Tag Archives: tax

What VAT CAN’T you claim?

By Marcus Ward 4 September 2014

The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:

Blocked VAT Claims

A brief overview

No supporting evidence

In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice)” although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC may accept alternative evidence, however, they are not duty bound to do so (and rarely do). So ensure that you always obtain and retain the correct documentation.

Incorrect supporting evidence

Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing. A full guide is here: https://www.marcusward.co/vat-invoices-a-full-guide/

Input tax relating to exempt supplies

Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here: https://www.marcusward.co/wp-content/uploads/2014/03/Partial-Exemption-Guide.pdf

Input tax relating to non-business activities

If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here: https://www.marcusward.co/wp-content/uploads/2014/03/Charities-and-Not-For-Profit-Entities-A-Brief-VAT-Guide.pdf

Time barred

If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.

VAT incurred on business entertainment

This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable.

Car purchase

In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.

Car leasing

If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.

A business using certain schemes

For instance, a business using the Flat rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on TOMS users

VAT charged in error

Even if you obtain an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.

Goods and services not used for your business

Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for business use. This may be because the purchase is for personal use, or by anther business or for purposes not related to the business.

VAT paid on goods and services obtained before VAT registration

This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and services received within six months of registration if certain conditions are met.

VAT incurred by property developers

Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked.

Second hand goods

Goods sold to you under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.

Transfer of a going concern (TOGC)

Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.

Disbursements

A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here: https://www.marcusward.co/disbursements-vat/

VAT incurred overseas

A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EC States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant VAT body in those States. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.

© Marcus Ward Consultancy Ltd

VAT Invoices – A Full Guide

By Marcus Ward 28 August 2014

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.

(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.

(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.

Disbursements – VAT

By Marcus Ward 5 August 2014

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 Marcus Ward 17 July 2014

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.

Court of Appeal judgement on Subway hot food case

By Marcus Ward 11 June 2014

The CoA has just released its judgement in the Subway hot food case. It concerns the liability of toasted sandwiches (known as Subs) with a hot filling; meatball marinara.

This is a lead case for a large number of claims submitted on the basis that VAT has been over declared on certain supplies of hot takeaway food, that are (it was argued) essentially the same as supplies that have obtained zero rating. The Court has dismissed the taxpayer’s appeal.

If you have any “hot food” claims lodged – please contact us for further information.

New house builds to be subject to 20% VAT?

By Marcus Ward 9 June 2014

Reports that a recently issued EC consultation document is proposing to harmonise VAT rates across Europe thus removing the UK’s zero rate have stirred up something of a hornet’s nest. Clearly, in this delicate (although slowly improving) climate for house builders an additional 20% cost could damage the market irrevocably adding £50,000 to the cost of a £250,000 house. Commentators in the trade have announced that it would be a disaster for new home buyers, the construction sector, and the UK economy in general.

However, are these reports in the national press all that they seem? Or is this another tabloid attack on the EC? Such consultation documents are issued regularly and they consider many aspects of VAT across the EC. An EC spokesman, when questioned about this issue, stated “the consultation was not pre-empting a move and considering VAT ‘in general’” Additionally, a spokesman for the Treasury announced “’The UK government has no intention of agreeing to such a proposal, and there is no consultation to change the zero tax rate”. Historically, UK authorities have fought doggedly to retain all of the UK’s zero rates because once they are removed, it is not possible under EC legislation, to reinstate them. The UK is unique in applying the zero rate to items such as food, new houses, books and newspapers and while it is not possible to widen or extend the scope of the zero rating, the UK is permitted, for the time being, to retain those which are in place. So, is there any truth in these “rumours”? It appears that the report was published by the Daily Mail, which in turn appears to have obtained the story from The Daily Express. Although there is a continuing will to harmonise VAT across the EC, I would be very surprised indeed if the UK was to be forced to standard rate new house builds. My personal view is that there appears to be a little mischief making here and the house building industry has enough to worry about rather than this imposed 20% price hike.

Please see here for our land and property services

VAT – Land and Property Issues

By Marcus Ward 23 May 2014

Help!

