New rules from 1 January 2021.
GOV.UK has published new guidance from the Department for International Trade.
The guidance sets out what a business will need to do 1 January 2021. It will be updated if anything changes.
It covers:
Exporting to and importing from the EU
Exporting to and importing from non-EU countries
All business with goods crossing the new border will need to understand and prepare for the changes.
VAT Basics
The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:
Blocked VAT Claims
A brief overview
In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice)” although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC may accept alternative evidence, however, they are not duty bound to do so (and rarely do). So ensure that you always obtain and retain the correct documentation.
Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing. A full guide is here.
Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here.
If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here.
If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.
This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable.
In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.
If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.
For instance, a business using the Flat Rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on TOMS users
Even if you obtain an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.
Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for business use. This may be because the purchase is for personal use, or by anther business or for purposes not related to the business.
This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and services received within six months of registration if certain conditions are met.
Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked. Details here.
Goods sold to you under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.
Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.
A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here.
A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant VAT body in those States. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.
Input tax incurred on expenditure is one of the most complex areas of VAT. It also represents the biggest VAT cost to a business if VAT falls to be irrecoverable. It is almost always worthwhile reviewing what VAT is being reclaimed. Claim too much and there could well be penalties and interest, and of course, if a business is not claiming as much input tax as it could, this represents a straightforward cost.
Bye bye old VAT returns.
HMRC has revealed that it will retire the existing VAT online filing system for VAT 100 forms from April 2021.
From that date, only the MTD method is possible and the original (the XML submission where a business logs into the HMRC portal) will be discontinued.
HMRC has published information on Tariffs.
You can use this service to check the UK Global Tariff that will apply to goods imported post-Brexit. It also shows the difference between what you pay now and what you’ll pay from 1 January 2021.
The UK Global Tariff will apply to all goods imported from 1 January 2021 – which will include bringing in goods from EU Member States. (currently acquisitions, not imports).
Latest from the courts
In the University Of Southampton Students’ Union (USSU) First Tier Tribunal (FTT) case the issue was the VAT treatment of supplies of hot food and coffee; whether the appellant was an eligible institution making principal supplies of education or vocational training and/or whether supplies of hot food and coffee closely related to such principal supplies.
Background
USSU argued that both the supply of hot food and coffee by the USSU shop are exempt via The VAT Act 1994 Schedule 9, group 6, Item 4(a) and note 1(e) as supplies made by an eligible body which makes principal supplies of vocational training, and which are closely related to the (exempt) principal supply of education by the University of Southampton or vocational training by USSU. In the alternative, exemption applies for matters closely related to supplies of education by a third party via a published HMRC concession (and its supplies were within HMRC’s conditions for such a concession).
HMRC disagreed and claimed that these supplies were not closely related to education and that USSU was not an eligible body (no ring fencing of the profits such that they were not necessarily reinvested in its own supplies of education). Therefore, the supplies were properly taxable, and they declined to pay the appellant’s claim of overpaid output tax. The respondent also cited the Loughborough Students’ UnionUpper Tribunal (UT) case.
Decision
The appeal was dismissed for the following reasons:
Commentary
Superficially, the claim seemed good. Para 5.5 of PN 709/1 states: “If you’re a student union and you’re supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a concession you can treat your supplies in the same way as the parent institution itself. This means that you can treat your supplies as exempt when made by unions at universities.. This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt… For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas.”
However, the Notice then goes on to add “But it does not cover food and drink sold from campus shops, bars, tuck shops, other similar outlets and certain vending machines…”
This appeal looks a close-run thing, but it demonstrates that small differences in detail can produce different VAT outcomes. We urge all Student Unions and other entities “attached” to education providers to review their position.
From 1 January 2021 businesses importing (including bringing in from the EU which were previously acquisitions) certain goods will require licences and certificates. Additionally, there will be new rules for bringing goods into the UK. As the UK will be a third country post Brexit (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).
Licences and certificates
A business will need to obtain a licence or certificate to import some types of goods (below) into the UK and it may also need to pay an inspection fee for some goods before they’re allowed into the UK.
The Goods
The goods, with links to details, are as follows;
Further GOV.UK information on importing goods from the EU to Great Britain from 1 January 2021 here.
HMRC has published guidance on a number of issues relating to duty and guarantee waivers:
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.
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.
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.
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
Business will need to:
Stage Two
If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:
Stage Three
Businesses must:
General
From 1 January 2021
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.