Category Archives: VAT Payment

VAT: Personal Liability Notices

By   16 December 2024
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A Personal Liability Notice (PLN) can be issued by HMRC to a company’s director(s) to transfer the liability to pay VAT or a VAT penalty from the company to an individual. A PLN can also be issued to a member of an LLP.

When a PLN is issued

An officer or officers of a company may be personally liable to pay all or part of the company penalty where:

  • a company is liable to a penalty for a deliberate wrongdoing and
  • the wrongdoing is attributable to the deliberate action of an officer or officers of the company

Additionally, one of the two circumstances below must also apply

  • the officer gained or attempted to gain personally from the wrongdoing, or
  • the company is insolvent or likely to become insolvent

Any grounds for suspicion that the company may become insolvent should to be supported by evidence, for example, where there are cash flow problems, insufficient assets to cover liabilities, or evidence of phoenixism.

An officer’s liability to pay a penalty also applies to inaccuracy penalties.

Liable persons

The company officers are known in HMRC guidance as “liable officers”. These include:

  • elected officers
  • managers
  • directors
  • company secretary
  • any other person managing or purporting to manage any of the company’s affairs.

LLP officers are members.

A PLN’s power gives HMRC the right to recover all or part of the penalty from the liable officer rather than the company/LLP itself.

Where there is more than one deliberate wrongdoing, each deliberate wrongdoing must be considered separately for the purpose of establishing whether it should be attributed to an officer or officers.

Wrongdoings

There are four types of wrongdoings:

  • the issue of an invoice showing VAT by an unauthorised person
  • misuse of a product so that it attracts a higher rate of excise duty
  • the handling of goods on which payment of excise duty is outstanding
  • knowingly disposing of, or causing or permitting the disposal of, material at an unauthorised waste site

The wrongdoing must arise from the deliberate action of an officer of the company.

Personal gain

Once HMRC has attributed the deliberate wrongdoing to one or more company officers it must consider whether any of the officers, by fact or implication, have gained or attempted to gain personally from the wrongdoing. It is sufficient to show that each officer has gained or attempted to gain. It will not however always be possible to establish the full extent to which each officer has gained or attempted to gain, in which case HMRC would issue the PLN based on best judgment of the amount they attempted to gain personally, eg:

  • the officer may accept that there was an actual or attempted personal gain from a deliberate wrongdoing that can be attributed to them, or
  • it may be clear from business records or the officer’s lifestyle that they gained or attempted to gain personally from the results of the deliberate wrongdoing

Appeals

A liable officer can appeal against

  • a decision to pursue them for all or part of the penalty assessed on the company, as set out in the PLN, including whether the penalty is attributable to them, and
  • the amount of the penalty HMRC has allocated to them
  • They cannot however appeal against a decision that they have gained or attempted to gain personally from the deliberate wrongdoing, or that the company is likely to go into liquidation

PLNs are subject to the same procedures as company penalties.

Legislation

Finance Act 2008, Schedule 41: Penalties: failure to notify and certain VAT and Excise wrongdoing.

VAT late payment interest rates reduced

By   12 November 2024
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HMRC has announced that late payment interest rates to be reduced after the Bank of England lowered the base rate.
The Bank of England base rate will be reduced to 4.75% from 5.0%.

The changes will come into effect on:

  • 18 November 2024 for quarterly instalment payments
  • 26 November 2024 for non-quarterly instalments payment

The press release is available here.

VAT Groups – updated guidance on penalties

By   5 November 2024
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VAT penalties for late submissions

HMRC has updated its Internal Guidance VGROUPS01530 on penalties for late submissions,

Penalties for late submissions are calculated on the basis of points.

For VAT groups the representative member has a single liability for these points covering the whole group. If the representative member changes, the existing liability is transferred to the new representative member. A new member joining the group will not affect the points total of the group, even if the member joining had points before. If a business leaves the group and registers for VAT separately they will start with zero points, even if the group that they left had a penalty point balance.

For divisions, each one is liable for its own separate points and penalties. Each division will have its own maximum points total.

VAT: Split payments and e-invoicing

By   15 October 2024
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The recent announcement of an e-invoicing consultation means that businesses should consider the impacts of the intended introduction now.

When this is published (potentially in the Budget on 30 October) it is be anticipated it will cover the intended effective date, how it will affect types of taxpayer, eg; B2B and B2C, how it will be implemented, and its range.

This raises further questions “down the line”, so here we look a step further and consider “split payments” as there has been a lot of conversation and media coverage on this subject.

What are split payments (sometimes known as “real-time extraction”)?

Split payments use card payment technology to collect VAT on online sales and transfer it directly to HMRC rather than the seller collecting it from the buyer along with the payment for the supply, and then declaring it to HMRC on a return in the usual way.

Clearly, HMRC is very keen to introduce such a system, but there are significant hurdles, the biggest being the complexity for online sellers, payment processors, input tax systems, agents, advisers and HMRC itself.

Where are we on split payments?

