Category Archives: Start Up

VAT: New HMRC guidance on duty deferment and guarantee waivers

By   3 November 2020
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HMRC has published guidance on a number of issues relating to duty and guarantee waivers:

  • How to apply for duty deferment when importing goods. This will apply to businesses bringing in goods from the EU from 1 January 2021. This means that the duty and customs payments may be delayed

We recommend any business importing goods checks all the requirements and puts plans in place to defer VAT, duties and customs payments wherever possible. Despite political promises, this significant additional red tape as a result of Brexit helps nobody and will be a costly burden.  However, at least the government have put a structure in place which will aid cashflow.

A VAT Did you know?

By   30 October 2020
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Latest from the courts.

The rolls used in Subway’s hot sandwiches are not bread. According to a recent ruling by Ireland’s Supreme Court, because of the high level of sugar in the rolls, they cannot be taxed as bread, so the VAT zero rate cannot apply.

VAT: Post Brexit UK Tariffs

By   15 October 2020
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Further to my recent article on the Border Operating Model, we now know what Tariffs the UK will apply.

Currently, goods are able to move from country to country inside the EU completely Tariff free. This means that there is no need for import and export formalities which add delays and red tape. Unfortunately, as a result of Brexit, from 1 January 2021, EU/UK trade will be subject to Tariffs as the UK will be a “third country” (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).

Commercially, Tariffs add to the cost of importing goods into the UK by UK businesses and increase the price of exports to overseas customers. It is not possible to reclaim the cost of Tariffs (unlike VAT) so these will always represent a real cost to a buyer. The government has now announced what the UK Tariffs will be here.

Overview

The UK has broadly retained the existing Tariff for goods brought into the EU from third countries. However, there are some changes for; important industrial components (nuts, bolts, tubes and screws etc) some consumer products, the removal of Tariffs below 2% and the rounding of Tariffs with a decimal point.

Action

Businesses should review their exposure to these tariffs and what the related customs duty burden will be. They will also need to consider; budgets, pricing and alternative business structures – which may include manufacturing in the EU rather than the UK. We also recommend reviewing Commodity Codes, values for Customs Duties and the origin of the goods. Please also note that the use of incoterms will become increasingly important.

VAT: New guidance on the border with the EU post-Brexit

By   14 October 2020
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This month the government have issued new guidance: The Border with the European Union Importing and Exporting Goods on the Border Operating Model. This provides comprehensive guidance on the movement of goods from 1 January 2021 and adds to previous guidance.

This is important information for any business moving goods between GB, the EU and NI and needs to be considered for tax planning and general preparation for Brexit. These rules will likely come into force regardless of whether the UK has negotiated an agreement with the EU.

The introduction comes in three stages:

  • Stage One – January 2021
  • Stage Two – April 2021
  • Stage Three – July 2021

Stage One

Business will need to:

  • understand the requirements of EU Member States. The necessary processes must have been done and documentation completed to comply with these requirements
  • obtain a GB EORI number to move goods to or from the UK
  • if undertaking any EU customs processes, businesses will need an EU EORI
  • importers; check which goods are on the controlled goods list- if they are on the controlled goods list, a full customs declaration is required
  • if importing non-controlled goods, decide whether to delay the customs declaration for up to six months or complete full customs declarations on import
  • decide how to complete customs formalities: Most businesses are expected to use a customs intermediary
  • consider obtaining a Duty Deferment Account (DDA). A DDA allows holders to delay customs duty, excise duty and import duty, to be paid once a month rather than on individual consignments
  • check to see if a facilitation would be of benefit. There are a number of facilitations, including the Common Transit Convention
  • if importing live animals or high-priority plants, business needs to be prepared for submitting additional documentation and checks taking place at point of destination
  • exporters; be prepared to submit customs export declarations
  • hauliers; be ready to use the “Check an HGV is ready” service

Stage Two

If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:

  • to submit pre-notification and the relevant health documentation

Stage Three

Businesses must:

  • meet full customs requirements including submitting declarations, regardless of whether it is a controlled or a non-controlled good
  • pay VAT and excise duty where necessary
  • submit safety and security declarations
  • be prepared for customs compliance checks either at port or an inland site
  • be prepared for relevant SPS goods to enter GB via a Border Control Post either at port or an inland site, accompanied by sanitary and phytosanitary (SPS) documentary requirements

