Category Archives: HMRC Publications

VAT: B2B and B2C – The distinction and importance

By   1 August 2023
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A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.

Status of the customer:

  • B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
  • B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.

To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.

  • If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
  • If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.

A supplier needs to identify where his customer belongs in order to establish the place of supply.

VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.

Apply to receive VAT data from HMRC

By   13 July 2023
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Credit reference agencies and other qualifying applicants can now apply for VAT registration data for use in making financial assessments.

A UK-based credit reference agency or similar financial organisation can apply for authorisation to get non-financial VAT registration data for the purpose of:

  • credit scoring
  • anti-fraud checking
  • compliance with other financial regulations

It may help small businesses and new start-ups gain access to credit and finance for the first time and give increased access to credit and finance to established VAT-registered businesses.

The data file will cover all VAT-registered businesses, not individual businesses or grouped by trade sector or geographical location.

In addition to the VAT registration number and available contact information, the data for each registered business includes the:

  • effective date of registration
  • overseas trader indicator
  • group or divisional registration indicator
  • organisational name
  • trading name and trading style
  • standard industrial classification code (trade class)
  • legal entity status
  • company number and incorporation date

Where applicable, this will also include the date of:

  • deregistration
  • transfer of a going concern

No financial or payment data is included.

The file shared will be updated weekly to ensure it is accurate.

HMRC will only share non-financial VAT registration data with you if your business has a genuine need to use it for the purposes set out in section 8(1) of the Small Business Enterprise and Employment Act (SBEEA) 2015.

How to apply

An interest may be registered by applying to receive VAT registration data by emailing: vat.datasharing@hmrc.gov.uk, quoting ‘VAT Data Sharing’ in the subject line.

 

VAT: New HMRC guidance on error reporting

By   4 July 2023
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HMRC has published new guidance to assist taxpayers on how to deal with errors discovered on submitted VAT returns. The catchy title is: Check if you need to report errors in your VAT Return – Check if you need to notify HMRC about errors that are over the threshold on your VAT Return and find out how to report them.

The guidance sets out how to report errors of £10,000 or more (net of all errors). This broadly comes down to using the online service by completing a form VAT652 or adjusting a current VAT return.

Please see our flowchart on error reporting Error Reporting Flowchart

New portal for VAT payment plans

By   4 July 2023
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VAT is normally due on the relevant due date*. However, HMRC has launched a new self-service portal for businesses to set up payment plans.

We look at managing VAT debt in detail here.

A business can set up a VAT payment plan online if it:

  • has filed its latest tax return
  • owes £20,000 or less
  • is within 28 days of the payment deadline
  • does not have any other payment plans or debts with HMRC
  • plans to pay off its debt within the next six months

A taxpayer cannot set up a VAT payment plan online if it uses the Cash Accounting Scheme, Annual Accounting Scheme, or makes payments on account.

If a business cannot set up a payment plan online it will need to contact HMRC.

HMRC will ask:

  • if you can pay in full
  • how much you can repay each month
  • if there are other taxes you need to pay
  • how much money you earn
  • how much you usually spend each month
  • what savings or investments you have

If you have savings or assets, HMRC will expect you to use these to reduce your debt as much as possible.

* For businesses that pay their VAT monthly or quarterly, the deadline for both submitting a return and paying the VAT owing is usually one calendar month plus seven days after the VAT period has ended

VAT payment deadline calculator here.

VAT: How long do I have to keep records?

By   26 June 2023
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Time limits for keeping records

Record keeping is a rather dry subject, but it is important not to destroy records which HMRC may later insist on seeing! I have looked at what VAT records a business is required to keep here, but how long must they be kept for?

This is seemingly a straightforward question, but as is usual with VAT there are some ifs and buts.

The basic starting point

The usual answer is that VAT records must be kept for six years. However, there are circumstances where that limit is extended and also times when it may be reduced. Although the basic limit is six years, unless fraud is suspected, HMRC can only go back four years to issue assessments, penalties and interest.

Variations to the six year rule

One Stop Shop (OSS)

If a business is required to use the OSS then its records must be retained for ten years (and they should be able to be sent to HMRC electronically if asked).