HMRC has previously published a Prior Information Notice (PIN) and associated Request for Information (RFI), seeking views on the outline requirements and proposed procurement process split payments. This should, inter alia, assist HMRC in:

  • identifying where it is intended that the purchased goods or services are to be delivered and/or consumed
  • the possibility to apply a split only above or below a certain value threshold
  • the feasibility for the splitting mechanism to calculate a composite VAT total across a mixed basket of goods and/ or services, each potentially with a different rate of VAT.

This builds on previous information gathering/consultations/discussions carried out some years ago.

Background

The expansion of the online shopping market has brought unprecedented levels of transactions. The results of digitalisation have also brought challenges for tax systems. Jurisdictions all over the world are currently grappling with the question of how to prevent large VAT losses, which can arise from cross-border online sales. This happens when consumers buy goods from outside their jurisdiction from sellers who, through fraud or ignorance, do not comply with their tax obligations. It is costing the UK tax authorities an estimated £1 billion to £1.5 billion (figures for 2015-16) a year. The UK government believes that intercepting VAT through intermediaries in the payment cycle, split payment potentially offers a powerful means of enforcing VAT compliance on sellers who are outside the UK’s jurisdiction.

Fraud

The fraud carried out by online sellers is not particularly sophisticated but is difficult to combat. Simply, sellers either use a fake VAT number to collect VAT without declaring it, or even more basically, collect the VAT and disappear.

Proposed spilt payment methods

The way in which payments are split represent difficult technical VAT issues, particularly when sales are at different VAT rates. The three proposals are:

  • Standard rate split. This assumes that all sales are liable to the standard rate VAT and does not recognise any input tax deduction. Extraction of 20% of tax, regardless of the actual liability (potentially, 5%, or zero) appears unfair and would be very difficult to impose. Cashflow would be negatively affected too.
  • Flat Rate Scheme (FRS). This is a proposal by HMRC to insist that online sellers overseas to use the FRS using a specific new rate for this purpose. The FRS threshold of £150,000 pa could be increased for overseas businesses, but this would potentially give overseas sellers an advantage over UK businesses, so politically, if nothing else, would prove to be a hard sell.
  • Net effective rate. This would mean an overseas business calculating its own exact net effective rate, based on its outputs and inputs from the previous year’s transactions (similar to TOMS).
  • Composite rate. A composite VAT total across a mixed range of goods or services, each potentially with a different rate of VAT. The mechanism for carrying this calculation out is unclear.

There may be more proposals forthcoming, but none of the above proposals appear reasonable and the complexity they would bring would seem to rule them out as matters stand – although this has not previously stopped HMRC introducing certain measures and the obvious benefits to the authorities cannot be ignored.

Overall

The technology for split payments currently exists and is being used in some Latin American countries (and Poland). The concept is part of a larger movement towards real-time taxation and MTD. Our view is that split payments are coming, but we do not know in which form or when.

 

This article is based on one first published by MWCL on 9 January 2023.

HMRC publish annual report and accounts 2023 to 2024

By   12 August 2024
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HMRC has publish its latest report and accounts.

Headlines

  • £843.4 billion total tax revenues collected which is a 3.6% increase on 2022 to 2023
  • VAT – gross revenue was  £277.7 billion, less: revenue repayable of £112.2 billion – net revenue was £165.5 billion
  • £41.8 billion tax “protected” by tackling avoidance, evasion and error – including £13.7 billion by promoting compliance and preventing non-compliance before it occurs
  • 83.1% taxpayers satisfied or very satisfied with its online services
  • HMRC app received 88.5 million logins by 3.8 million unique users, a growth rate of over 64% compared with the previous year
  • 40 tax avoidance schemes, 39 promoters and 24 connected persons publicly named
  • 430 new criminal cases and more than 10,200 civil investigations into suspected fraud
  • 3,629 anti-money laundering interventions
  • 1.5 billion suspicious or malicious events blocked by cyber security team every month
  • £1.9 billion tax revenue protected through enhanced repayment and identity verification controls
  • “Customer” satisfaction has decreased to 78.6% from the previous period and missed the low 80% target
  • The percentage of customer correspondence cleared within 15 working was 76.3% and again, the 80% target was missed
  • The telephony adviser attempts handled was a very poor 66.4% and significantly missed the 85% target
  • Total debt balance reduced to £44.6 billion from £45.9 billion at the end 2023.
  • Tax debt as a proportion of total tax revenue fell from 5.4% in 2023, to 5.1% in 2024
  • Tax losses were £5.6 billion, of which £5.0 billion is write-offs and the remainder remissions. ‘Remissions’ is a term used describe money owed to HMRC which it has decided not to pursue
  • Overall service levels on telephony and correspondence remained below service standards and it was recognised that this “caused real difficulties for some customers and agents”
  • Individuals’ rating of trust in HMRC has decreased since 2022 and it has continued to decrease amongst agents and small businesses since 2021

You don’t have to read all 324 pages now!

VAT: HMRC updated interest rates.

By   12 August 2024
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On 1 August 2024, the Bank of England reduced the rate from 5.25% to 5%. HMRC interest rates are linked to the Bank of England base rate, and consequently, it has published updated its interest rate tables which recognises the .25% decrease. This interest applies to late VAT payments and repayments.

