Tag Archives: vat-zero-rate

VAT – A Christmas Tale

By   6 December 2022
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Well, it is nearly Christmas…. and at Christmas tradition dictates that you repeat the same nonsense every year….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities.  May I explain what I do and then you can write to me with your advice?  If you think a face to face meeting would be better, I can be found in most decent sized department stores from mid-September to 24 December.

First of all, I am based in Greenland, but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Where do I belong? Am I making supplies in the UK? Do I pay Customs Duty?

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT?

I have heard that giving vouchers can be complicated, I think I will need help with these gifts.

The toys are of course mainly for children and I wonder if zero rating might apply?  I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it? My friend Rudolph has told me that there is a peculiar rule about gifts.  He says that if I give them away regularly or they cost more than £50 I might have to account for output tax. Is that right?

My next question concerns barter transactions.  Fathers often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return.  If I’m given Sainsbury’s own brand sherry, I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks.  Have I made a supply and what is the value please?  My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or does it count as catering? Oh, and what if the food is hot?

Transport is a big worry for me.  Lots of children ask me for a ride on my airborne transport.  I suppose I could manage to fit twelve passengers in.  Does that mean my services are zero-rated?  If I do this free of charge will I need to charge Air Passenger Duty?  Does it matter if I stay within the UK, or the EU or the rest of the world? What if I travel to every country?  My transport is the equivalent of six horsepower and if I refuel with fodder in the UK will I be liable for fuel scale charges?  After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home – is this non-business? Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay tax. Please comment.

May I also ask about VAT registration?  I know the limit is £85,000 per annum but do blips count?  If I do make supplies at all, I do nothing for 364 days and then, in one day (well, night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration?  If I do need to register should I use AnNOEL Accounting?  At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing.  I feel that my red clothing not only protects me from the extreme cold, but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts, I think I should be able to claim for red dress. And what about my annual haircut?  That costs a fortune.  I only let my hair grow that long because it is expected of me.

Insurance worries me too.  You know that I carry some very expensive goods on my transport.  Play Stations, mountain bikes, i-Pads and Accrington Stanley replica shirts for example.  My parent company in Greenland takes out insurance there and they make a charge to me.  If I am required to register for VAT in England will I need to apply the Reverse Charge?  This seems to be a daft idea if I understand it correctly.  Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

And what about Brexit? I know the UK has already left the EU, but does this affect me? What about distance selling? How do I account for supplies to and from the EU? Will there be Tariffs? Do I have to queue at Dover?

Next, you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

A VAT Did you know?

By   28 November 2022
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Colouring books are zero rated unless they contain swear words, nudity or theft – in which case they are standard rated.

VAT: Face masks deemed to be clothing

By   24 October 2022
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Via Revenue & Customs Brief 11 (2022) HMRC now accepts that face masks should properly be considered to be items of clothing.

This means that face masks designed and marketed as suitable for young children (under the age of 14) qualify for zero rating.(VAT Act 1994 Schedule 8 Group 16).

VAT Notice 714 – Young children’s clothing and footwear has been updated.

Businesses which have been treating these sales as standard rated will be due a refund, subject to the unjust enrichment rules.

A VAT Did you know? – Latest from the courts

By   5 October 2022
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A new Tribunal case ruled that marshmallows of an unusual size are zero rated, while normal sized marshmallows continue to be standard rated. 

A VAT Did you know?

By   27 April 2022
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Aphrodisiacs can be food and therefore VAT free. Capsules, drops, powders and sprays presented as aphrodisiacs that stimulate libido are intended for human consumption and are taken orally.  The fact that consumption of the product may have positive effects on the sexual desire of the person ingesting it is irrelevant.

VAT: Freeports – what are they? Are they beneficial?

By   12 October 2021
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Further to the background to Freeports here I consider the latest developments.

What are Freeports?

Freeports are a specific port where normal tax and customs rules do not apply. Imports can enter with simplified customs documentation and without paying tariffs. Businesses operating inside designated areas in and around the port can manufacture goods using the imports, before exporting again without paying the tariff on the original imported goods (however, a tariff may be payable on the finished product when it reaches its final destination).

Freeports are similar to Free zones, or “Enterprise Zones” which are designated areas subject to a broad array of special regulatory requirements, tax breaks and Government support. The difference is that a Freeport is designed to specifically encourage businesses that import, process and then re-export goods, rather than more general business support.

Use

Goods brought into a Freeport are not subject to duties until they leave the port and enter the UK market. Additionally, if the goods are re-exported no duty is payable at all.

If raw materials are brought into a Freeport and processed into final goods before entering the UK market, duties will be paid on the final goods.

Background

If a business chooses to use a Freeport to import or export goods, it will be able to:

  • get relief from duties and import taxes
  • use simplified declarations processes to reduce administrative burdens
  • choose which rate of Customs Duty to use if processing the goods changes their classification

If goods are purchased in the UK, a business will continue to pay duties and import taxes using the normal UK rates.

Where are they?

The eight new Freeports are located at East Midlands Airport, Felixstowe and Harwich, the Humber region, Liverpool City Region, Plymouth, the Solent, the Thames, and Teesside.

Authorisation needed to use a Freeport

A business can apply to use the Freeport customs special procedure (a single authorisation combined with easier declaration requirements) to import goods for:

  • processing and then export or for sale in the UK
  • storage and then export or for sale in the UK

Declaring goods entering the UK Freeport

A form C21 is used to declare goods entering the UK. This can be done before the goods arrive in the UK or when the goods have arrived in the UK.

Declaring goods exported

A business will normally need to submit an exit summary declaration when goods are exported from the UK. When an exit summary declaration is not needed, a business will need to give an onward export notification to HMRC.

Disposing of goods which have been processed or repaired

When a business has finished processing or repairing goods, it must leave the Freeport and dispose of the goods by either:

  • re-exporting them outside the UK
  • declaring them to another customs procedure
  • transferring them to another Freeport Business Authorisation holder
  • destroying them – usually only possible under customs supervision
  • using other simplified disposal methods

VAT on supplies in the Freeport

A business will be able to zero rate supplies within a Freeport of:

  • goods declared to the Freeport
  • services carried out on goods declared to the Freeport

When a zero rated VAT invoice is issued, it must include the reference “Free zone”.

Zero rating of goods applies if:

  • they are declared to the Freeport
  • they are sold from one authorised Freeport business to another in the Freeport
  • both Freeport businesses are registered for VAT (unless they are exempt from registering for VAT and HMRC has approved this exemption)

Benefits

The Government says that Freeports and free zones are intended to stimulate economic activity in their designated areas. Government backed economic studies have found the main advantage of Freeports is that they encourage imports by lowering duty and paperwork costs. Manufacturing businesses that are inside the Freeport can benefit from cheaper imported inputs in comparison to those outside the area. However, some commentators such as the UK Trade Policy Observatory (UKTPO) suggest that whilst some form of free zones could help with shaping export-oriented and place-based regional development programmes, it is important to ensure that trade is not simply diverted from elsewhere and that wider incentives are needed.

Evasion

Considering that the European Parliament has called for Freeports to be scrapped across the EU because of tax evasion and money laundering and that they are where trade can be conducted untaxed, and ownership can be concealed it is likely that there will be a certain degree of evasion. This a result of the lack of scrutiny on imports and means that high-value items, eg; art, can be bought and easily stored in Freeports without the kind of checks and controls they would normally face.

Summary

Any business that regularly imports and/or exports goods should consider if a Freeport will benefit their business model. This is particularly relevant if work is carried out on imported goods.