Capital Goods Scheme (CGS)

If a business has assets covered by the CGS, eg; certain property, computers, aircraft and ships then adjustments will be required up to a ten year period. Consequently, records will have to be retained for at least ten years in order to demonstrate that the scheme has been applied correctly.

Land and buildings 

In the case of land and buildings you might need to keep documents for 20 years. We advise that records are kept this long in any event as land and buildings tend to be high value and complex from a VAT perspective, However, it is necessary in connection with the option to tax as it is possible to revoke an option after 20 years.

Transfer Of a Going Concern (TOGC)

This is more of a ‘who” rather than a what or a how long. When a business is sold as a going concern, in most circumstances the seller of the business will retain the business records. When this happens, the seller must make available to the buyer any information the buyer needs to comply with his VAT obligations. However, in cases where the buyer takes on the seller’s VAT registration number, the seller must transfer all of the VAT the records to the buyer unless there is an agreement with HMRC for the seller to retain the records. If necessary, HMRC may disclose to the buyer information it holds on the transferred business. HMRC do this to allow the buyer to meet his legal obligations. But HMRC will always consult the seller first, to ensure that it does not disclose confidential information.

How can a business cut the time limits for record keeping?

It is possible to write to HMRC and request a concession to the usual time limits. HMRC generally treat such a request sympathetically, but will not grant a concession automatically. If a concession is granted there is still a minimum allowance period of preservation which is in line with a business’ commercial practice.

Computer produced records

Where records are stored in an electronic form, a business must be able to ensure the records’ integrity, eg; that the data has not changed, and the legibility throughout the required storage period. If the integrity and legibility of the stored electronic records depends on a specific technology, then the original technology or an equivalent that provides backwards compatibility for the whole of the required storage period must also be retained. 

How to keep records

HMRC state that  VAT records may be kept on paper, electronically or as part of a software program (eg; bookkeeping software). All records must be accurate, complete and readable.

Penalties

If a business’ records are inadequate it may have to pay a record-keeping penalty. If at an inspection HMRC find that records have deliberately been destroyed your they will apply a penalty of £3,000 (this may be reduced to £1,500 if only some of the records are destroyed). In addition, there will be questions about why they have been destroyed!

VAT: Mind the gap – HMRC latest figures

By   23 June 2023
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GOV.UK has published details of the most recent measurement of the tax gap for 2021-2022.

What is the tax gap?

The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.

The figures

The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £35.8 billion in absolute terms, in the 2021 to 2022 tax year.

Total theoretical tax liabilities for the year were £739.3 billion.

There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.5% in the tax year 2005 to 2006 to 4.8% in 2021 to 2022 – remaining low and stable between the years 2017 to 2018 and 2021 to 2022.

Criminal activity and evasion accounted for £4.1billion loss in tax collected.

30% of all underpayments of tax were due to a failure to take reasonable care, while 13% of instances were down to evasion.

A massive 56% of the tax gap is made up by small businesses (up from 40% of the total in 2017-18). Whether this is down to HMRC improving collection from large businesses or an increasing failure to crack down on small business is a moot point. It remains to be seen how HMRC react to this new information, but experience insists that small businesses may expect increased attention for the authorities.

The VAT gap

VAT represents 21% of the overall tax gap.

The VAT tax gap is 5.4%.

The absolute VAT gap is £7.6 billion.

The VAT gap has reduced from 14.0% of theoretical VAT liability in 2005 to 2006 to 5.4% in 2021 to 2022.

More than two thirds of the theoretical VAT liability was estimated to be from household consumption. The remainder came from the expenditure by businesses that supply goods and services where the VAT is non-recoverable (they are exempt from VAT), and from the government and housing sectors.

Information on the method used to estimate the VAT gap is here for those interested (I don’t imagine that there will be that many…).

So, £7.6 millions of VAT is missing. That seems an awful lot.

VAT refunds guidance

By   13 June 2023
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VAT Claims

HMRC has completely rewritten its manual VRM7000 on VAT repayments and set-off.

When a business makes a claim for VAT (for whatever reason) HMRC have the power to set-off a payment against other amounts due.

HMRC also has a discretion to take account of any taxpayer liabilities in other regimes HMRC administers such as corporation tax or excise duty.

