Category Archives: International

VAT: ‘Intention’ – The Euro Beer case

By   7 October 2019
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Latest from the courts, the Euro Beer Distribution Ltd First Tier Tribunal (FTT) case.

The intention of a taxpayer is extremely important for a number of reasons. It is relevant where:

  • a VAT registration is requested
  • input tax is claimed
  • and in this case; whether deregistration is compulsory

Broadly, immediate action is dependent upon whether a business intends to make taxable supplies in the future. This intention dictates whether registration is possible, whether input tax may be claimed, and whether a business may remain VAT registered. Even if a business has the intention to make taxable supplies, it is sometimes difficult to evidence this to HMRC’s satisfaction.

Background

Euro Beer was in the business of importing and selling alcoholic drinks. It had been in business since 2004 and was also approved and registered as an owner of duty suspended goods under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999.

Technical

HMRC compulsorily deregistered Euro Beer via VAT Act 1994, Schedule 1, para 13 (2) on the grounds that it believed that the appellant had ceased making taxable supplies. Nil returns had been submitted since 2016 and, after enquires, formed the view that there was no intention to make supplies in the future.

Euro Beer contended, unsurprisingly, that there was an intention to make taxable supplies in the future such that continued VAT registration was appropriate. Additionally, the reason for the nil returns was simply, at that time, business had dried up. The appellant provided limited evidence to support its intention. This comprised; emails between the directors and third-party contacts.

Decision

The appeal was dismissed and Euro Beer’s VAT deregistration (and revocation of approval from the Warehousekeepers and Owners of Warehoused Goods Regulations 1999) was confirmed as appropriate.

Commentary

This was hardly a surprising decision and one wonders why it got to court. It does, however, emphasise the importance of the concept of intention. This can be a subjective matter and HMRC place significant weight on documentary evidence. There is no question in law that HMRC must register/maintain registration/repay input tax if it is satisfied that there is a business which does not make taxable supplies but ‘intends to make such supplies in the course or furtherance of that business’ – VAT Act 1994, Schedule 1, para 9 (b). However, ensuring HMRC is satisfied is often problematic.

This is specifically difficult in the area of land and property. VAT registration and the associated input tax claims of a property developer is often the source of disputes. It is important to differentiate between an intention, and what actually happens. Often business plans change, or the original intention is not fulfilled. In such cases, there is a mechanism for repaying input tax claimed (VAT Gen regs 1995 reg 108) but this is only applicable in certain circumstances. The case of Merseyside Cablevision Ltd (MAN/85/327, VTD 2419) demonstrates that if an intention to make taxable supplies is thwarted, input tax claimed is not clawed back (a person who carries on activities which are preparatory to the carrying on of a business is to be treated as in business and is a taxable person).

It should be noted that a business does not have to specify a date by which it expects to make taxable supplies, or to estimate the value of them.

The lesson is; to document every business decision made:

  • board minutes, emails, business plans, letters etc
  • retain all correspondence with; third-parties
  • provide written advice from legal advisers, accounts etc
  • invoices demonstrating expenditure in respect of a new venture are persuasive
  • budgets and considered estimates can be of use
  • retain all advertising media, offers, promotions and other publicity.

Clearly for land and property additional; planning permission, land registry details, plans, surveys, fees, etc will build up a picture that there is an intention to make taxable supplies.

These are just examples and different business may have alternative evidence.

In commercial terms, it will be difficult for HMRC to be unsatisfied if a business is incurring costs in relation to a project – why would they devote time/staff/advisers/financial resources to something when there is no intention of deriving income?

One final point on the Euro Beer case. The judge stated; ‘an intention to make supplies requires more than a mere hope to be in a position to make supplies at some unspecified time in the future’. It is not enough for a business to ‘generally’ state that there is an intention.

Claiming VAT from the EU after Brexit

By   1 October 2019
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More work, confusion and administration for VAT after Brexit. 

After a No-Deal Brexit it will not be possible to recover input tax incurred in other EU Member States by using HMRC’s online service. This is known as; the electronic cross-border refund system which enables a business that incurs VAT on expenditure in a Member State where it is not established and makes no supplies, to recover that VAT directly from that Member State (the Member State of refund).

