Category Archives: Planning

VAT – Apportionment issues: Complex and costly

By   16 February 2021
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The dictionary definition of the verb to apportion is “to distribute or allocate proportionally; divide and assign according to some rule of proportional distribution”. 

So why is apportionment important in the world of VAT and where would a business encounter the need to apportion? I thought that it might be useful to take an overall look at the subject as it is one of, if not the most, contentious areas of VAT. If affects both output tax declarations and input tax claims, so I have looked at these two areas separately. If an apportionment is inaccurate it will either result in paying too much tax, or risking penalties and additional attention from HMRC; both of which are to be avoided!

The overriding point in all these examples is that any apportionment must be “fair and reasonable”.

Supplies

The following are examples of where a business needs to apportion the value of sales:

  • Retail sales

Retailers find it difficult to account for VAT in the normal way so they use what is known as a retail scheme. There are various schemes but they all provide a formula for calculating VAT on sales at the standard, reduced and zero rate. This is needed for shops that sell goods at different rates, eg; food, clothing and books alongside standard rated supplies.  As an example, in Apportionment Scheme 1 a business works out the value of its purchases for retail sale at different rates of VAT and applies those proportions to its sales.

  • Construction

A good example here is if a developer employs a contractor to construct a new building which contains retail units on the ground floor with flats above.  The construction of the commercial part is standard rated, but the building of the residential element is zero rated.  The contractor has to apportion his supply between the two VAT rates.  This apportionment could be made with reference to floorspace, costs, value or any other method which provides a fair and reasonable result.  The value of supplies relating to property is often high, so it is important that the apportionment is accurate and not open to challenge from HMRC.  I recommend that agreement on the method used is agreed with HMRC prior to the supply in order to avoid any subsequent issues.

  • Property letting

Let us assume that in the construction example above, when the construction is complete, the developer lets the whole building to a third party. He chooses to opt to tax the property in order to recover the attributable input tax.  The option has no effect on the residential element which will represent an exempt supply. Consequently, an apportionment must be made between the letting income in respect of the shops and flats.

  • Subscriptions

There has been a great deal of case law on whether subscriptions to certain organisations by which the subscriber obtains various benefits represent a single supply at a certain VAT rate, or separate supplies at different rates. A common example is zero rated printed matter with other exempt or standard rated supplies.

  • Take away

Most are familiar with the furore over the “pasty tax” and even with the U-turn, the provision of food/catering is often the subject of disputes over apportionment.  Broadly; the sale of cold food for take away is zero rated and hot food and eat in (catering) is standard rated.  There have been myriad cases on what’s hot and what’s not, what constitutes a premises (for eat in), and how food is “held out” for sale. The recent Subway dispute highlights the subtleties in this area. I have successfully claimed significant amounts of overpaid output tax based on this kind of apportionment and it is always worth reviewing a business’s position.  New products are arriving all the time and circumstances of a business can change.  A word of warning here; HMRC regularly mount covert observation exercises to record the proportion of customers eating in to those taking away.  They also carry out “test eats” so it is crucial that any method used to apportion sales is accurate and supportable.

  • Opticians

Opticians have a difficult time of it with VAT.  Examinations and advice services are exempt healthcare, but the sale of goods; spectacles and contact lenses, is standard rated.  Almost always a customer/patient pays a single amount which covers the services as well as the goods. Apportionment in these cases is very difficult and has been the subject of disagreement and tribunal cases for many years; some of which I have been involved in.  Not only is the sales value apportionment complex, but many opticians are partly exempt which causes additional difficulties. I recommend that all opticians review their VAT position.

Input tax recovery

  • Business/Non-Business (BNB)

If an entity is involved in both business and non-business activities, eg; a charity which provides free advice and also has a shop which sells donated goods. It is unable to recover all of the VAT it incurs.  VAT attributable to non-business activities is not input tax and cannot be reclaimed.  Therefore it is necessary to calculate the quantum of VAT attributable to BNB activities, that VAT which cannot be attributed is called overhead VAT and must be apportioned between BNB activities.  There are many varied ways of doing this as the VAT legislation does not specify any particular method.  Therefore it is important to consider all of the available alternatives. Examples of these are; income, expenditure, time, floorspace, transaction count etc.