In summary, the new guidance covers:

  • Inherent set-off via The VAT General Regulations 1995, Section 80(2A) and Regulation 29. This is where, say, a supply was incorrectly treated as standard rated when it was exempt. It would not be possible to claim the overcharged output tax (subject to unjust enrichment) without recognising the potential overclaim of input tax as a result of partial exemption.
  • Set-off under The VAT Gen Regs 1995, Section 81(3) HMRC. This covers HMRC liability to only pay a claim after setting off any VAT, penalties, interest or surcharge owed to it. Section 81(3) is mandatory and applies to the current liabilities of a taxpayer, regardless of the period incurred.
  • Set-off under section 81(3A). This is a special provision which requires HMRC to set any liabilities that would otherwise be out-of-time to assess, against any amounts for which HMRC is liable under a claim. It does this by disregarding the assessment time limit, to undo all the consequences of a mistake.
  • VAT group set-offs. When a company leaves a VAT group, it is still jointly and severally liable under section 43(1) VAT Act 1994 for any outstanding debts of the group incurred while the company was a member. Any VAT claim by the ex-member will be subject to set-off against these group debts.
  • Set-offs against other taxes and duties. HMRC has the discretion under Section 130 of the Finance Act 2008 to set-off debts due from any other tax regimes HMRC is responsible for. This is subject to the insolvency rules in section 131 Finance Act 2008. A taxpayer should always check that no further liabilities have arisen since the claim was made.
  • Transfers of rights to claim to another person (Section 133 of the Finance Act 2008) – A claim will be subject to set-off of any outstanding liabilities to HMRC from both transferor and transferee. NB: HMRC policy is to make reasonable efforts to recover outstanding debts from the original creditor before applying set-off to the current creditors claim.

Updated Notice 700 – The VAT guide

By   12 June 2023
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HMRC updated Notice 700 on 9 June 2023.

Changes

VAT MOSS references to credit notes for supplies of digital services, the annual accounting scheme, and monthly tax periods have been removed.

Updates also reflect the introduction of VAT late submission and late payment penalties, as well as the new interest regime in paragraphs 2.7, 19.9, 21.1, 21.2.1, 21.6, 27.1 and 28.

VAT: Updated Fuel & Power Notice 701/19

By   16 May 2023
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HMRC has updated this Notice to reflect the new de minimis limits (para 6.1.1).

 

VAT agents and advisers – Updated HMRC standards

By   16 May 2023
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HMRC has published updated standards for agents and advisers. It sets out HMRC’s expectations of tax agents. Tax agents are agents and advisers, who are acting professionally in relation to the tax affairs of others. This includes third party agents and advisers, whether acting in respect of UK or offshore tax affairs, and to all dealings they have with HMRC. Most agents are members of professional regulatory bodies that publish and endorse standards for behaviour. All the directors and staff of Marcus Ward Consultancy who provide professional advice are members of CIOT and/or ATT and are covered by their principles and ethics. Our approach to tax planning is set out here and is summarised below.

Summary

HMRC’s standard for dealing with agents: HMRC states that it wants to provide agents with a service that is fair, accurate and based on mutual trust and respect.

What HMRC expects from agents

  • Integrity
  • Professional competence and due care
  • Professional behaviour
  • Standards for tax planning – tax planning must
    • be lawful
    • be disclosed and transparent
    • agents must not create, encourage or promote tax planning arrangements or structures that:
      • set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation
      • are highly artificial or highly contrived and seek to exploit shortcomings in the relevant legislation
  • HMRC will monitor agent standards

Agents who do not follow the standard are considered to be in breach of it. HMRC has a range of different approaches, policies and powers to deal with breaches of the standard. For more information, HMRC has published a review of its powers to uphold its standard for agents.

Our approach to planning and HMRC

Marcus Ward Consultancy Ltd does not market, advise on, or advocate aggressive schemes. The company provides bespoke solutions to an individual business and does not believe in “one size fits all” mass-marketed schemes.  We will always work within the law and the spirit of the law.  We operate a full disclosure policy and may refuse to work with you if you do not subscribe to this attitude.  We will, on occasion, cross swords with HMRC if we believe we are correct and that HMRC is being unreasonable and we will fight to uphold our clients’ rights against any unfair accusations.