HMRC state that this will be the case after 5pm on 31 October 2019, but we shall have to wait and see on the precise timing.

HMRC has published meagre guidance on the new method of recovering overseas VAT (for some of us at a certain age, it is the “old” EC 8th Directive method).

Claiming a refund after Brexit

Unhelpfully, each EU Member State has its own process for refunding VAT to businesses based outside the EU (as UK businesses will be post Brexit). This is similar to the existing EC 13th Directive claims. A UK Business will need to use the process for the EU country where it is claiming a refund; even for unclaimed expenses incurred before Brexit.

A business will have to wade through the requirements and the EC provides assistance here.

This will be a complete headache for claimants and underlines the benefits of a harmonised system. Each claim form is different in each Member State, each form must be completed in the language of the country in which VAT is being claimed, and these forms are very bureaucratic; some run to over ten pages…. It will also be necessary to obtain and provide a Certificate of Status (CoS).

In summary

CoS

HMRC can issue a form VAT66A which may be used by claimants to prove that they are engaged in business activities at the time of the claim. A CoS is only valid for twelve months. Once it has expired you will need to submit a new CoS.

EC 13th Directive claim

A non-EU based business may make a claim for recovery of VAT incurred in the EU. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, imports of goods, training, purchases of goods in the UK, and clinical trials etc.

The scheme is available for any businesses that are not VAT registered anywhere in the EU, have no place of business or other residence in the EU and do not make any supplies there.

The usual rules that apply to UK business claiming input tax also apply to 13th Directive claims. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.

Process

The business must obtain a CoS to accompany a claim. The application form is a VAT65A and is available here  Original invoices which show the VAT charged must be submitted with the claim form and business certificate. Applications without a certificate, or certificates and claim forms received after the relevant deadline are not accepted. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.

VAT: Digital services to EU customers after Brexit

By   1 October 2019
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HMRC has published guidance on how to account for digital sales to EU customers when the UK’s MOSS system becomes redundant. Full document here.

After Brexit, businesses will no longer be able to use the Mini One Stop Shop (MOSS) to declare sales and pay VAT due in EU Member States.

The final return period for MOSS will be the period ending 31 December 2019.

A business will be able to use MOSS to:

  • submit a final return by 20 January 2020
  • amend the final return until 14 February 2020
  • update registration details until 14 February 2020
  • view previous returns

For sales made after Brexit, a business will need to register for either:

  • VAT MOSS in any EU member state
  • VAT in each EU member state where you sell digital services to consumers.

Registration deadline

A business will need to register by the 10th day of the month following its first sale to an EU customer after Brexit.

A business cannot register before Brexit.

The EC website may be used to:

  • check whether a business should register for Union or Non-Union MOSS
  • find out who to contact to register for VAT MOSS in an EU member state.

Further details are provided in the HMRC guidance.

The above assumes that the UK will leave the EU, and that there will be no agreements on VAT before Brexit

What are digital services?

Radio and television broadcasting services

These include:

  • the supply of audio and audio-visual content
  • live streaming

Telecommunications services

This means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes:

  • fixed and mobile telephone services
  • Voice over Internet Protocol (VoIP)
  • voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
  • paging services
  • access to the internet

Electronically supplied services

These rules only apply to e-services that you supply electronically and includes things like:

  • supplies of images or text, such as photos, screensavers
  • supplies of music, films and games
  • online magazines
  • website supply or web hosting services
  • distance maintenance of programmes and equipment
  • supplies of software and software updates
  • advertising space on a website

Tax – Why do people pay it?

By   16 September 2019
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This seems a rather pointless question to ask, and I suspect many people will reply “because we have to”. But is it as simple as that?

An Organisation for Economic Co-operation and Development (OECD) report this month looks at the willingness of individuals and businesses to voluntarily pay tax and how it can be improved through better understanding of the complex interlinkages between enforcement, trust in government and the ease of compliance.

The report called ‘Tax Morale: What Drives People and Businesses to Pay Tax?‘ is interesting to read for tax advisers and taxpayers alike. It considers the drivers behind compliance with tax obligations and focuses on developing countries where compliance rates are low.