These changes will come into effect on:

  • 12 August 2024 for quarterly instalment payments
  • 20 August 2024 for non-quarterly instalments payments.

What is a VAT Loan? – Business finance

By   8 August 2024
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Although, ideally, a business puts aside the VAT it collects from its customers (output tax charged) to pay its monthly, quarterly, or annual VAT bill, cashflow management can be difficult, especially for small or seasonal businesses with limited cash reserves. There are some things a business can do to mitigate the impact of VAT and one of these is a VAT loan.

Failure to pay VAT on time can lead to penalties and interest which could add to a business’ financial woes.

A VAT loan is a product which provides a short-term financing option to pay VAT on time. The loan covers the VAT amount due during each payment period, which allows a business to spread the VAT cost over a longer time instead of paying it up front in one hit.

Furthermore, there is no need to use up an existing bank facility. A VAT Loan gives a business an alternate financial option to utilise.

How it works

A business can apply for a VAT loan from a bank or other lender. It is usually deemed to be a secured business loan so assets must be put up as security. Once approved, the lender will pay it directly to HMRC. Repayment periods are typically between three months and a year.

The whole process does not usually take long as it is designed to be more streamlined than a standard loan. The money is usually paid to HMRC within days. Evidence of turnover and good credit history will be required, along with usual proof of ID and bank statements etc. Sometimes additional arrangement charges are made along with the interest.

Eligibility

A business must:

VAT bridging loans

There are generally two types of VAT loan: a standard VAT loan and VAT bridging loans. VAT bridging loans differ in that they are specifically a short-term option to assist a business bridge its cashflow gap between making a VAT payment, eg; for a significant purchase, usually property, and recovering this amount from HMRC as a repayment, which can take months (depending when the purchase was made in a VAT quarter and how quickly HMRC make the refund).

Finding a lender

 It is usually advisable to look for a lender who offers VAT loans specifically and compare interest rates, terms, fees etc.

A quick Google produces many VAT loan products to compare.

Downsides

As VAT loans are short term, the interest rates are often higher than other business loans. Additionally, the loan repayments and fees increase strains on a business’ financial commitments.

 

This is a brief overview on the mechanism and does not constitute financial advice. Businesses should seek their own financial counsel. Before signing any loan agreements, you should seek independent financial advice to better understand if a VAT loan you are considering is the right one for you.

VAT: Tax point of telecommunications – The Lycamobile case

By   7 August 2024
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Latest from the courts

In the Lycamobile UK Ltd First-Tier Tribunal (FTT) case, the issue was whether VAT was chargeable on the supply of a “Plan Bundle” at the time when it was sold and by reference to the whole of the consideration that was paid for it, or whether VAT was instead chargeable only when, and only to the extent that, the allowances in the Plan Bundle were actually used. The time of supply (tax point) was important because not only would it dictate when output tax was due, but more importantly here, if the appeal succeeded, there would be no supply of the element of the bundle which was not used, so no output tax would be due on it.

Background

The Plan Bundles comprised rights to future telecommunication services; telephone calls, text messages and data (together, “Allowances”). There were hundreds of different Plan Bundles sold by the Appellant and the precise composition of those Plan Bundles varied.

Contentions

Lycamobile considered that that the services contained within each Plan Bundle were supplied only as and when the Allowances were used, so that the consideration which was received for each Plan Bundle would be recognised for VAT purposes only to the extent that the Plan Bundle was actually used. In the alternative, these supplies could be considered as multi-purpose vouchers such that output tax was not due when they were issued, but when the service was used. Very briefly, the contention was that it was possible that not all of the use would be standard rated in the UK.

Unsurprisingly, HMRC argued that that those services were supplied when the relevant Plan Bundle was sold (up-front) and output tax was due on the amount paid, regardless of usage.

Decision

The Tribunal placed emphasis on “the legal and economic context” and “the purpose of the customers in paying their consideration”.

It decided that the terms of the Plan Bundle created a legal relationship between Lycamobile and the customer. The Bundle was itself the provision of telecommunication services when sold. The customers were aware that they were entitled to use their Allowances and could decide whether to, or not. As a consequence, consumption was aligned with payment and created a tax point at the time of that payment. There was a direct link between those services and the consideration paid by the customer.

The Tribunal also considered the vouchers point. There were significant changes to the rules for Face Value Vouchers on 1 January 2019 (the supplies spanned this date), but the FTT found that the Plan Bundles were not monetary entitlements for future services under either set of rules, so the tax point rules for vouchers did not apply here.

The appeal was dismissed and HMRC assessments totalling over £51 million were upheld.

Commentary

Not an unexpected result, but an illustration of the importance of; tax points, legal and economic realities, and what customers think they are paying for. All important aspects in analysing what is being provided, and when.

How to pay duties and VAT on imports – updated guidance

By   22 July 2024
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HMRC has updated its guidance on how to pay Customs Duty, Excise Duties and VAT on imports from outside the UK.

The document covers, inter alia:

The update includes the removal of references to the Customs Handling of Import and Export Freight (CHIEF) system, as all import declarations must now be made through the Customs Declaration Service.