  • Partial exemption

Similarly to BNB if a business makes exempt supplies, eg; certain property letting, insurance and financial products, it cannot recover input tax attributable to those exempt supplies (unless the value is de minimis). Overhead input tax needs to be apportioned between taxable and exempt supplies.  The standard method of doing this is to apply the ratio of taxable versus exempt supply values to the overhead tax. However, there are many “special methods” available, but these have to be agreed with HMRC.  Partial exemption is often complex and always results in an actual VAT cost to a business, so it is always worthwhile to review the position regularly.  Exemption is not a relief to a business.

  • Attribution

In both BNB and partial exemption situations before considering overheads all VAT must, as far as possible, be attributed to either taxable or exempt and non-business activities. This in itself is a form of apportionment and it is often not clear how the supply received has been used by a business, that is; of which activity is it a cost component?

  • Business entertainment

At certain events staff may attend along with other guests who are not employed. The recovery of input tax in respect of staff entertainment is recoverable but (generally) entertaining non staff members is blocked. Therefore an apportionment of the VAT incurred on such entertainment is required.

  • Business and private use of an asset

If a company owns, say, a yacht or a helicopter and uses it for a director’s own private use, but it is chartered to third parties when not being used (business use) an apportionment must be made between the two activities. The most usual way of doing this is on a time basis. Apportionment will also be required in the example of a business owning a holiday home used for both business and private purposes. Input tax relating to private (non-business) use is always blocked.

  • Motoring expenses

It is common for a staff member to use a car for both business and private purposes.  Input tax is only recoverable in respect of the business use so an apportionment is required.  This may be done by keeping detailed mileage records, or more simply by applying the Road Fuel Scale Charge which is a set figure per month which represents a disallowance for private use.

The above examples are not exhaustive but I hope they give a flavour to the subject.

If your business apportions, or should apportion, values for either income or expenditure I strongly recommend a review on the method.  There is often no “right answer” for an apportionment and I often find that HMRC impose unnecessarily harsh demands on a taxpayer.  Additionally, many business are unaware of alternatives or are resistant to challenging HMRC even when they have a good case.

VAT: Postponed Accounting

By   9 February 2021
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VAT Basics

A quick look at Postponed Accounting (PA) and what it means for a business after Brexit

Pre-Brexit (if one remembers such halcyon days) acquisitions from other Member States crossed the UK border without any formalities as there was free movement of goods within all of the EU.

Now that GB is a third country, it is unable to take advantage of the benefits of a single market, so acquisitions become imports and are required to be declared when imported. However, gov.uk has announced he return of PA in an attempt to simplify matters.

PA

PA is accounting for import VAT on a VAT return means a business declares and recovers import VAT on the same return, rather than having to pay it upfront and recover it later. This means neutral cash flow; which is to be welcomed.

The normal rules about what VAT can be reclaimed as input tax will apply.

PA also has the advantage that imported goods are not delayed at the entry port while VAT paperwork and payment is completed. Of course, as experience has demonstrated; there may be other reasons for delays to imports and exports.

Who can use PA?

From 1 January 2021, if a business is registered for VAT in the UK, it will be able to account for import VAT on its return for goods it imports into:

  • GB (England, Scotland and Wales) from anywhere outside the UK
  • Northern Ireland from outside the UK and EU

There will be no changes to the treatment of VAT for the movement of goods between Northern Ireland and the EU.

A business does not need approval to account for import VAT on its returns.

How does PA work practically?

VAT is payable on imports of over £135 arriving into the GB from any country in the world, which now includes the EU. Practically, PA is similar to the current Reverse Charge. Output and input VAT is accounted for on the same VAT return.

When completing a customs declaration a business may choose how to account for VAT on its return.

If the Customs Handling of Import and Export Freight (CHIEF) system is used:

On the declaration, the following needs to be entered:

  • the EORI number starting with ‘GB’ which includes the VAT registration number into box 8, or, if applicable, the VAT registration number in box 44h
  • ‘G’ as the method of payment in Box 47e

If the Customs Declaration Service is used:

The VAT registration is entered number at header level in data element 3/40.

Returns

  • Box 1 – Include the VAT due in this period on imports accounted for via PA.
  • Box 4 – Include the VAT reclaimed in this period on imports accounted via PA.
  • Box 7 – Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.

Using someone to import goods on your behalf

If a business uses a third party to import goods on its behalf (eg; a freight forwarder, customs agent, or fast parcel operator) it will need to inform them how it wants to account for VAT on those imports, so that they can complete the customs declaration correctly.

