Category Archives: VAT commentary

VAT: New guidance on zero rating exports

By   4 April 2023
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HMRC has published updated guidance on the evidence required to zero rate the export of goods. VAT Notice 703 sets out the following changes on the documentation which is required for proof of export:

  • Para 6.1 – For VAT zero rating purposes a business must produce official evidence or commercial evidence. Both types generally have equal weight but, if the commercial evidence is found to be lacking sufficient detail, a business will be expected to provide official evidence. An exporter must also provide supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported. If the evidence of export provided is found to be unsatisfactory, VAT zero rating will not be allowed and the supplier of the goods will be liable to account for the VAT at the appropriate UK rate.

 

  • Para 6.5 – What must be shown on export evidence (extract from the Notice)

“An accurate description of the exported goods and quantities are required, for example ‘2000 mobile phones (Make ABC and Model Number XYZ2000), value £50,000’.

If the evidence is found to be unsatisfactory you as the supplier will become liable for the VAT due.

If you’ve described goods inaccurately on an export declaration you may be liable for a customs penalty.

The rest of this paragraph has force of law.

The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify:

    • the supplier
    • the consignor (where different from the supplier)
    • the customer
    • an accurate and full description of the goods including quantities
    • an accurate and consistent value of the good
    • the export destination, and
    • the mode of transport and route of the export movement

Vague descriptions of good, quantities or values are not acceptable. An accurate value must be shown and not excluded or replaced by a lower or higher amount”.

  • Paras 7.3 and 7.4 on merchandise in baggage and direct exports of personal goods in accompanied baggage have also be amended.

Overview

It is vitally important that exporters obtain the correct evidence that goods have physically left the UK and that all descriptions of the goods are accurate and satisfy HMRC requirements. There has been a significant amount of case law on export documentation (an example here) which illustrates that this is often an area of dispute.

VAT: Late payment interest rates increased

By   4 April 2023
0

HMRC has announced that interest rates for late payments will be revised following the Bank of England interest rate rise to 4.25%.

HMRC interest rates are linked to the Bank of England base rate.

As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will increase.

These changes will come into effect on:

  • 3 April 2023 for quarterly instalment payments
  • 13 April 2023 for non-quarterly instalments payments

Please also refer to Rates and allowances: HMRC interest rates for late and early payments.

A VAT Did you know?

By   28 March 2023
1

Embryos of animal species which are used for human food may be zero-rated but “anything below” the embryo stage is standard-rated.

VAT: DIY Housebuilders’ Scheme – deadline for claims extended

By   20 March 2023
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The DIY Housebuilders’ Scheme  is a tax refund mechanism for people who build, or arrange to have built, a house they intend to live in. It also applies to converting commercial property into a house(s). This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim.

One of the main problems was the very strict (and rigorously enforced) deadline of three months for the submission of the claim form. This is from completion of the build (usually this is when the certificate of practical completion is issued) or the building is inhabited, although it can be earlier if the certificate is delayed.

A case on when a house is considered to be complete here.

However, HMRC has announced that this deadline will be extended to six months from a date yet to be announced. This extension is welcome as it is often difficult to collect all the required information and documentation. In addition, the whole process will be digitised some time in the future which will also simplify the process.

The Scheme can be complex, but here is our Top Ten Tips for claimants.

VAT: Evidence for retrospective claims – new guidance

By   14 March 2023
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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   7 March 2023
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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   7 March 2023
1

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   6 March 2023
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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: The Windsor Framework

By   1 March 2023
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While we await the fine details, trade between GB and Northern Ireland is likely to be subject to new rules. These are set out under the heading of The Windsor Framework published by HM Government.

(Very) General

Via the Northern Ireland Protocol (NIP), Northern Ireland operated under the EU VAT rules. There are revised VAT rules set out in The Windsor Framework. The EU rules on VAT rates will not apply to a list of goods for consumption in Northern Ireland in certain circumstances.

The Windsor Framework amends the legal text of the NIP to ensure that Northern Ireland will be subject to the same VAT and excise rules that apply in the rest of the UK.

The Framework means that legislation to apply the zero-rate of VAT to energy saving materials can be introduced. A number of other flexibilities should enable UK-wide VAT changes to apply in Northern Ireland. It is anticipated that future VAT issues can be addressed in order to manage any divergences in policy between GB and Northern Ireland.

A bit more detail

The Windsor Framework sets up a new UK internal trade scheme, based on commercial data-sharing rather than traditional international customs processes.

Under the NIP, a framework exists that allows goods to move from GB to Northern Ireland tariff-free. If the goods do not fall within that framework, they are treated as if moving across an international border and full customs declarations are required.

This Framework introduces arrangements through a new UK internal market system (colloquially called the “Green Lane”) for internal trade. Goods being sold in Northern Ireland will not be subject to “unnecessary paperwork, checks and duties”.

The new scheme will significantly expand the number of businesses able to move goods using the Green Lane by being classed as internal UK traders.

The Changes

To ensure that internal UK trade is protected, the agreement expands the number of businesses able to be classed as internal UK traders and move goods as ‘not at risk’ of entering the EU through three changes:

  • businesses throughout the UK will now be eligible – moving away from the previous restrictions that required a physical premises in Northern Ireland.
  • the turnover threshold below which companies involved in processing can move goods under the scheme which they can show stay in Northern Ireland is increased from the current £500,000 limit up to £2 million (this means that four-fifths of manufacturing and processing companies in Northern Ireland who trade with GB will automatically be in scope).
  • if businesses are above that threshold, they will be eligible to move goods under the scheme if those goods are for use in the animal feed, healthcare, construction and not-for-profit sectors.

Businesses in the scheme that can show their goods will stay in Northern Ireland will gain access to a simplified process for goods movements, using ordinary commercial data rather than customs data.

Goods moving to the EU will be subject to normal third-country processes and requirements.

Reduction in so-called frictions

The Framework seeks to address a range of issues that added frictions or costs for internal UK trade:

  • safeguarded tariff-free movements of all types of steel into Northern Ireland .
  • a forward process for ensuring that Northern Ireland businesses can access other goods subject to Tariff Rate Quotas in the future, dealing with the unique disadvantages under the existing system.
  • where businesses cannot be certain of the end destination of their goods when first moving them into Northern Ireland, a new tariff reimbursement scheme for those who can show the goods were ultimately not destined for the EU.

VAT Registration: Top tips for agent submissions

By   1 March 2023
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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.

  1. 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.

  1. 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.

  1. 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.

  1. 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).

  1. 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.