Many developing countries face a range of challenges in increasing revenue domestically. These challenges include:

  • a small tax base
  • a large informal sector
  • weak governance and administrative capacity
  • low per capita income
  • low levels of domestic savings and investment
  • tax avoidance and evasion by firms and elites.

As a result, two-thirds of least developed countries still struggle to raise taxes equivalent to more than 15% of GDP, the widely accepted minimum to enable an effective state. In comparison, OECD member countries raise taxes, on average, close to 35% of GDP.

Apparently, compliance is not determined solely by tax rates or the threat of penalties, but rather by a wide range of socio-economic and institutional factors that vary across regions and populations.

Improving tax morale can contribute to efforts to overhaul the international tax rules and improve compliance by multinational enterprises and it may also improve the efforts to counter banking secrecy and tax evasion.

Tax morale is composed of several, interlinked, elements. A theory set out in the report posits that trust is driven by the degree to which the tax system, including the approach to facilitation and enforcement, is characterised as:

  • fair
  • equitable
  • reciprocal
  • accountable

As such, strengthening tax compliance is not only about improving tax enforcement and enforced compliance, but also about pursuing “quasi-voluntary compliance” through building trust and facilitating payments.

Why is this important?

The report states that a better understanding of what motivates taxpayers to participate in, and comply with, a tax system is valuable for all countries and stakeholders. Tax administrations can benefit from increased compliance and higher revenues, taxpayers (both businesses and individuals) are better served by tax systems that understand and are responsive to their needs, while increased data and discussion can help researchers deepen their understanding.

So…

In terms of VAT, what are our experiences of HMRC? Is it fair, equitable, reciprocal and accountable? Having discussed this at most client meetings where businesses have been challenged, and my experience in the department and advising businesses is: It used to be a lot better, there was a feeling that they were “trying to get things right”, however, this sense has been declining and trust is increasingly and rapidly being lost. Is this nostalgia, or does HMRC increasingly rely on bullying, ignoring contentions, misunderstanding or misapplying legislation or not being concerned with taxpayers?

All I would say here is that the fact that HMRC can issue a written ruling, but then go back on it if it suits them, is hardly fair or equitable. See here – no more “Sheldon Statement” protection for taxpayers.

VAT EU Gap Report

By   5 September 2019
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Mind the gap

EU countries lost €137 billion in VAT revenues in 2017 according to a study released by the EC on 5 September 2019. The VAT Gap has slightly reduced compared to previous years but remains very high.

This gap represents a loss of 11.2% of the total expected VAT revenue.

During 2017, collected VAT revenues increased at a faster rate of 4.1% than the 2.8% increase of VAT Total Tax Liability (VTTL). As a result, the overall VAT Gap in the EU Member States saw a decrease in absolute values of about EUR 8 billion or 11.2% in percentage terms.

Member States in the EU are losing billions of Euros in VAT revenues because of tax fraud and inadequate tax collection systems according to the latest report. The VAT Gap, which is the difference between expected VAT revenues and VAT actually collected, provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.

In 2017, Member States’ VAT Gaps ranged from 0.6% in Cyprus, 0.7% in Luxembourg, and 1.5% in Sweden to 35.5% in Romania and 33.6% in Greece. Half of EU-28 MS recorded a Gap above 10.1%.

Overall, the VAT Gap as percentage of the VTTL decreased in 25 Member States, with the largest improvements noted in Malta, Poland, and Cyprus and increased in three – namely Greece, Latvia, and Germany.

The variations of VAT Gaps between the Member States reflect the existing differences in terms of; tax compliance, fraud, avoidance, bankruptcies, insolvencies and tax administration.  Other circumstances could also have an impact on the size of the VAT Gap such as economic developments and the quality of national statistics.

The UK

In the year 2017, in the UK the VTTL was £158421 millions of which £141590 millions was actually collected. This leaves a VAT gap for the UK of £16831 millions which represents 11% of the amount which is estimated was due to HMRC. About a mid-table performance compared to other Member States.

VAT and Customs Duty: Brexit latest

By   20 August 2019
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HMRC has been issuing guidance in readiness for Brexit, and in particular, a No Deal Brexit.

