Frozen foods are zero-rated, but ice cream, frozen yoghurt, ice lollies and sorbets are subject to standard rate VAT (although they are frozen).
Frozen foods are zero-rated, but ice cream, frozen yoghurt, ice lollies and sorbets are subject to standard rate VAT (although they are frozen).
From 1 January 2022 the rules for selling to, and buying from, the EU will change.
HMRC have issued information about these changes.
Broadly, from 1 January 2022, businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls rules that have applied during 2021. Most businesses will have to make declarations and pay relevant tariffs at the point of import. However, see details of Postponed Accounting.
Please also see a publication issued by the Cabinet Office which includes a Policy Paper on The Border Operating Model.
Latest from the courts
In the First Tier Tribunal (FTT) case of Mr Mufwankolo the dispute was whether the appellant was able to recover VAT charged by the landlord of the property from which he ran his business – a licenced retail outlet on Tottenham High Road.
Background
The landlord had opted to tax the commercial property and charged VAT on the rent. The appellant was a sole proprietor; however, the lease was in the name of Mr Mufwankolo’s wife, and the rent demands showed her name and not that of the sole proprietor. It was contended by the appellant, but not evidenced, that the lease had originally been in both his and his wife’s names, despite his wife being the sole signatory.
The issues
Could the appellant recover input tax?
It was clear that the business operated from the relevant property and consequently, in normal circumstances, the rent would be a genuine cost component of the business.
The Decision
The FTT found that there was no entitlement to an input tax claim and the appeal was dismissed. The lease was solely in the wife’s name and the business was the applicant as a sole proprietor. (There was an obvious potential for a partnership and an argument that a partnership was originally intended was advanced. The status of registration was challenged in 2003, but, crucially, not pursued).
It was possible for the property to be sub-let by the wife to the husband, however, this did not affect the VAT treatment as matters stood. Additionally, there was no evidence that the appellant actually paid any of the rent, as this was done by the tenant. There were no VAT invoices addressed to the sole proprietor.
Given the facts, there was no supply to the appellant, so there was no input tax to claim, and the issue of acceptable evidence fell away.
It was a certainty that the appeal could not succeed.
Commentary
There were a number of ways that this VAT cost could have easily been avoided had a little thought been given to the VAT arrangements. An oversight that created an avoidable tax hit.
A helpful guide to input tax considerations here: Care with input tax claims.
Legislation
The VAT Act 1994 Section 3 – Taxable person
The VAT Act 1994 Section 4 – Taxable supply
The VAT Act 1994 Section 24 (1) – Input tax
The VAT Act 1994 Section 24 (6) – Input tax claim evidence
Further to my article on apportionment valuation and case review here and Transfer Pricing valuation I thought it useful to consider HMRC’s internal guidance on its approach to valuation.
Sometimes a single monetary consideration may represent payment for two or more supplies at different VAT rates. In such cases, a business is required to allocate a “fair proportion” of the total payment to each of the supplies. This requirement is set out at in The VAT Act 1994, Section 19(4).
“Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.”
Although this section requires an apportionment of the consideration to be performed, it does not prescribe the methods by which this is to be achieved. The most common methods are based upon the costs incurred in making the supplies or the usual selling prices of the supplies.
Examples of methods that have been found to be of general application are contained in VAT Notice 700 para 8. A business is not obliged to adopt any of these suggested methods, and HMRC may accept alternative proposals provided that they achieve a fair and reasonable result that can be supported by valid calculation.
Some sectors have special methods called margin schemes to determine apportionment of the monetary consideration. Details of these found in their notices and guidance. The schemes include:
Basics
Before it is possible to perform an apportionment calculation, there are four basic questions that need to be addressed to determine whether an apportionment is appropriate and if so, what supplies it relates to.
The issue of whether there is a single or multiple supply has created problems from the outset of the tax. The volume of case law illustrates that each decision is based on the facts of each case and there cannot be a one-size fits all approach to this issue. The most important and recent cases are here:
Metropolitan International Schools
General Healthcare Group Limited
HMRC will stop issuing payable orders to overseas non-established taxpayers (NETP – taxpayers who are registered for UK VAT but do not have a business address here). The system automatically issued a payable order if a NETP was due a repayment.
Background
HMRC has received notifications and complaints from taxpayers advising that they can no longer cash their payable orders in their country or their bank. The impact of Brexit and COVID19 has seen an increase in banks/countries no longer accepting payable orders. Consequently, HMRC were sending repayments to NETPs with the knowledge they may not be able to cash them.
New Gform
To address this issue HMRC has created a Gform that will enable NETPs to send their bank account information in order that the issue of a payable order can be avoided and a Clearing House Automated Payment System (CHAPS) payment made instead.
Access
HMRC systems do not currently have CHAPS functionality or the ability to store overseas bank information. However, once a NETP has completed the form, which is accessed via the Government Gateway HMRC will set a lock on the taxpayer’s record to prevent the payable order being automatically issued. NETPs will then receive their repayments directly into their bank account without the need to visit their bank to cash a payable order.
Information required
Information requested on the Gform will include:
NB: Not all countries listed are part of the European Union (EU).
Country | VAT rates |
Albania | 20% |
Andorra | 4.5% |
Austria | 20% Reduced rates 19%, 10%, 13% |
Belarus | 20% |
Belgium | 21% Reduced rates of 12%, 6% |
Bosnia & Herzegovina | 17% |
Bulgaria | 25% Reduced rates 13%, 5% |
Croatia | 25% Reduced rates 13%, 5% |
Cyprus | 19% Reduced rates 9%, 5% |
Czech Republic | 21% Reduced rates 15%, 10% |
Denmark | 25% Reduced rate 0% |
Estonia | 20% Reduced rate 9% |
Finland | 24% Reduced rates 14%, 10% |
France | 20% Reduced rates 10%, 5.5% |
Germany | 19% Reduced rate 7% |
Georgia | 18% |
Greece | 24% Reduced rates 13%, 6% |
Hungary | 27% Reduced rates 18%, 5% |
Iceland | 24% Reduced rate 12% |
Ireland | 23% Reduced rates 13.5%, 9% |
Italy | 22% Reduced rates 10%, 5% |
Latvia | 21% Reduced rates 12%, 5% |
Liechtenstein | 7.7% Reduced rate 2.5% |
Lithuania | 21% Reduced rates 9%, 5% |
Luxembourg | 17% Reduced rates 14%, 8% |
North Macedonia | 18% |
Malta | 18% Reduced rates 7%, 5% |
Monaco | 20% Reduced rates 10%, 5.5%, 2.1% |
Montenegro | 21% |
Netherlands | 21% Reduced rates 9% |
Norway | 25% Reduced rates 12%, 6% |
Poland | 23% Reduced rates of 8%, 5% |
Portugal | 23% Reduced rates 13%, 6% |
Romania | 19% Reduced rates of 9%, 5% |
Russia | 20% |
Serbia | 20% Reduced rate 10% |
Slovakia | 20% Reduced rate 10% |
Slovenia | 22% Reduced rates 9.5%, 5% |
Spain | 21% Reduced rates 10% |
Sweden | 25% Reduced rates 12%, 6% |
Switzerland | 7.7% Reduced rates 3.7%, 2.5% |
Ukraine | 20% |
United Kingdom | 20% Reduced rates 12.5%, 5% 0% |
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:
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!