Alternatives

The use of PA is optional. The alternative is to pay VAT on goods when they enter the UK. This means the use of the “usual” C79 certificates sent by HMRC on which input tax may be reclaimed (rather than any other documentation, eg; invoices).

Northern Ireland

Goods moved to NI from the EU are not impots (NI remains part of the EU, so the old rules on acquisitions still apply and no import VAT is due).

Customs Duty

Alongside additional border formalities, Customs Duties may be payable on certain goods. This Duty is not reclaimable like VAT. Most of the complexities of Customs Duty relate to the rules of origin.

Commentary

PA is a relief for businesses importing from the EU. It is a simple system and will be familiar to any business which applies Reverse Charges. With all the varying changes applying post-Brexit, this is one area which should not affect a business importing from the EU in terms of port delays or negative cash flow. To date, there is no evidence on how well the system is working, but anecdotally, I understand that this part of Brexit changes has not thrown up any issues, unlike other problems which have been widely reported. I stand to be corrected though.  

VAT: Bad Debt Relief – The Regency UT case

By   3 February 2021
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Bad Debt Relief (BDR) is a mechanism which goes some way to protect a business from payment defaulters. Under the normal rules of VAT, a supplier is required to account for output tax, even if the supply has not been paid for (however, the use of cash accounting or certain retail schemes removes the problem of VAT on bad debts from the supplier).

The specific relief for unpaid VAT is via the BDR scheme.

Background

In the Regency Factors plc Upper tribunal (UT) case the issue was whether the appellant met the conditions in The VAT General Regulations 1995, Reg 168 for claiming BDR via The VAT Act 1994, section 36.

Regency provides a factoring service to its clients for which it is paid a fee. VAT invoices for those fees were issued to clients when the invoices which are being factored are assigned to Regency for collection.

Regency appealed against a decision of the First-Tier Tribunal (FTT) in which it dismissed Regency’s appeal against VAT assessments made by HMRC to withdraw BDR which Regency had claimed in its VAT returns.

Regency contended that it is entitled to BDR for the VAT element on the fees that were unpaid by its clients. HMRC contended that Regency is not entitled to BDR because the consideration for the supply was received by Regency and there was no bad debt to write off.

Decision

The UT deliberated on when consideration is received for factoring services and accepted that some debts were bad. However, it decided that Regency had not maintained a bad debt account as required for Reg 168. Consequently, HMRC was correct in refusing to pay the BDR claim.

Commentary

As always with VAT, it is important to keep complete and accurate records, as this case demonstrates. Reg 168 states (where relevant):

(2) Save as the Commissioners may otherwise allow, the record referred to in paragraph (1) above shall consist of the following information in respect of each claim made

  (a) in respect of each relevant supply for that claim—

    (i) the amount of VAT chargeable,

    (ii) the prescribed accounting period in which the VAT chargeable was accounted for and paid to the Commissioners,

   (iii) the date and number of any invoice issued in relation thereto or, where there is no such invoice, such information as is necessary to identify the time, nature and purchaser thereof, and

    (iv) any payment received therefore,

      (b) the outstanding amount to which the claim relates,

      (c) the amount of the claim, and

      (d) the prescribed accounting period in which the claim was made.

(3) Any records created in pursuance of this regulation shall be kept in a single account to be known as the “refunds for bad debts account”.

VAT: New gov.uk EORI tool

By   21 January 2021
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Gov.uk has provided a new tool to check a business’ EORI number. (This used to be an EC resource now not available due to Brexit).

A guide to EORI here

A business may need to demonstrate to HMRC that it has carried out proper due diligence in certain cases.

Contact

If you have queries, or would like to obtain specific EORI advice, contact the HMRC EORI team using the online form

Access

Who has access to an EORI number?

The general public can access limited data, When a business is notified of its EORI number, it will be asked whether it objects to this data being published on the site.

VAT: New HMRC guidance for using international post and merchandise in baggage

By   19 January 2021
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HMRC has published two new sets of guidance for international post users and importing merchandise in baggage. The changes are mainly due to Brexit.

International post users

HMRC has published new guidance for international post users.  

The notice explains what happens when a business imports or exports goods by post through Royal Mail or Parcelforce Worldwide.

The arrangements set out in the notice do not apply when a full declaration on a single administrative document (SAD – Form C88) is required.