General

From 1 January 2021

  • Customs Declarations – Importers and exporters will have to complete UK and EU customs declarations after the end of the transition period. Some locations will require pre-lodgement of customs declarations prior to the movement of goods, which will particularly affect ‘roll on-roll off’ (RoRo) movements
  • Customs Duties – Importers will need to ensure that any customs duties applicable to their goods under the new UK Global Tariff are paid. Importers will need to determine the origin, classification and customs value of their goods. There are options available to defer any payment that is due
  • VAT will be levied on imports of goods from the EU, following the same rates and structures as are applied to Rest of World (RoW) imports. VAT registered importers will be able to use postponed VAT accounting. Non-VAT registered importers have the same options available to report and pay import VAT as they do for customs duties

Businesses will need to review their processes for dealing with cross-border goods, both between the EU and Northern Ireland. This includes; customs declarations, compliance, provision of data, obtaining a duty deferment account and GB/EU EORI numbers as necessary. We also advise liaising with suppliers and customers to ensure, as far as possible, that transactions are as seamless as possible in these challenging times.

Ten Questions every business should ask about VAT

By   14 October 2020
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1. Am I sure that a VAT inspection would not find any errors?  

  • An inspection can result in significant assessments, penalties and interest, apart from a business becoming “known” to HMRC. Peace of mind is a valuable benefit for a business owner too!

 2. Am I sure that I am reclaiming as much VAT as possible?

  • We often find that businesses miss out on recovering input tax, this clearly results in an actual cost.

 3. Do I take full advantage all available VAT reliefs, customs exemptions and duty refund schemes? 

  • Failure to do so will create a tax cost and may be putting a business in a less competitive position.

4. Am I up to date on the indirect tax developments in my key markets?

  • Indirect tax changes rapidly, and so does the market place. Being unaware of changes that affect you may result in VAT being overpaid, or penalties being levied if you have underdeclared tax. It may also put you at a competitive disadvantage.

5. Have I considered the impact of tax rate changes on my pricing and margin, and have I taken the necessary measures?

  • Budgeting is affected by VAT.  Failure to consider indirect taxes may eat into profit.

6. Do I collect all the data about my customers and transactions that could be required by tax authorities?

  • As in many VAT circumstances, getting it wrong or missing something results in penalties.

7. Do I comply with all indirect tax requirements in the jurisdictions where I operate or where my customers belong?

  • VAT and GST does exist outside the UK and ignoring overseas indirect tax obligations may result in action being taken by foreign authorities which will prove to be very uncomfortable and expensive.  It is important to understand the rules for indirect tax in each country/area you trade. Don’t get caught out.

8. Do I have the tools to analyse my indirect tax flows and data?

  • Allocating sufficient technical and human resources to VAT is important.  Seeking professional advice at the appropriate time is also prudent.

9. Could changes in the way my business is structured or how transactions are organised improve my indirect tax position and/or reduce complexity?

  • Saving money and reducing tax complications must be near the top of every business’ wish list. Seeking professional advice on structuring a business or a transaction goes a long way to achieving this

10. Is my business using the right VAT scheme?

  • There are many special schemes that a business may use, from the Flat Rate Scheme to Margin Schemes. Most are optional, but some, like the Tour Operators’ Margin Scheme are compulsory. Choose the wrong one, or being unaware of a beneficial scheme could cost.

It is important to constantly monitor a business’ VAT position.  The nature of trade changes, technology changes, case law changes and the VAT rules are constantly in a state of flux.  It is easy to assume that everything is alright because it has always been done that way, but there may be significant exposures and missed opportunities out there.  Things will also change once the terms of Brexit have been agreed (or not). We offer services from a basic healthcheck to a full technical review.  A review will let you rest easy in your bed if nothing else!

VAT: Airbnb – a warning

By   5 October 2020
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Airbnb’s most recent accounts contain a statement that the company will share data on landlord’s income with HMRC. This information goes back to 2017.

If a property owner uses the Airbnb platform and has income over £85,000 in any twelve month period they will be required to VAT register if they have not also done so.

With the information HMRC will be able to target those business which have failed to register and, as always with VAT, if you have not, there is a penalty.

The amount of the penalty will depend on the amount of VAT due and how late the person letting property was in telling HMRC that the business should have registered (or when HMRC discovered the ‘error”).

