Category Archives: VAT Basics

VAT: Evidence for retrospective claims – new guidance

By Marcus Ward 14 March 2023

HMRC has updated its Manual VRM9300 on historic VAT claims.

These types of claims are often called “Fleming” claims and refer to those made before the introduction of the four (once three) year time cap. Such claims extend beyond the period that businesses were required to keep business records and so these were less likely to have remained available.

Standard of Proof where records are unavailable

Where detailed records are unavailable it does not mean there is a lower standard of proof for a claim. The civil standard of proof (on a balance of probabilities) remains.

However, taxpayers’ estimates, assumptions and extrapolations must be sufficiently robust to support a claim. HMRC and the Tribunals must have regard to the evidence that is available, and each claim must be considered on its individual merits.

HMRC state that it “…is not obliged to accept a figure simply because some input tax is due or because it is the claimant’s ‘best guess’ based on the material available”. The claimant must first establish that its method of valuing the claim is reasonable and provide an identifiable repayable amount.

The guidance considers the judgement in the NHS Lothian [2022] UKSC 28 case and its impact on claims where full evidence is unavailable.

Alternative evidence

It is also worth noting that HMRC have the discretion to accept alternative evidence.

VAT: Change of a business’ registration details – Form VAT484

By Marcus Ward 7 March 2023

Change in VAT registration details

New HMRC guidance explains how to use form VAT484 to change business details.

You can use this form to change a business’:

contact details
bank details
return dates
and if a new person takes over VAT responsibilities

If you take over someone else’s VAT responsibilities

You must use the form VAT484 to tell HMRC within 21 days if you take over the VAT responsibilities of someone who has died or is ill and unable to manage their own affairs.

You must include the details of the date of death or the date the illness started.

Failure to notify HMRC of changes may lead to penalties via The VAT Act 1994, section 69.

VAT: Food for assistance dogs now zero rated

By Marcus Ward 7 March 2023

VAT Quickie

Pet food is generally standard rated, however, food for “working dogs” is zero rated. Working dogs include animals such as; working sheep dogs, gun dogs and racing greyhounds. The definition in Public Notice 701/15 Animals And Animal Food has been amended at para 6.4 to now include assistance dogs from 28 February 2023.

Assistance dogs are trained to support disabled people and people with medical conditions in a variety of ways. From guide dogs to medical alert dogs, from autism dogs to hearing dogs.

NB: Although dog food held out as for sale for working dogs is zero rated, this excludes biscuit or meal – which remain standard rated regardless of use.

VAT: Apportionment of output tax – updated guidance

By Marcus Ward 6 March 2023

HMRC has published new guidance (para 31) on apportioning output tax. More on apportionment here.

Summary

The guidance gives examples of how to apportion output tax in certain situations.

There are two basic methods of apportioning output tax:

one based on selling prices
the other based on cost values

HMRC provide worked examples of both of these methods, including an example of apportionment where a business can only determine the cost of one of the supplies.

Both methods can be adapted to apply to either tax-inclusive or tax-exclusive amounts.

A business does not have to use any of the methods set out in the guidance but, if a different method is used it must still give a fair result.

Apportionment is only necessary if the price charged is the only consideration for the supplies. If the consideration is not wholly in money VAT must be accounted for on the open market value* of the supplies.

* Open Market Value

The VAT Act 1994, section 19 (5) states that “…the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value …if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration”.

VAT: HMRC yearly average and spot rates

By Marcus Ward 3 March 2023

HMRC has published the annual yearly and spot foreign exchange rates in CSV format.

You should use these exchange rates if you have to convert any foreign currency to sterling for Customs and VAT purposes.

When searching for exchange rates a business should consider what it requires the rates for and and the type of rate needed.

HMRC have published guidance on the use of exchange rates for tax and accounting purposes:

VAT Registration: Top tips for agent submissions

By Marcus Ward 1 March 2023

HMRC has, last week, set out the main reasons why online VAT registration applications submitted by agents are delayed. In such cases a caseworker is required to review the application and usually raise additional queries.

The “Top Five” reasons for delay

If an agent can avoid these, then the chances of a quick and successful registration is enhanced.

Business verification failed or is not completed

It is important to have all the business details available when completing the application. There can be difficulties when an application is started but set aside while more information is sought. There is only a seven-day limit once the process is underway.

Same address used for the business and either the applicant’s home address or agent’s address

This is the Principal Place of Business (PPOB) and should be where the day-to-day activities of the business take place. It is not the applicant’s residence (unless the business is run from home) or the agent’s address.

Bank details provided do not relate to the business

Bank details for VAT repayments must be:

a UK account
in the precise name of the business

If the entity is a partnership the account name may be in the name of a partner. If no UK account exists when the application is being made, this can be added later, but thus itself can cause issues.

ID documents are not provided digitally

These are cases where the applicant has chosen to provide identification documents by post. There is a facility to attach digital ID and this should be used wherever possible to avoid delays. Three items of ID are required: one a photo ID (passport or driving licence) and the other two non-photo documents (utility bills or birth certificates etc).

Verifying the applicant’s business

This is often when the business belongs overseas or does not yet have an Unique Taxpayer Reference (UTR). Again, it is preferrable to have all this information to hand before the process is started.

