In or out?
If a biscuit is covered, even partially, in chocolate the VAT is 20%, but if the chocolate is inside, say a choc chip cookie or a bourbon, it is VAT free.
Author Archives: Marcus Ward
VAT on private school fees – new webinar
HMRC have released a recorded webinar about VAT on private school fees — what you need to do, and when and how to register.
It covers:
- if you should register for VAT as an education provider
- when you should register for VAT
- how to register for VAT
- what you need to charge VAT on
- how and what to reclaim VAT on
VAT: New support for small businesses from HMRC
HMRC has launched new online guidance and interactive tools aimed at helping small business owners and those considering self-employment understand their tax responsibilities. It is aimed at supporting new and existing ‘sole traders’ and helping them to understand their responsibilities. The new interactive tool explains the records they need to keep, taxes that may apply to their business, and includes other useful information.
The resources include a step-by-step guide for registering as a sole trader and a newly developed VAT registration estimator tool to help businesses assess their VAT registration needs based on turnover.
The guidance and interactive tools are free and available directly from GOV.UK. They have been launched for information purposes only, and users will not be registered for any taxes as a result of using them. HMRC will not collect or store any information about the user.
VAT in the Digital Age (ViDA)
EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.
The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.
What is ViDA?
ViDA aims to tackle what have been identified as three main challenges:
- Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.
It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
More on e-invoicing here.
- Updated rules for the platform economy
Technological and business developments, especially in e-commerce, mean that VAT rules have struggled to keep pace. Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.
This will ensure a uniform approach across all MS and contribute to a level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
- Single VAT registration
Building on the already existing VAT One Stop Shop (OSS) model for e-commerce, the package allows more businesses selling to consumers in another MSs to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the Import One Stop Shop (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.
Commentary
Many countries worldwide already have versions of e-invoicing and real-time reporting or plan to introduce them. Businesses operating in the EU will need to consider how the new rules impact them and what changes are needed for; systems, procedures, tax declarations, along with the commercial implications.
ViDA should result in a more harmonised VAT system and the UK will need to keep in step in order to avoid becoming even more of a commercial outlier.
The UK has also confirmed a consultation on e-invoicing so lessons which can be taken from ViDA will undoubtably inform the UK process.
VAT: Personal Liability Notices
A Personal Liability Notice (PLN) can be issued by HMRC to a company’s director(s) to transfer the liability to pay VAT or a VAT penalty from the company to an individual. A PLN can also be issued to a member of an LLP.
When a PLN is issued
An officer or officers of a company may be personally liable to pay all or part of the company penalty where:
- a company is liable to a penalty for a deliberate wrongdoing and
- the wrongdoing is attributable to the deliberate action of an officer or officers of the company
Additionally, one of the two circumstances below must also apply
- the officer gained or attempted to gain personally from the wrongdoing, or
- the company is insolvent or likely to become insolvent
Any grounds for suspicion that the company may become insolvent should to be supported by evidence, for example, where there are cash flow problems, insufficient assets to cover liabilities, or evidence of phoenixism.
An officer’s liability to pay a penalty also applies to inaccuracy penalties.
Liable persons
The company officers are known in HMRC guidance as “liable officers”. These include:
- elected officers
- managers
- directors
- company secretary
- any other person managing or purporting to manage any of the company’s affairs.
LLP officers are members.
A PLN’s power gives HMRC the right to recover all or part of the penalty from the liable officer rather than the company/LLP itself.
Where there is more than one deliberate wrongdoing, each deliberate wrongdoing must be considered separately for the purpose of establishing whether it should be attributed to an officer or officers.
Wrongdoings
There are four types of wrongdoings:
- the issue of an invoice showing VAT by an unauthorised person
- misuse of a product so that it attracts a higher rate of excise duty
- the handling of goods on which payment of excise duty is outstanding
- knowingly disposing of, or causing or permitting the disposal of, material at an unauthorised waste site
The wrongdoing must arise from the deliberate action of an officer of the company.
Personal gain
Once HMRC has attributed the deliberate wrongdoing to one or more company officers it must consider whether any of the officers, by fact or implication, have gained or attempted to gain personally from the wrongdoing. It is sufficient to show that each officer has gained or attempted to gain. It will not however always be possible to establish the full extent to which each officer has gained or attempted to gain, in which case HMRC would issue the PLN based on best judgment of the amount they attempted to gain personally, eg:
- the officer may accept that there was an actual or attempted personal gain from a deliberate wrongdoing that can be attributed to them, or
- it may be clear from business records or the officer’s lifestyle that they gained or attempted to gain personally from the results of the deliberate wrongdoing
Appeals
A liable officer can appeal against
- a decision to pursue them for all or part of the penalty assessed on the company, as set out in the PLN, including whether the penalty is attributable to them, and
- the amount of the penalty HMRC has allocated to them
- They cannot however appeal against a decision that they have gained or attempted to gain personally from the deliberate wrongdoing, or that the company is likely to go into liquidation
PLNs are subject to the same procedures as company penalties.
Legislation
Finance Act 2008, Schedule 41: Penalties: failure to notify and certain VAT and Excise wrongdoing.
HMRC publish 2024 VAT annual statistics
This document provides an overview of VAT statistics and covers; VAT receipts in the UK (including home and import VAT). It also contains statistics and analysis on the VAT business population and registrations.
The Headlines
- total VAT receipts in the financial year 2023 to 2024 increased by 6% to £169 billion compared to £160 billion in 2022 to 2023
- the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
- total net home VAT liability in 2023 to 2024 was £173 billion
- the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
- businesses with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion)
New Levy on gambling operators from 2025
The government has announced the introduction of a statutory levy on gambling operators.
The statutory levy is anticipated to generate £100 million for the research, prevention and treatment of gambling harms and is the first step to strengthening harmful gambling protections.
The Department for Culture, Media and Sport said that “The Levy will be paid by operators and collected and administered by the Gambling Commission (GC) under the strategic direction of the Government”.
The levy will be charged at a set rate for holders of GC operating licences, depending on the sector and nature of the gambling activity. The rate will range from 1.1% for online operators, to 0.1% of Gross Gambling Yield (GGY).
The relevant regulations will be laid before Parliament shortly, and it is intended that the levy will come into force on 6 April 2025. The government has also confirmed that it will implement online slot stake limits of £5 per spin for adults aged 25 years and older, and £2 for 18 to 24 year olds.
Society lottery operators will pay the levy as a proportion of proceeds retained after good causes and prizes paid out.
The system will be reviewed within five years with the first formal review expected by 2030.
A VAT did you know?
Children’s clothes are zero-rated. These include; hats, caps, braces, belts, garters and scarves, but not earmuffs – which are standard rated even if they are for children.
VAT: New Annual Accounting Scheme guidance published
HMRC have issued new guidance on the Annual Accounting Scheme.
A business can use form VAT600AA if it is already registered for VAT and wants to join the Annual Accounting Scheme.
VAT: HMRC introduce Chatbot
HMRC has introduced a generative AI chatbot to support users in accessing information on business rules and support, including tax.
The digital assistant is being trialled and HMRC request feedback on its effectiveness.
A disclaimer informs users of the chatbot’s limitations and advises them to verify answers using included GOV.UK links before proceeding. Users must confirm understanding of these limitations.
It is unlikely, in its current form, that the chatbot will be able to address complex issues, particularly as it excludes HMRC manuals.