Tag Archives: VAT-bundle

Common VAT mistakes

By   2 October 2025
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VAT basics

None of us are perfect, and any business can make mistakes with VAT despite all intentions to take reasonable care. So what are the most common errors? Here’s a list of pitfalls to avoid:

Wrong rate of output tax charged

Land and property transactions

  • Misunderstanding the correct VAT treatment of a land and property transactions
  • Not recognising VAT issues
  • Issues with the Option To Tax
  • TOGC issues
  • A guide to triggerpoints here

Cross-border issues

  • Failing to meet the requirements to zero-rate exports
  • Incorrect import procedures
  • Ignoring the reverse charge

Inter-company charges

Partial exemption

Business entertainment

  • Different rules apply to the recovery of input tax on entertaining depending on the type of recipient, eg: clients, contacts, staff, partners and directors depending on the circumstances

Registration

VAT groups

  • Failing to VAT group when beneficial or failing to disband
  • Recovery of input tax
  • Timing of transactions
  • Partial exemption issues

Tax points (Time Of Supply)

  • Failing to recognise a tax point for output tax
  • Incorrect treatment of deposits
  • Incorrect treatment of forfeit deposits
  • Recovery of input tax at incorrect time

Bad Debt Relief issues

  • Failing to claim Bad Debt Relief
  • Failing to repay a claim to HMRC when payment from customer is received
  • Failing to repay input tax when a supplier is not paid (after six months)

Overseas issues

Claiming input tax without the correct documentation

  • A guide to alternative evidence here

Recovering irreclaimable input tax

  • A guide to what VAT is not claimable here

Return errors

  • A box-by-box guide here

Business promotion schemes

Composite or separate supplies

Changes to a business

  • Selling new products, acquisitions, share sales, disposals, re-structuring, and ceasing to trade can all have a VAT impact and this can be missed

Fuel and motoring costs

Special schemes

One-off transactions

  • Failing to recognise VAT issues of unusual or one-off transactions

Non-business (NB) and charitable activities

  • Failure to recognise NB activities
  • Failure to restrict input tax in connection with NB activities

Errors can lead to draconian penalties, and ignorance is not a defence.

A guide to VAT triggerpoints here .

VAT Planning: design and build

By   6 May 2025
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Planning

The construction of a new house, and the materials used by the contractor to build it, are zero-rated. However, architect and other building professional fees, eg; surveyors, supervisors, engineers, project or construction management and consultants, are always standard rated; even in respect of a new build.

This will represent an absolute VAT cost to:

  • individuals
  • entities which will rent the house(s) after completion
  • housing associations (in some circumstances)
  • certain entities which are not in business
  • any entity which will use the building(s) for other exempt purposes
  • entities which do not sell the house(s) – so onward zero-rating is not possible
  • any entity which cannot recover all of its input tax for various reasons

Aims

If it is not possible to structure matters so that these fees can be recovered (there are a number ways to do this, but not all will be available to all parties) then advisers need to consider ways to remove the VAT charge – this may also be preferable for cashflow purposes even if full input tax recovery is possible.

VAT Planning

Design and build – the steps

  • the housebuilder creates a separately VAT registered design and build company (newco)
  • newco purchases the professional services and construction services and incurs the VAT on these (the construction element is zero-rated)
  • these supplies are incorporated into a single onward supply of zero-rated design and build services to the housebuilder (a bundle) – the professional services are a cost component of the construction
  • zero rating applies to the supply to the housebuilder as the predominant supply of the bundle is the construction of new dwellings
  • newco recovers the input tax incurred on professional fees etc, as it relates to an onward taxable supply
  • newco is in a repayment position and HMRC refunds the VAT incurred on the costs – often after a pre-cred query

It is also possible to use an independent design and build company, or engage a contractor to carry out both the design and construction elements of the project with a similar result.

Considerations

It is important to implement the planning correctly. This means that appropriate contracts must be in place, the operation is carried out on sound business principles (actual supplies are made and it is not simply the moving of money).

Arrangements

In order to evidence the proper commerciality of the structure, it is important to bear in mind that:

  • appropriate contracts are in place
  • proper invoicing is required
  • the arrangements are at arm’s length
  • a profit for newco would emphasise the commercial aspect
  • all parties’ accounts reflect the transactions
  • newco combines all of its costs (including overheads/admin etc) and supplies them to the housebuilder as part of a single package of zero-rated design and build services
  • newco acts as principal and not agent (that the professional services are not disbursements)
  • the newco and the housebuilder are not in the same VAT group
  • care should be taken if loans are required (they may compromise arm’s length and genuine commercial contentions)

HMRC’s view

In HMRC’s Internal Guidance Manual VCONST02720 it states that:

“Zero-rating the construction of buildings: services excluded from zero rating: design and build

Architectural or design services supplied as part of a design and build contract can be treated as part of the zero-rated supply of construction services.

A typical design and build contract will require the contractor to complete the design for the works and complete the construction of the works.

In such circumstances HM Revenue & Customs (HMRC) sees the design element as a cost component of the construction and not as a separate supply of architectural services which would be liable to VAT at the standard rate”.

Consequently, this planning is recognised and accepted by HMRC, however, it is important that it is applied effectively so it is difficult for HMRC to challenge.

VAT: More on separate and single supplies. The KFC dip pot case

By   10 June 2024
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Latest from the courts

In the First-Tier tribunal case of Queenscourt Limited the issue was whether dip pots supplied as part of a takeaway meal deal are a separate zero-rated supply (of cold food) or whether they are part of a single VATable supply of hot food.

Background

The appellant had originally accounted for output tax on the basis that dip pots formed part of a single standard rated supply with other food. However, following advice, it then formed the view that zero-rating applied to these pots and submitted a claim for overpaid output tax. HMRC agreed to repay the VAT claimed.

Subsequently, a further claim as made on a similar basis for a later period. This was considered by a different officer who refused to make the repayment on the basis that there was no separate supply of the dip pots. This called into question whether the payment of the initial claim was correct. The officer considered the previous repayment to have been incorrect and issued assessments in order to recover the amount which had been repaid.

Queenscourt now appealed both against the decision to refuse the repayment claimed in the second error correction notice and also against the recovery assessment relating to the first error correction notice.  Moreover, the recovery assessments are invalid as there has been no change in circumstances and no new facts have come to light since HMRC agreed to repay the tax. Alternatively, it argues that HMRC are prevented from recovering the tax, either on the basis of legitimate expectation or estoppel by convention, in each case arising as a result of HMRC’s original agreement that that tax should be repaid.

Decision

The appeal was dismissed.

  • On the dip point issue, the FTT stated that it was unlikely the dip would be eaten on its own, or as an end in itself, unlike the coleslaw or cookie elements – It is a means of better enjoying the hot food. Consequently, it is an element of a standard rated single composite supply of hot takeaway food.
  • Legitimate expectation – Whilst the Tribunal did have jurisdiction to consider arguments based on legitimate expectation in the context of an appeal against a recovery assessment, it is not in this case sufficiently unfair for HMRC to resile from their initial acceptance of the claim made in the first error correction notice and to apply the correct tax treatment.
  • Estoppel – HMRC is not estopped from making or relying on their recovery assessments as there has been no detrimental reliance on the original position taken by HMRC in connection with any subsequent mutual dealings.

Commentary

It is difficult to see the end of single/multiple supply cases, as my previous articles consider:

Here, here, here, here, and how to categorise a supply here.