Latest from the courts.
The rolls used in Subway’s hot sandwiches are not bread. According to a recent ruling by Ireland’s Supreme Court, because of the high level of sugar in the rolls, they cannot be taxed as bread, so the VAT zero rate cannot apply.
1. Am I sure that a VAT inspection would not find any errors?
2. Am I sure that I am reclaiming as much VAT as possible?
3. Do I take full advantage all available VAT reliefs, customs exemptions and duty refund schemes?
4. Am I up to date on the indirect tax developments in my key markets?
5. Have I considered the impact of tax rate changes on my pricing and margin, and have I taken the necessary measures?
6. Do I collect all the data about my customers and transactions that could be required by tax authorities?
7. Do I comply with all indirect tax requirements in the jurisdictions where I operate or where my customers belong?
8. Do I have the tools to analyse my indirect tax flows and data?
9. Could changes in the way my business is structured or how transactions are organised improve my indirect tax position and/or reduce complexity?
10. Is my business using the right VAT scheme?
It is important to constantly monitor a business’ VAT position. The nature of trade changes, technology changes, case law changes and the VAT rules are constantly in a state of flux. It is easy to assume that everything is alright because it has always been done that way, but there may be significant exposures and missed opportunities out there. Things will also change once the terms of Brexit have been agreed (or not). We offer services from a basic healthcheck to a full technical review. A review will let you rest easy in your bed if nothing else!
VAT Back To Basics
It is sometimes useful when considering a transaction to “go back to basics” for VAT purposes. There are four tests to determine whether a supply is taxable and these are set out below. Broadly, these tests establish whether UK VAT is payable on a sale.
A transaction is within the scope of UK VAT if all four of the following are satisfied.
There is a distinction between the two types of supply as different VAT treatments may apply. However, if no goods are services are actually provided, there is no supply. Indeed, if there is no consideration for a supply, in most cases it is not a taxable supply.
2. It takes place in the UK.
There are quite complex tests to consider when analysing the “place of supply”, especially where services are concerned. If the place of supply is outside the UK then usually no UK VAT is due, however, the supply may be subject to VAT in another country.
3. It is made by a taxable person.
A taxable person is any legal entity which is, or should be, registered for VAT in the UK.
4. It is made in the course or furtherance of any business carried on by that person
The term “business” is only used in UK legislation, The Principal VAT Directive refers to “economic activity” rather than “business” and since UK domestic legislation must conform to the Directive both terms must be seen as having the same meaning. Since the very first days of VAT there have been disagreements over what constitutes a “business”. I have only recently ended a dispute over this definition for a (as it turns out) very happy client. The tests were set out as long ago as 1981 and may be summarised as follows:
So, if the four tests are passed a taxable supply exists. The next step is often to establish which VAT rate applies!
Tip: It is often easier to consider what isn’t a taxable supply to establish the correct VAT treatment. Specific examples of situations which are not taxable supplies are; donations, certain free supplies of services, certain grants or funding, some compensation and some transactions which are specifically excluded from the tax by legislation, eg; transfers of going concerns.
I think that it is often the case that the basic building blocks of the tax are overlooked, especially in complex situations and I find it helps to “go back to the first page” sometimes!
There is a lot of information about VAT on the web, but some of it may seem confusing or conflicting. I hope my simple VAT guide to a complex tax may be of help.
Q: I run a business – do I have to charge VAT on my sales?
A: If a business’s turnover exceeds £82,000 in any 12 month period it is likely that it ought to be VAT-registered and charging VAT on its income. It is the business’s responsibility to monitor its turnover and register with HM Revenue & Customs if necessary. However, not all income counts towards the turnover limit, for instance you can ignore exempt income (see below for a description of exempt sales).
VAT registration may also be necessary if you know that your income will exceed the limit in the next 30 days (the future test). This may because you have signed a contract for work for instance.
A business can also VAT register voluntarily. This is usually done to reclaim VAT it has incurred.
Finally, a business must VAT register if it receives certain goods and services form overseas worth more than £82,000.
Q: What happens if I don’t register for VAT when I should?
A: In addition to paying VAT from the date a business should have registered, there will be penalties and interest to pay. HM Revenue & Customs may carry out further investigations if they consider that failure to register was more than an innocent error.
Q: Why is paperwork so important in VAT?
A: Since VAT is a transaction-based tax, it is important to have evidence of those transactions.
Q: Are there any benefits to being VAT-registered?
A: Yes, you will usually be able to claim the VAT you incur on expenditure for your business.
Q: Can’t I recover all the VAT I incur?
A: Some VAT is specifically blocked, such as: cars for most businesses and business entertainment. In addition, if a business makes exempt supplies, it is usually unable to recover any VAT it incurs in relation to those supplies. Apart from this, as long as the expenditure is for business (not private) purposes, and the business has supporting documentation to support the claim, most VAT is recoverable from HMRC.
Q: Do I charge VAT on everything?
A: No, some sales such as food, books and children’s clothing are zero-rated, and some activities including certain property rental and sales, insurance and health services are exempt from VAT. In addition, sales to most overseas business purchasers may be treated as VAT-free. The difference between exempt and zero-rated is that there is no block on the recovery of VAT incurred in relation to zero-rated supplies so usually a business making solely or substantially zero-rated supplies will actually receive payments from HMRC.
Q: Are there any short-cuts to accounting for, and paying VAT?
A: There are a number of schemes aimed at simplifying VAT. These range from annual (rather than the more usual quarterly) returns, cash accounting (where you don’t need to pay HMRC until you have been paid) to simplified flat rate schemes whereby you pay over an element of your turnover without the need for further calculations
Q: What if I get it wrong?
A: Unfortunately, as with everything connected to VAT, there are penalties and interest for even innocent errors. If HMRC find an error before you have notified them of it, there can be quite swingeing extra amounts to pay over. If HMRC consider that there is deliberate evasion, and evidence is found, a prison sentence of up to seven years is possible.
Q: What should I do if I am uncertain about what the VAT treatments of my sales are, or when I should register for VAT?
A: Please contact me! Not only can I assist with the technical side, but there is often planning that may be put in place to mitigate the cost of VAT or penalties.