They generally provide information on preparations and actions required by business that trade cross-border.

Imports

If a business bring goods into the UK from the EU there are actions you should take before and after you’ve imported the goods. This applies to:

  • importers
  • freight forwarders
  • fast parcel operators
  • customs agents
  • traders who move their own goods

(This guidance does not apply to moving goods between Ireland and Northern Ireland). A border on the island of Ireland is a whole other matter.

The full guidance for importers.

Exports

Again, this guidance relates to:

  • exporters
  • freight forwarders
  • fast parcel operators
  • customs agents
  • traders who move their own goods.

The full guidance for exporters.

Email updates on Brexit

We recommend that business falling within the above definitions sign up the free HMRC Brexit email alert service.

This service covers: information about Brexit including the Article 50 process, negotiations, and announcements about policy changes as a result of Brexit.

It is crucial that businesses understand the impact of a No Deal Brexit and make preparations for all eventualities of the political negotiations. Sign up here

VAT: Brexit – Retail Export Scheme benefits

By   2 August 2019
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VAT free shopping for all! Save 20% on anything you buy!

This seems very unlikely I hear you mutter, but, but…..

If you live in the UK after a No Deal Brexit, there is a simple way of never paying VAT on any retail purchases for your own use. From a piano to a gymnasium, from a teapot to a lawnmower – all may be purchased completely VAT free and legally. It does not appear that the Government has considered this, it certainly does not feature in the recent report on the “Alternative Arrangements”. This is especially relevant to the Northern Ireland/Republic of Ireland land border. It may be that if we believe hard enough in Brexit we can avoid UK residents not paying UK VAT…

So how will this fabulous shopping opportunity come into being?

There is an EU-wide system (set out at Article 131 of The Principle VAT Directive) which provides for the recovery of VAT incurred by individuals from outside the EU. Clearly, after a No-Deal Brexit, that will be anyone in the UK. This is called the Retail Export Scheme (RES). After a hard Brexit, any goods moving from an EU Member State into the UK will now be classed as exports (pre-Brexit there is free movement of goods within the EU, so there would be no exports when goods move cross-border within the EU).

How does RES work?

When an individual buys goods in an EU Member State and exports them for his/her personal use, the retailer will charge VAT at the rate applicable in that country. The shop will also issue a certain document. This document is stamped when the goods are physically exported buy the buyer and the customer returns the form to the retailer. It is a quite painless procedure. When this evidence that the goods have been exported is received by the retailer, it will refund the VAT paid – The result = VAT free shopping. Also, the scheme has no minimum sales value. 

And after Brexit?

The UK has said its 2017 Customs Bill that VAT will not be charged on personal imports. This is effectively inviting tax free cross-border shopping and consequently, logically, reducing retails sales in the UK. I am sure that that is not what the Government had in mind. It is likely that there could be wide scale use of RES. After all, what is a bit of paperwork and a short drive to save 20%?! This is even before one considers the abuse of the arrangements, which, with the obvious financial benefits, could be significant. A day trip to mainland Europe will be very inviting, and then, there is our land border…

Some politics…

The Irish border

Clearly, the most relevant issue is the Irish border. Regardless of the political noises, there will be a “difference” between EU and “third country” (which the UK will be after a No Deal Brexit) rules between the two countries. These differences facilitate the use of the RES. There is nothing in any proposals which will prevent cross-border shopping on the island of Ireland. I can imagine retailers in Dublin rubbing their hands together while those in Belfast gloomily survey empty shops. Perhaps new retailers will pop up on the Irish side of the EU/UK divide to make matters even more helpful for bargain hunting shoppers from the UK. Another issue which I doubt the UK has considered is that if there is no border (which we are told by the Government will happen even though a No-Deal Brexit will definitively and specifically not permit this) there will be nobody to stamp the forms. I won’t get into the politics of the Good Friday Agreement (GFA) and a No Deal Brexit, but it seems almost certain that there will have to be a deal with the EU to ensure there is no border, OR the UK must renege on the GFA which could bring terrifying consequences to peace in the area, amongst a lot of other issues. What a mess.