The information about sending a package overseas has been updated. This relates to the new need to compete a customs declaration for goods sent to the EU.

Bringing commercial goods into Great Britain in baggage

The guidance covers commercial goods (also known as Merchandise in Baggage) which will be used, or sold by a business, where: 

  • a commercial transport operator does not carry them for a business
  • a person has travelled to GB carrying goods either:
    • in accompanied baggage
    • in a small vehicle that can carry up to no more than 9 people and weighing 3.5 tonnes or less

A person must declare all commercial goods. There is no duty-free allowance for goods brought into GB to sell or use in a business.

My guide to importing and exporting post Brexit here.

VAT: Brexit outcomes – retailers

By   19 January 2021
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I been asked many times about the VAT position of UK residents buying goods online (and also by more traditional methods) so I thought a brief overview would be helpful.

It has been reported in the media that some overseas retailers have stopped selling to UK customers. This is a commercial decision and is not necessarily solely due to Brexit (although, clearly that hasn’t helped).

What has changed?

Pre Brexit, under the Distance Selling rules, VAT at the rate applicable in the seller’s country would be chargeable by overseas suppliers to UK recipients. This was in the same way as a domestic sale. There were then thresholds which, when breached, resulted in the seller registering in the customer’s country, but these were rarely exceeded by small or SME businesses. The Distance Selling rules still apply to EU Member States, but not the UK.

As the UK is now a ”third country” sales to the UK from the EU which were previously intra-community sales are now imports. From 1 January 2021, sellers of goods B2C (to UK individuals) with a value below £135 – so called low value consignments are required to VAT register in the UK – more details here.  Clearly, many businesses are loath to do this hence their refusal to sell to UK customers. This change is not a result of Brexit but was a measure to level the playing field between EU and non-EU supplies (the latter often escaping the tax completely). From 1 July 2021 similar rules will apply to UK businesses selling to individuals in the EU, although there is likely to be a simplification measure; the so-called One Stop Shop (OSS).

Additionally, UK customers are usually responsible for the new post-Brexit import of goods, so there may be unexpected new VAT, duty and courier costs when buying certain goods from EU countries. This is similar to buying goods from any other country in the world.

It would appear that there will be a reduction in cross-border trade (in both directions) with the UK, and that is without factoring in shipping issues and delays at new borders.

VAT: Unjust enrichment. The Deluxe case

By   13 January 2021
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Latest from the courts

In the Deluxe Property Holdings Limited High Court case (Deluxe) the issue was whether a VAT claim needed to be passed back to the supplier after a correction – whether the unjust enrichment applied.

Background

Deluxe employed SCL Construction Limited (SCL) to carry out building works. SCL raised invoices in respect of the construction of student accommodation at 20%. It was, however, common ground that the works were in fact zero-rated. SCL recovered the overcharged VAT from HMRC via a VAT Act 1994 Section 80 claim. SCL undertook to repay the amount of VAT to Deluxe via section 10 of VAT Notice 700/45. Without such written reimbursement undertaking, HMRC would have been entitled to refuse the claim. SCL did not make the payment to Deluxe.

Issue

The issue between the parties was whether:

  • SCL holds the accounting credit obtained from HMRC on trust for Deluxe, or;
  • the claim is only in debt, in which case SCL sought to set-off such the claim against other monies that it alleges are owed by Deluxe

Decision

The court ruled that SCL had undertaken to reimburse its customer all of the amount credited by HMRC without any deduction, for whatever purpose. Further, SCL had undertaken that it could not use the credit for any other purpose. It was a payment made by HMRC for the sole and express purpose of allowing SCL to reimburse the mistakenly charged VAT to Deluxe and was clearly intended to restrict SCL’s freedom of disposal so that the credit was to be exclusively used for the stated purpose without set-off.

Although SCL gave its undertaking to HMRC rather than to Deluxe to pass on the money, it held the repayment on trust for Deluxe and gave rise to a Quistclose Trust*

Additionally, a constructive trust arose because it would be unacceptable for SCL to derive a benefit of the VAT repayment.

The court found that SCL has acted in breach of trust and is liable as trustee to restore the trust fund and transfer to Deluxe the balance of the trust property without offsetting it against amounts that it claimed it was owed by Deluxe.

Commentary

This is a logical and expected decision and the reasoning is helpful for similar disputes.

