other live performances put on by students as part of their educational courses. These were similarly claimed to be exempt.

Students were enrolled in performing arts and catering and hospitality courses. As part of their course of study they were required to run a restaurant and stage live performances. Persons not enrolled on the relevant courses would pay for and attend these events. The services were usually supplied to a limited public including; parents, siblings, friends etc, and were supplied at a reduced cost as part of the practical element of the students’ education. The appellant argued that the experience was invaluable to their studies and should be regarded as ‘closely related’ to the principal supply of education. HMRC considered that the services in question were supplied to third parties in return for payment. Consequently, the services, whilst of benefit and practical experience to the students were separate VATable supplies made to third parties and the supplies cannot, therefore, be closely related to the supply of education to the student.

The First Tier Tribunal (FTT) concluded that the supplies in question were exempt as being closely linked to education because:

the College was an eligible body and so its principal supplies were exempt supplies of education
the supplies were integral and essential to those principal exempt supplies
the supplies were made at less than their cost
the supplies were not advertised to the general public. Instead, there was a database of local groups and individuals who might wish to attend the restaurant or performances
the supplies were not intended to create an additional source of income for the College

HMRC disagreed with the conclusion on the basis that the supplies were outside the education exemption because the students were not the beneficiaries of the supplies in question, but only benefitted from making them. HMRC appealed to the Upper Tribunal (UT).

The UT rejected HMRC’s argument and agreed with the FTT. It held that the supplies were closely related to the exempt supplies of education because they enabled the students to enjoy better education. The requirement in the domestic law for the supplies to be for the direct use of the student was met because they were of direct benefit to him.

HMRC subsequently appealed to the CoA which referred it to the CJEU.

The AG’s opinion was that closely related transactions are to be regarded as independent supplies to the principal supply, but do not include the supply of restaurant or training services supplied to third parties who are not themselves receiving the principal supply of training. The third parties pay for their own consumption (of either the catering or performance) and do not pay for the provision of education. It is very rare that the CJEU makes a decision that goes against the AG’s opinion.

CJEU Decision

The CJEU ruled that activities consisting of students of a higher education establishment supplying, for consideration and as part of their education, restaurant and entertainment services to third parties, may be regarded as supplies closely related to the principal supply of education and accordingly be exempt from VAT – provided that those services are essential to the students’ education and that their basic purpose is not to obtain additional income for that establishment by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT, which it is for the national court to determine.

Action

We understand that there are a number of cases stood behind Brockenhurst. Any other colleges, FE, universities or other eligible bodies carrying out similar activities to Brockenhurst need to consider their tax position. It is possible that retrospective claims may be made, depending on specific circumstances. Treating such supplies as exempt may also impact on a body’s partial exemption position and could create business/non-business implications. This may also impact on activities like hairdressing, motor maintenance and beauty treatments which colleges provide on a similar basis to the activities in this instant case.

We are happy to discuss the implications of this case with you.

VAT – Input tax recovery by holding companies

By Marcus Ward 10 May 2017

HMRC has published updated guidance on the recovery of input tax incurred by holding companies.

The guidance may be found here

It is important for holding companies and/or their advisers to read and understand the changes to the VAT recovery rules as costs are often significant. The changes are a result of various UK and CJEU case law which, in general, considered; the definition of economic activity, the direct and immediate link to taxable supplies made by a holding company, the contractual and payment arrangements and the use of the input tax.

Key Points

The guidance considers:

When a shareholding is used as part of an economic activity
Is the Holding Company the recipient of the supply?
Is the Holding Company undertaking economic activity for VAT purposes?
Shareholding acquired as a direct, continuous and necessary extension
Intention to make taxable supplies
Contingent consideration for management services
The effect of a holding company joining a VAT Group
Stewardship costs
Mixed economic and non-economic activities

Generally

In order to recover the relevant input tax, it must be incurred by a taxable person in the course of an economic activity and have a direct and immediate link to taxable supplies made by that person. This has been a long settled definition and the guidance seeks to apply these tests to holding companies. This means that, in order to receive a supply, a holding company must;

Contract for it
Use it
Be invoiced for it
Pay for it

Specifically

The publication considers previously disputed situations such as:

Services provided on contingent terms are not an economic activity because the necessary reciprocity between the obligations of the holding company and of the subsidiary is absent
How input tax incurred by holding companies which make taxable supplies to some subsidiaries and not to others and those that make taxable supplies and exempt loans should be dealt with
If a shareholding is acquired as a direct, continuous and necessary extension of a taxable economic activity of the holding company the input tax incurred on acquisition costs may be deducted even if management charges are not made
A holding company joining a VAT group cannot change a non-economic activity into an economic one or create an automatic link between holding company costs and the taxable outputs of other group members (For VAT to be deductible, the holding company must provide management services to the companies acquired in the VAT group, or earn interest from loans granted to them, and these must support taxable supplies made by the VAT group)
If a member of a VAT group incurs costs for non-economic (“business”) activity, the supplies are treated as being used by the representative member for non-economic purposes
Stewardship costs (group audit, legal, brand defence, bid defence etc) are costs for the purposes of the VAT group as a whole rather than for the purposes of the holding company activities

Action

The previous input tax position of holding companies should be reviewed in light of the above guidance and adjustments made as necessary. In some cases, the guidance may provide additional opportunities to reclaim input tax which was previously thought to be barred, and conversely, it is possible that VAT claimed as a result of the understanding of the position at the time may need to be repaid.