Importance of a border with the EU

No two countries outside of the EU have ever removed border checks between themselves. They try to streamline checks where possible, as everybody wants smooth trade, but always retain border checks. Why? Simply, for goods trade, a border post is the only place where you can guarantee to have the vehicle, the items definitely being transported, and all relevant paperwork in one place. You can and do make other checks, but the border is at the core. One of the reasons for the EU legal and regulatory framework is to be able to trust that goods trade between members can take place without border checks. This means common tariffs, common rules, and legal redress. Without being a part of the regulations, there can be no such trust and a hard border is necessary.

Unsurprisingly, there have been no studies on the cost to UK retailers, and apparently, no recognition whatsoever, that this could be a serious issue. Given the political issues with the Irish border, and the serious consequences of going against the GFA, this is another issue which has been either; overlooked, dismissed, politically ignored, or relegated to the bottom of a list of so many issues caused by an ill-considered No Deal Brexit.

What the government has continually, apparently deliberately, failed to recognise is that there is no fudge that provides both freedom from EU rules and frictionless trade with a No Deal Brexit. There is no current way to reconcile Northern Ireland remaining aligned with the UK, Ireland staying fully in the EU, pure Brexit, and no border checks. Tax is simply one area in the commercial world which has been ignored, for political reasons. VAT is just one area of tax, and the RES is just one area of VAT.

VAT – A beginner’s practical guide

By   2 August 2019
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I am often asked if there is a VAT beginner’s guide, I find HMRC guidance generally unhelpful for someone without a tax background, so, here is all the basic information you may need in one place.

 What is VAT?

Value Added Tax (VAT) is a tax charged on most business transactions made in the UK. It is charged on goods and services and is an ad valorem tax, which means it is proportionate to the value of the supply made.

All goods and services that are VAT rated (at any rate including zero) are called “taxable supplies”. VAT must be charged on taxable supplies from the date a business first needs to be registered. The value of these supplies is called the “taxable turnover”.

Exempt items

VAT does not apply to certain services because the law says these are exempt from VAT. These include some; financial services, property transactions, insurance education and healthcare. Supplies that are exempt from VAT do not form part of the taxable turnover.

The VAT rates

There are currently three rates of VAT in the UK:

  • 20% (standard rate) – Most items are standard rate unless they are specifically included in the lower rate categories.
  • 5% (reduced rate) – this applies to applies to certain items such as domestic fuel and power, installation of energy-saving materials, sanitary hygiene products and children’s car seats.
  • 0% (zero rate) – applies to specified items such as food, books and newspapers, children’s clothing, new houses and public transport.

VAT registration

A business is required to register for, and charge VAT, if:

  • the taxable turnover reaches or is likely to reach a set limit, known as the VAT registration threshold
  • a VAT registered business has been acquired as a going concern (TOGC)
  • potentially; goods or services have been purchased VAT free from non-UK countries (a self-supply)

Registration limit

The current VAT registration threshold is £85,000. If at the end of any month the value of taxable supplies made in the past twelve months is more than this figure a business MUST VAT register.  A business can opt to register for VAT if its taxable turnover is less than this. Please note that taxable turnover is the amount of income received by a business and not just profit. If a business does not register at the correct time it will be fined.

Additionally, if, at any time there are reasonable grounds to expect that the value of the taxable supplies will be more than the threshold in the next thirty days alone a business must register immediately.

What are the exceptions?

VAT is not chargeable on:

  • taxable supplies made by a business which is not, and is not required to be, registered for VAT
  • zero rated supplies
  • supplies deemed to be made outside the UK
  • exempt supplies

What if a business only makes exempt or zero-rated supplies?

Exempt

If a business only makes exempt supplies, it cannot be registered for VAT. If a business is registered for VAT and makes some exempt supplies, it may not be able to reclaim all of its input tax.

Zero rated

If a business only supplies goods or services which are zero-rated, it does not have to register for VAT, but, it may do so if it chooses.

What is input tax and output tax?

Input tax is the VAT a business pays to its suppliers for goods and services. It is VAT on goods or services coming into a business. In most cases, input tax is the VAT that registered businesses can reclaim (offset against output tax).