Information which an agent needs

Government Gateway user ID and password for either agent services account or HMRC Online services
agent’s name
phone number
email address
client’s name
client’s date of birth
details of client’s turnover and nature of business
client’s bank account details
client’s National Insurance number
forms of ID from the client
client’s Corporation Tax Payments, PAYE, Self-Assessment Return, recent payslip or P60

Previously HMRC has commented on delays and set out these additional common errors:

check that the notification of a trade classification matches the supplies the business makes
the VAT treatment of activities must be correctly identified
the correct person must sign the application – eg; for a corporate body it must be a director, company secretary or authorised signatory or an authorised agent
ensure the correct registration date (effective date of registration – EDR) is given. And that the EDR is accurate considering the circumstances that have been outlined for requesting registration elsewhere in the application

And I will add; do not forget form VAT5L when registering a business which is involved in land and property transactions.

VAT: How claims are processed

By Marcus Ward 2 February 2023

Further to my article on repayment interest, I thought it may be helpful if I looked at how HMRC process repayment returns, and what can delay payments.

Once a business submits a repayment return it is subject to a number of set steps:

Step 1

HMRC records the date a return is submitted online via MTD.

Step 2

Automated credibility checks are applied to all claims. HMRC say that most returns pass these tests. If this is the case, they proceed immediately for payment.

Step 3

Credibility queries (or “pre-cred” queries) – returns that fail the automated tests are checked manually and are either resolved by the credibility team, or sent to officers to carry out further investigation.

Step 4

Returns sent for further checks – HMRC say that high priority is given to these verifications and any queries are handled with the minimum involvement of, or inconvenience to, a business. Experience insists that this is not always the case.

Step 5

Credibility queries are returned to the credibility team – results of the officer’s action, including any amendments required, are returned with a certificate detailing the amount of time taken and any official delay. Claims are passed for payment.

Step 6

Payment of the claim – once a claim has been accepted, repayment is made immediately. HMRC’s systems check whether repayment interest is applicable. If it is, the interest is paid automatically at the same time as the repayment.

Commentary

Most issues usually arise when returns show “unexpected” repayments – eg; a business regularly submitting payment returns submits an one-off claim, or when a first return shows a significant repayment. The pre-cred checks are undertaken to protect the revenue, that is; to ensure that the claim is valid before money is released. Normally, these checks involve a request for copies of purchase invoices, a telephone conversation, or a physical visit by an officer. Not unreasonably, the quantum of the claim impacts significantly the way HMRC handle it.

However, delays can occur on both sides. A business will have to reply to all HMRC requests timeously (and this is in its interest) but more often a claim will be ‘lost” in the system, or inspectors take an unacceptable time to deal with queries. I have one claim that is still in the system after being lodged in January 2021, despite us providing all information requested immediately.

Reasons for unexpected repayments

There are a number of reasons why a return may be an unusual repayment, which include, but are not limited to a:

large one-off VAT bearing purchase, eg; machinery, computer system, or land/property
premises refurbishment
concentration of professional/advisory fees
large export order
change in business structure
new line of business
change of a product’s liability
change of government policy
new product launch

A VAT Did you know?

By Marcus Ward 30 January 2023

Children’s clothing made from the skin of goats is zero rated, but only if not made from Yemen, Mongolian or Tibetan goats.

VAT: Doctors and healthcare professionals

By Marcus Ward 16 January 2023

Healthcare services – an overview

I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.

(This article refers to doctors, but applies equally to most healthcare professional entities including; opticians, nurses, osteopaths, chiropractors, midwives, dentists etc.)

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.

However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?” This is particularly relevant if a practice intends to spend significant amounts on projects such as property construction or purchase.

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of their value. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.

Examples of supplies of services and goods which may be taxable are:

drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
dispensing drugs against an NHS prescription (zero-rated)
drugs dispensed against private prescriptions (standard-rated)
medico legal services that are predominantly legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
paternity testing
certain rental of rooms/spaces
car parking
signing passport applications
providing professional witness evidence
any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to the partial exemption rules – see below. You will have to keep records in a certain way (see MTD) and your accounting system needs to be able to process specific information.

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in. More details here.

VAT registration in summary

Benefits

recovery of input tax; the cost of which is not claimable in any other way
potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
only a small amount of VAT is likely to be chargeable by a practice
may provide opportunities for pre-registration VAT claims

Drawbacks

increased administration, documentation and staff time
exposure to penalties and interest
may require VAT to be added to some services provided which were hitherto VAT free
likely that only an element of input tax is recoverable as a result of partial exemption
uncertainty on the VAT position of certain services due to current tax cases
potentially dealing with the Capital Goods Scheme (CGS)
possible increased costs to the practice in respect of professional fees.

Please contact us if any of the above affects you or your clients.

VAT: Increase in interest rates

By Marcus Ward 11 January 2023

As a consequence of the change in the Bank Of England base rate from 3% to 3.5%, HMRC’s interest rates for late payment and repayment will also increase.

These changes will come into effect on:

26 December 2022 for quarterly instalment payments
6 January 2023 for non-quarterly instalments payments

The HMRC publication Information on the interest rates for payments will be updated shortly.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit, or “minimum floor” of 0.5%.