Supplies relating to property may be, or have been; 20%, 17.5%, 15.%, 5%, zero-rated, exempt, or outside the scope of VAT – all impacting, in different ways, upon the VAT position of a supplier and customer. In addition, the law permits certain exempt supplies to be changed to 20% without the agreement of the customer. As soon as a supplier is provided with a choice, there is a chance of making the wrong one! Even very slight differences in circumstances may result in a different and potentially unexpected VAT outcome, and it is an unfortunate fact of business life that VAT cannot be ignored.

Why is VAT important?

The fact that the rules are complex, ever-changing, and the amounts involved in property transactions are usually high means that there is an increased risk of making errors. These often result in large penalties and interest payments plus unwanted attentions from the VAT man. Uncertainty regarding VAT may affect budgets and an unforeseen VAT bill (and additional SDLT) may risk the profitability of a venture.

Problem areas

Certain transactions tend to create more VAT issues than others. These include; whether a property sale can qualify as a VAT free Transfer Of a Going Concern, supplies involving Listed property and conversions of properties from commercial to residential use, whether to opt to a commercial property, the recovery of VAT charged on a property purchase, supplies between landlord and tenants, the Capital Goods Scheme, HMRC anti-avoidance rules and even seemingly straightforward VAT registration. Additionally, the VAT treatment of building services throws up its own set of VAT complications.

VAT Planning

The usual adage is “right tax, right time”. This, more often than not, means considering the VAT treatment of a transaction well in advance of that transaction taking place. Unfortunately, with VAT there is usually very little planning that can be done after the event. For peace of mind a consultation with me can steer you through the complexities and, if there are issues, to minimise the impact of VAT on a project. Assistance of a VAT adviser is usually crucial if there are any disputes with VAT inspectors.

For more information, please see our Land & Property services

Are e-books books?

By Marcus Ward 21 May 2014

Books are zero rated for VAT purposes, but only (currently) if they are of the traditional dead tree variety. The zero rating does not extend to e-books which are standard rated for VAT. There has been a long standing argument that similar content should not be taxed at different rates solely depending on the method of delivery. This argument is about to be tested in the courts. The UK is not permitted by the EC to extend its current zero rating for printed matter, however, it is expected that the contention in this case will be that the inclusion of new products will not extend the zero rating, but rather the development of technology has created a supply that should be covered by the existing zero rating legislation.

If it is accepted by the courts that all types of book should attract the same rate of VAT, it may mean that the rate will be equalised upwards. So, by the end of the year we could be looking at VAT of 5% being added to books, newspapers and other printed matter which was hitherto VAT free – A “tax on learning” as previous protests had it when there was a threat to tax free books.

Oops! Top Ten VAT howlers

By Marcus Ward 8 May 2014

I am often asked what the most frequent VAT errors made by a business are. I usually reply along the lines of “a general poor understanding of VAT, considering the tax too late or just plain missing a VAT issue”.

While this is unquestionably true, a little further thought results in this top ten list of VAT horrors:

1 Not considering that HMRC may be wrong. There is a general assumption that HMRC know what they are doing. While this is true in most cases, the complexity and fast moving nature of the tax can often catch an inspector out. Added to this is the fact that in most cases inspectors refer to HMRC guidance (which is HMRC’s interpretation of the law) rather to the legislation itself. Reference to the legislation isn’t always straightforward either, as often EC rather than UK domestic legislation is cited to support an analysis. The moral to the story is that tax is complicated for the regulator as well, and no business should feel fearful or reticent about challenging a HMRC decision.

2 Missing a VAT issue altogether. A lot of errors are as a result of VAT not being considered at all. This is usually in relation to unusual or one-off transactions (particularly land and property or sales of businesses). Not recognising a VAT “triggerpoint” can result in an unexpected VAT bill, penalties and interest, plus a possible reduction of income of 20% or an added 20% in costs. Of course, one of the basic howlers is not registering at the correct time. Beware the late registration penalty, plus even more stringent penalties if HMRC consider that not registering has been done deliberately.

3 Not considering alternative structures. If VAT is looked at early enough, there is very often ways to avoid VAT representing a cost. Even if this is not possible, there may be ways of mitigating a VAT hit.

4 Assuming that all transactions with overseas customers are VAT free. There is no “one size fits all” treatment for cross border transactions. There are different rules for goods and services and a vast array of different rules for different services. The increase in trading via the internet has only added to the complexity in this area, and with new technology only likely to increase the rate of new types of supply it is crucial to consider the implications of tax; in the UK and elsewhere.