*  A trust may arise where one person, A, advances money to another, B, on the understanding that B is not to have the free disposal of the money and that it may only be applied for the purpose stated by A. The effect of the trust is to reserve in A the beneficial interest in the money, so providing him with some proprietary security for his advance.

VAT: Tour Operators’ Margin Scheme (TOMS) – changes ahead?

By   12 January 2021
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TOMS is complex, time consuming, potentially costly and a major headache for tour operators. It does aim to simplify VAT accounting as it avoids businesses having to VAT register in every EU Member State in which it provides services.

But, are there changes ahead? The European Commission has published a Factual summary report which looks at TOMS. The consultation was to gather evidence in order to evaluate the scheme in terms of ;

  • does it remain effective
  • to what extent existing rules remain relevant and aligned with stakeholders’ needs
  • identification of potential distortions of competition
  • the regulatory costs and benefits for businesses taxed under the scheme

Since Brexit, HMRC have stated that TOMS still applies in the UK, but supplies in the EU which were previously VATable were now zero rated. The result is that only supplies in the UK are subject to VAT on the margin achieved. The future is unclear however. There is no longer a level playing field between the UK and other EU countries as UK operators’ have an advantage. The potential outcomes(to my mind) are:

  • the position remains the same
  • UK operators will be required to VAT register in every Member State it sells holidays to (or at least some)
  • the above report will address the issues (but will not be binding on the UK

The rules of TOMS are not currently fully harmonised and there are variations in the way EU Member States treat non-EU travel companies (such as the UK now). There are also differences in the services which are, and are not, covered by TOMS. Watch this space…

VAT: Fiscal representation in the UK

By   12 January 2021
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As Brexit is all completely finished * * hollow laugh * * I look at what overseas businesses operating in the UK need to know in respect of compliance.

What is fiscal representation?

It is a safeguard for the authorities responsible for VAT in the EU (and UK). If it is not possible to collect tax from the taxable person, they can go to the representative who is usually jointly and severally responsible for the debt.

Each EU Member State has its own rules on representatives, but here I look at what overseas businesses need to do in the UK, and what the responsibilities are for a business acting in such a role. A representative must meet a set of tests to ensure that it is fit and proper in order for it to be allowed to act in a representative capacity.

In most cases, overseas businesses with no place of belonging in the UK register as a Non-Established Taxable Person (NETP).

Choices

If a business is a NETP, it will have a choice in how it registers and accounts for VAT in the UK (although in certain circumstances, HMRC have the power to direct a business appoint a tax representative).

Deal with UK VAT itself

In most cases an overseas business can deal with VAT without third party assistance. However, it must be able to:

  • register for VAT at the correct time
  • keep a record of everything it buys and sells in the UK
  • keep all the records needed to complete its VAT Return
  • produce records and accounts to HMRC for inspection
  • keep a note of all VAT paid and charged for each period covered by the return
  • pay the right amount of tax on time

Tax representative

A NETP may appoint a tax representative who:

  • must keep its principal’s VAT records and accounts and account for UK VAT on its behalf
  • is jointly and severally liable for any VAT debts the NETP incurs

A NETP is obliged to provide all of the information required to fulfil its obligations.

Tax Agent

A NETP may appoint a tax agent to act on its behalf. Such an arrangement will be subject to whatever contractual agreement the NETP and the agent decide. The significant difference to a tax representative is that HMRC cannot hold the agent responsible for any of the NETP’s VAT debts. This is clearly a better position for a UK business acting on behalf of a NETP. HMRC can decide not to deal with any particular agent appointed. Also, in some circumstances, if HMRC think it is necessary, it may still insist that a tax representative is appointed – this is usually in cases where there is a risk to the revenue. Additionally, HMRC can ask for a financial security.

As with the appointment of tax representatives a NETP:

  • may only appoint one person at a time to act as its agent (although an agent may act for more than one principal)
  • must still complete the appropriate form to apply for registration
  • HMRC require a NETP’s authority before it can deal with an agent
  • Needs to give the agent enough information to allow them to keep the VAT account, make returns and pay VAT

It is possible to appoint an employee to act as a VAT agent.

Penalties

As is to be expected, get any of the above wrong and there are penalties!