Output tax is the term used to describe the VAT charged on a business’ sales of goods or services. Output tax is the VAT a business collects from its customers on each sale it makes.

A full guide to VAT jargon here

Is there anything that will make VAT simpler for a small business?

There are a number of simplified arrangements to make VAT accounting easier for small businesses. These are:

  • Cash Accounting Scheme
  • Annual Accounting Scheme
  • Flat Rate Scheme
  • Margin schemes for second-hand goods
  • Global Accounting
  • VAT schemes for retailers
  • Tour Operators’ Margin Scheme
  • Bad Debt Relief

Details may be found here and here and here.

VAT calculation

  • A business adds VAT to the value of sales it makes to other businesses or customers
  • The VAT amount is reached by multiplying the sale amount by the VAT rate percentage, then adding that to the value of the sale.
  • The total of the VAT on sales for a VAT period is output tax
  • For a VAT period, a business will total all VAT it has been charged by suppliers (eg stock, repairs, rent, and general business expenses etc) – this is input tax.
  • On the VAT return for the period, the amount payable or reclaimable to HMRC is the output tax less input tax.

Records

A business must keep complete, up-to-date records that enable it to calculate the correct amount of VAT to declare on its returns. VAT records must be kept for at least six years, because a business will need to show them to HMRC when asked.

It is acceptable for ordinary business records to be the basis for VAT accounts. A business will need records of sales and purchases (and any adjustments such as credit notes) including details of how much VAT the business charged or paid. If trading internationally, records of imports and exports/dispatches and acquisitions with all overseas territories, including the EU must be recorded. VAT records must show details of any supplies a business has given away or taken for personal use.

VAT records must also include all invoices you have received and issued. Invoice requirements here

Records will also need to include a VAT account, showing how total input tax and output tax has been calculated to include in your VAT returns.

It is vital to ensure that the VAT records are accurate. Failure to do so can lead to significant tax penalties

MTD

For certain business, the new MTD rules apply and certain software must be used. Details here

Time of supply (tax point)

It is important to establish the time VAT is due. Full details here

VAT returns

A VAT registered business must submit returns on a regular basis (usually quarterly or monthly). A VAT return summarises a business’ sales and purchases and the VAT relating to them. All the information a business requires must be in its VAT records, specifically a VAT account.

Return requirements include:

  • sales total (excluding VAT)
  • output tax – this also includes VAT due on any other taxable transactions, eg; barters, non-monetary consideration, goods taken for personal use
  • value of purchases (excluding VAT)
  • input tax claimable
  • total of VAT payable/claimable
  • summary of trade with other EU Member States

Online VAT returns are due one month and seven days after the end of the VAT period. Payment of any VAT owed is due at the same time, although HMRC will collect direct debit payments three days later.

I have to charge myself VAT?!

By   9 July 2019
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How comes?!

Well, normally, the supplier is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. Don’t get caught out!

Here are just some of the situations when you have to charge yourself VAT:

Purchasing services from abroad

These will be obtained free of VAT from an overseas supplier. What is known as the ‘reverse charge’ procedure must be applied. Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must account for output tax, calculated on the full value of the supply received, and (subject to partial exemption and non-business rules) include the VAT charged as input tax. The effect of the provisions is that the reverse charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus creating a level playing field between purchasing from the UK and overseas.

Accounting for VAT and recovery of input tax.
Where the reverse charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services.  On the same VAT return, the recipient must
      1. account for output tax, calculated on the full value of the supply received, in Box 1;
      2. (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
      3. include the full value of the supply in both Boxes 6 and 7.
Value of supply: The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration.  The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply: The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

Purchasing goods from another EU Member States

Something similar to reverse charge; called acquisition tax, applies to goods purchased from other EC Member States. These are known as acquisitions (they are imports if the goods come from outside the EU and different rules apply). The full value of the goods is subject to output tax and the associated input tax may be recovered by the business acquiring if the goods are used for taxable purposes. If you are not already registered for VAT in the UK and acquire goods worth £85,000 or more in the UK from other EC countries, you will have to register for VAT in the UK on the strength of the value of the acquisition tax. A business will also have to complete an Intrastat Supplementary Declaration (SDs) if its acquisitions of goods from the EC exceed an annual amount – currently £1.5 million.