We can assist in reviewing the input tax position of holding companies and advising on structures for future intended acquisitions. The four year cap applies to such adjustments of input tax, so the clock is ticking for past transactions.

Image: company stamps

VAT Inspections …and how to survive them

By Marcus Ward 5 May 2017

VAT Inspections

The first point to make is that inspections are usually quite standard and routine and generally there is nothing to worry about. They are hardly enjoyable occasions, but with planning they can be made to go as smoothly as possible. As an inspector in my previous life, I am in a good position to look at the process from “both sides”. If you are concerned that the inspection is not routine (for any reason) please contact us immediately.

Background

Typically, the initial meeting will begin with an interview with the business owner (and/or adviser) to go through the basic facts. The inspector will seek to understand the business and how it operates and will usually assess the answers with specific tests (further tests will be applied to the records). After the interview the inspector(s) will examine the records and will usually have further queries on these. More often than not they will carry out; bank reconciliations, cash reconciliations, mark-up exercises, and often “references” which are the testing of transactions using information obtained from suppliers and customers. There are many other exercises that may be carried out depending on the type of business. Larger businesses have more regular inspections where one part of the business is looked at each meeting. The largest businesses have more or less perpetual inspections (as one would expect). The length of the inspection usually depends on:

Size of the business
Complexity of the business
Type of business (HMRC often target; cash businesses, the construction industry, property investment, partially exempt businesses, charities and NFP entities, cross-border transactions and financial services providers amongst others)
Compliance history
Associated/past businesses
Intelligence received
Errors found
Credibility of the business owner and records

The above measurements will also dictate how often a business is inspected.

More details on certain inspections/investigations here

The initial inspection may be followed by subsequent meetings if required, although HMRC state that they aim is to conclude matters at the time of the first meeting.

The inspection – how to prepare

Ensure that both the person who completes the VAT returns and the person who signs the VAT returns will be available for all of the day(s) selected
Arrange with your adviser, to be available to you and the inspector on the days of the inspection
Thoroughly review your VAT declarations and have ready, if relevant, any disclosures or other declarations you consider you need to make to HMRC at the start of the inspection (this should avoid penalties)
Have available all VAT returns and working papers for the last four years or the period since you were registered for VAT including:
- Annual accounts
- The VAT account and all related working papers
- All books and accounts, cashbook, petty cashbook, sales and purchases day books
- Sales and purchase invoices
- All supporting documentation, eg; contracts, correspondence, etc.
- Bank statements
- VAT certificate and certificate of registration
- Any other documentation relating to “taxable supplies”
Have available the full VAT correspondence files ensuring that they are fully up-to-date
Ensure you have full information on any; one-off, unusual or particularly high value transactions

The inspection – during the visit

Ask the inspector(s) to identify themselves by name on arrival (they carry identity cards)
Be polite, friendly and hospitable as far as possible
Make a desk or space available for them to work near to you – in this way you can oversee/overlook what they do
Only allow access to the files that form part of your “VAT Records”
Enable the VAT inspector, if they ask, to inspect your business premises (and have someone accompany them)
Be cautious with your answers to seemingly “innocent” questions and comments. If in doubt ask for time to check, or that the question be put in writing (never guess or provide an answer which you think HMRC want)
If something inconsistent is found (or suggested) ask for full details and take note of all of the documentation to which the query relates – this will enable you to provide necessary information to your adviser

The inspection – at the end of the visit

The inspector should:

Explain the main work they have done. For example which VAT accounting periods they reviewed
Explain any areas of concern they have, discuss them and seek to agree any future action that needs to be taken; and
Illustrate as fully as possible the size and reason for any adjustment to the VAT payable, and describe how the adjustment will be made

You should:

Obtain a summary of the inspection from HMRC (not always an easy task)
Ask the inspector to put all of HMRC’s concerns about your business to you in writing
Confirm with the inspector all time limits for providing additional information to HMRC

After the inspection

HMRC will write to you confirming:

Any issues identified
Further information required
Improvements required to record keeping
Any corrections required
Whether VAT has been over or under paid
Any penalties and interest which will be levied
Deadlines for payment.

On a final point: Never simply assume that the inspector is correct in his/her decision. It always pays to seek advice and challenge the decision where possible. Even if it is clear that an error has been made, mitigation may be possible.

We can provide a pre-inspection review as well as attending inspections if required. It is quite often the case that many HMRC enquiries may be nipped in the bud at the time of the inspection rather than becoming long drawn out sagas. We can also act as negotiator with HMRC and handle disputes on your behalf.

VAT Planning – The Four “A”s

By Marcus Ward 6 March 2017

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 from 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!)