The penalty is calculated as a percentage of the VAT due, from the date when the business should have registered to the date when HMRC either received the relevant notification, or became aware that it was required to be registered.

If a business registeredPenalty rate is
not more than 9 months late5%
more than 9 months but not more than 18 months late10%
more than 18 months late.15%

We advise that any business which is required to be VAT registered, but isn’t to contact HMRC – before they contact you…

VAT: New HMRC list of customs agents and fast parcel operators

By   1 October 2020
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HMRC has published a list of agents and fast parcel operators who can help submit customs declarations.

Most businesses use customs agents to deal with customs procedures on their behalf. This need will increase post-Brexit. This publication shows agents and fast parcel operators who can do this, although firms on the list are not approved or recommended by HMRC.

It can be complicated to submit import and export customs declarations, so it may be better to use a company which specialises in this area to avoid potentially costly errors and to ensure compliance. It may also be beneficial in terms of costs.

The lists include:

  • customs agents and brokers
  • freight forwarders
  • shipping companies
  • fast parcel operators (eg; couriers or next-day parcels services)
  • agents who specialise in a certain industry, eg; fresh foods or pharmaceuticals

Other preparations required for Brexit here.

VAT: New HMRC guidance for businesses trading with the EU

By   1 October 2020
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HMRC has produced some help for business which will trade with other EU Member States from 1 January 2021 after Brexit. This includes videos and other information. it is divided into the following categories:

  1. Exporting and sending goods outside of the UK
  2. Importing and bringing goods into the UK
  3. The customs clearance process
  4. Webinars for exporters of animals and products of animal origin to the EU
  5. Related content

The guidance sets out what a business needs to do if it:

  • exports goods to the EU (currently called dispatches)
  • imports goods from the EU (currently called acquisitions)
  • moves people, data and services between the UK and the EU

It is said that the videos (on You Tube) are to help a business understand more about the decisions and processes in dealing with other countries. The actions will be required regardless of the outcome of negotiations with the EU and whether or not the government secures a Free Trade Agreement.

VAT: Are aphrodisiac products food? – The X case

By   1 October 2020
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Latest from the courts

Can products designed to, errr… stimulate sexual desire be treated as foodstuffs?  – Only in VAT do such questions ahem arise eh?

Background

X (the name of the business), sold items in its sex shop which included; capsules, drops, powders and sprays presented as aphrodisiacs that stimulate libido. Those products, which are composed essentially of elements of animal or vegetable origin, were intended for human consumption and were to be taken orally.

X applied the reduced rate to these products (the rate in The Netherlands, certain food in the UK is zero rated) treating the sexual stimulants as foodstuffs.

This was challenged by the tax authorities as it was not considered that they fell within the definitions of ‘foodstuffs for human consumption’. Assessments were issued for the difference between the reduced rate and the standard rate. The case was referred to the ECJ – C-331/19  Staatssecretaris van Financiën vs X

The Gerechtshof den Haag (Court of Appeal, The Hague, Netherlands) found in favour of X, ruling that the use of the products in question as aphrodisiacs did not preclude them from being taxed at the reduced rate applicable to foodstuffs. This was broadly on the basis that the products were intended to be consumed orally and were made from ingredients that may be found in foodstuffs.

The VAT Directive contains no definition of the concepts of ‘foodstuffs for human consumption’ or ‘products normally used to supplement foodstuffs or as a substitute for foodstuffs, so that is, at the least, unhelpful, although it was emphasised that the words must be interpreted in accordance with the usual meaning of them in everyday language.

Decision

It was ruled that any product intended for human consumption which provides the human body with the nutrients necessary to keep the human body alive and enable it to function and develop comes within the scope of the category set out in point 1 of Annex III to the VAT Directive, even if the consumption of that product also aims to produce other effects.

Further; the nutritional role was a decisive factor for a product to be classed as a ‘foodstuff for human consumption’/ The question whether that product has health benefits, its ingestion entails a certain pleasure for the consumer, or its use is part of a certain social context, is irrelevant. Consequently, the fact that consumption of that product has positive effects on the libido of the person ingesting it is irrelevant.

So, aphrodisiacs can be food.

Action

If any business which sell such products which, incidentally, contain nutrients may have a VAT claim based on this case.