Intrastat_flow_diagramMore details on Intrastat Supplementary Declarations here

Deregistration

Any goods on hand at deregistration with a total value of over £1,000 on which input tax has been claimed are subject to a self supply. This is a similar mechanism to a reverse charge in that the goods are deemed to be supplied to the business by the business and output tax is due. However, in these circumstances it is not possible to recover any input tax on the self supply.

Flat Rate Scheme

There is a self supply of capital items on which input tax has been claimed when a business leaves the flat rate scheme (and remains VAT registered).

Mobile telephones

In order to counter missing trader intra-community fraud (‘MTIC’), supplies of mobile telephones and computer chips which are made by one VAT registered business to another and valued at £5,000 and over are subject to the reverse charge. This means that the purchaser rather than the seller is responsible for accounting for VAT due.

And not forgetting the new domestic reverse charge for building and construction here.

Land and buildings…. and motor cars

There are certain circumstances where land and buildings must be treated as a self supply… but that is a whole new subject in itself… as is supplies in the motor trade.

Even if the result of a self-supply or reverse charge is VAT neutral HMRC is within its rights to assess and levy penalties and interest in cases where the charge has not been applied; which always seems unfair.  However, more often than not simple accounting entries will deal with the matter…. if the circumstances are recognised and it is remembered to actually make the entries!

VAT: Brexit – Intending Trader registration for overseas businesses

By   14 June 2019
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With the continuing uncertainty over a No-Deal Brexit, which appears to be a more likely prospect given recent political events, HMRC has made a statement on the process of registering non-UK EU businesses as intending traders in the UK.

Background

What is an intending trader?

An intending trader is a person who, on the date of the registration request:

  • is carrying on a business
  • has not started making taxable supplies
  • has an intention to make taxable supplies in the future

If the business satisfies HMRC of its intention, HMRC must VAT register it. VAT Act 1994, Schedule 1, 9 (b). It is, in some cases, difficult to convince that there is a genuine intention to make taxable supplies. This often comes down to documentary evidence.

Why do overseas businesses need to register as intending traders?

In the event of a No-deal Brexit, it is assumed that the EU VAT simplification that relieves the current obligation to be registered in the UK will no longer available. As a consequence, the EU supplier will itself become responsible for accounting for VAT on sales deemed to be made in the UK. In order to do this, the business will require a UK VAT registration. As the simplification is in place until Brexit, the registration will be required the very day after the UK leaves the EU – currently 1 November 2019.

Therefore, many EU businesses have applied for UK VAT registration as intending traders. That is, they do not currently make supplies, but intend to in the future (from 1 November 2109).

The issue

The Chartered Institute of Taxation has reported that businesses applying for intending trader registrations are experiencing difficulties with the process.

In response, HMRC have stated:

“Businesses in the position you have described can register for VAT using the Advanced Notification facility, by registering online requesting a voluntary registration from an advanced date of 1 November 2019. In the ‘business activity’ section they should enter trade class/SIC code 99000 European Community. In the free text box they should describe accurately what the business does and ensure there is a positive amount entered in the ‘taxable turnover in the next 12 months’ box. If this is not done the application will be rejected. This information will enable the VAT Registration Team (VRT) to identify and actively manage any registration that is conditional on the UK leaving the EU without a deal.

If there is a change to the date of withdrawal from the EU, the VRT will amend the Advanced Notification date to match this new date. If the UK enters a transitional period or agrees a deal with the EU that allows current arrangements to continue then the registration will be cancelled. The approval of an Advanced Notification registration in these circumstances is only made as a contingency for the UK leaving the EU without a deal and the VAT number may not be used unless that happens. The business will receive an automated notification of an Advanced Notification VAT Registration and the VRT may follow this up with a manual letter to further explain the conditions and both.

With the UK having agreed an extension to the date of withdrawal from the EU, we would not expect businesses to use this facility until closer to the 1st November.”

It is clearly prudent for overseas businesses which make certain supplies in the UK to properly prepare for a No-Deal Brexit. However, experience insists that many have not identified or made provisions for this outcome.

We are able to assist and advise other EU Member State businesses on this process.