5 Leaving VAT planning to the last minute. VAT is time sensitive and it is not usually possible to plan retrospectively. Once an event has occurred it is normally too late to amend any transactions or structures. VAT shouldn’t wag the commercial dog, but failure to deal with it at the right time may be either a deal-breaker or a costly mistake.

6 Getting the option to tax wrong. Opting to tax is one area of VAT where a taxpayer has a choice. This affords the possibility of making the wrong choice, for whatever reasons. Not opting to tax when beneficial, or opting when it is detrimental can hugely impact on the profitability of a project. Not many businesses can carry the cost of, say, not being able to recover VAT on the purchase of a property, or not being able to recover input tax on a big refurbishment. Additionally, seeing expected income being reduced by 20% will usually wipe out any profit in a transaction.

7 Not realising a business is partly exempt. For a business, exemption is a VAT cost, not a relief. Apart from the complexity of partial exemption, a partly exempt business will not be permitted to reclaim all of the input tax it incurs and this represents an actual cost. In fact, a business which only makes exempt supplies will not be able to VAT register, so all input tax will be lost. There is a lot of planning that may be employed for partly exempt businesses and not taking advantage of this often creates additional VAT costs.

8 Relying on the partial exemption standard method to the business’ disadvantage. A partly exempt business has the opportunity to consider many methods to calculate irrecoverable input tax. The default method, the “standard method” often provides an unfair and costly result. I recommend that any partly exempt business obtains a review of its activities from a specialist. I have been able to save significant amounts for clients simply by agreeing an alternative partial exemption method with HMRC.

9 Not taking advantage of the available reliefs. There are a range of reliefs available, if one knows where to look. From Bad Debt Relief, Zero Rating (VAT nirvana!) and certain de minimis limits to charity reliefs and the Flat Rate Scheme, there are a number of easements and simplifications which could save a business money and reduce administrative and time costs.

10 Forgetting the impact of the Capital Goods Scheme. The range of costs covered by this scheme has been expanded recently. Broadly, VAT incurred on certain expenditure is required to be adjusted over a five or ten year period. Failure to recognise this could either result in assessments and penalties, or a position whereby input tax has been under-claimed.

So, you may ask: “How do I make sure that I avoid these VAT pitfalls?” – And you would be right to ask.

Of course, I would recommend that you engage a VAT specialist to help reduce the exposure to VAT costs!

Latest from the courts – Trinity Mirror plc

By Marcus Ward 1 May 2014

Good news for taxpayers who submit returns or payments slightly late.

There is an HMRC default surcharge regime whereby a taxpayer is penalised when he fails to lodge a VAT return or payment by the due date (usually one month and one week after the end of the VAT period). There was no dispute over the fact that the return and payment was indeed a day late.

Trinity Mirror plc appealed against a default surcharge of £70,909 at the 2% rate. Broadly, the company was late twice within the same 12 month period. However, the return was just one day late and the company contended that such a surcharge was disproportionate having regard to domestic and EC legislation. Applying the Upper Tribunal’s decision in the case of Total Technology (Engineering) Ltd, the Tribunal held that proportionality had to be assessed at the level of the default surcharge regime as a whole and at the individual level by asking whether the penalty imposed on a particular taxpayer based on the particular facts of its case was proportionate. The Tribunal held that the surcharge in Trinity Mirror plc’s case was unfair as the company had been previously compliant and the default was only one day. The chairman went on to comment that this penalty was harsh and excessive in light of the low gravity of the infringement.

Because there are no provisions for the Tribunal to mitigate such a surcharge, it had no option but to completely set aside the penalty.

This may well provide a taxpayer with an additional weapon in their armoury when dealing with HMRC’s surcharges and provides additional clarity on proportionality in relation to the levying of default surcharges. There already exists a concept of “reasonable excuse” which goes toward mitigation of surcharges and there is significant case law to illustrate what constitutes a reasonable excuse. If you have received what you consider to be an unfair or harsh penalty, please contact us as experience insists that in the majority of cases we have dealt with we have been able to either remove or reduce HMRC’s penalties.