VAT – The Capital Goods Scheme

By   8 January 2021
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A brief guide to the Capital Goods Scheme (CGS)

If a business acquires or creates a capital asset it may be required to adjust the amount of VAT it reclaims. This mechanism is called the CGS and it requires a business to spread the initial input tax claimed over a number of years. If a business’ taxable use of the asset increases it is permitted to reclaim more of the original VAT and if the proportion of the taxable supplies decreases it will be required to repay some of the input tax initially claimed. The use of the CGS is mandatory. 

How the CGS works

Normally, VAT recovery is based on the initial use of an asset at the time of purchase (a one-off claim). The CGS works by applying a longer period during which the initial recovery may be adjusted if there are changes in the use of the asset. Practically, the CGS will only apply in situations where there is exempt or non-business use of the asset. A business using an asset for fully taxable purposes will be covered by the scheme, but it is likely that full recovery up front will be possible with no subsequent adjustments required. This will be the position if, say, a standard rated property is purchased, the option to tax taken, and the building let to a third party. The CGS looks at how capital items have been used in the business over a number of intervals (usually, but not always; years).  It adjusts both for taxable versus exempt use and for business versus non business use over the lifetime of the asset. Example; a business buys a yacht that is hired out (business use) and it is also used privately by a director (non-business use). However, a more common example is a business buying a property and occupying it while its trade includes making some exempt supplies. 

Which businesses does it affect?

Purchasers of certain commercial property, owners of property who carry out significant refurbishment or carry out civil engineering work, purchasers of computer hardware, aircraft, ships, and other vessels over a certain monetary value who incur VAT on the cost.  (As the CGS considers the recovery of input tax, only VAT bearing assets are covered by it).

Assets not covered by the scheme

The CGS does not apply if a business;

  • acquires an asset solely for resale
  • spends money on assets that it acquired solely for resale
  • acquires assets, or spends money on assets that are used solely for non-business purposes.

Limits for capital goods

Included in the CGS are:

  • Land, property purchases – £250,000 or over
  • Refurbishment or civil engineering works costing £250,000 or over
  • Computer hardware costing £50,000 or over (single items, not networks)
  • From 2011, aircraft, ships, and other vessels costing £50,000 or more.

Assets below these (net of VAT) limits are excluded from the CGS.

The adjustment periods

  • Five intervals for computers
  • Five intervals for ships and aircraft
  • Ten intervals for all other capital items

Changes in your business circumstances

Certain changes to a business during a CGS period will impact on the treatment of its capital assets. These changes include:

  • leaving or joining a VAT group
  • cancelling your VAT registration
  • buying or selling your business
  • transferring a business as a going concern (TOGC)
  • selling an asset during the adjustment period

Specific advice should be sought in these circumstances.

Examples

  1. A retailer purchases a brand new property to carry on its fully taxable business for £1 million plus £200,000 VAT. It is therefore above the CGS limit of £250,000. The business recovers all of the input tax on its next return. It carries on its business for five years, at which time it decides to move to a bigger premises. It rents the building to a third party after moving out without opting to tax. Under the CGS it will, broadly, have to repay £100,000 of the initial input tax claimed.  This is because the use in the ten year adjustment period has been 50% taxable (retail sales) for the first five years and 50% exempt (rent of the property for the subsequent five years).
  2. A company purchases a helicopter for £150,000 plus VAT of £30,000. It uses the aircraft 40% of the time for hiring to third parties (taxable) and 60% for the private use of the director (non-business).  The company reclaims input tax of £12,000 on its next return. Subsequently, at the next interval, taxable use increases to 50%. It may then make an adjustment to increase the original claim: VAT on the purchase £30,000 divided by the number of adjustment periods for the asset (five) and then adjusting the result for the increase in business use: £30,000 / 5 = 6000 50% – 40% = £600 additional claim

Danger areas

  • Overlooking CGS at time of purchase or the onset of building works
  • Not recognising a change of use
  • Selling CGS as part of a TOGC
  • Failing to make required CGS adjustments at the appropriate time
  • Overlooking the option to tax when renting or selling a CGS property asset
  • Sale during adjustment period (not a TOGC)
  • Complexities re; first period adjustments and pre-VAT registration matters
  • Interaction between CGS and partial exemption calculations

Summary

There is a lot of misunderstanding about the CGS and in certain circumstances it can produce complexity and increased record keeping requirements.  There are also a lot of situations where overlooking the impact of the CGS or applying the rules incorrectly can be very costly. However, it does produce a fairer result than a once and for all claim, and when its subtleties are understood, it quite often provides a helpful planning tool.