VAT Invoices – A Full Guide

By Marcus Ward 3 January 2019

The subject of invoices is often misunderstood and can create serious issues if mistakes are made. VAT is a transaction tax, so primary evidence of the transaction is of utmost importance. Also, a claim for input tax is usually not valid unless it is supported by an original valid invoice HMRC can, and often do, reject input claims because of an inaccurate invoice. There are a lot of misconceptions about invoices, so, although a rather dry subject, it is very important and I thought it would be useful to have all the information in one place, so here is my guide:

Obligation to provide a VAT invoice

With certain limited exceptions a VAT registered person must provide the customer with an invoice showing specified particulars including VAT in the following circumstances.

(a) He makes a supply of goods or services in the UK (other than an exempt supply) to a taxable person.

(b) He makes a supply of goods or services to a person in another EC country for the purposes of any business activity carried on by that person. But no invoice is required where the supply is an exempt supply which is made to a person in another EC country which does not require an invoice to be issued for the supply. (Because practice varies widely across the EC, HMRC guidance is that businesses should be guided by their customers as to whether invoices are required for exempt supplies.)

(c) He receives a payment on account from a person in another EC country in respect of a supply he has made or intends to make.

Exceptions

The above provisions do not apply to the following supplies.

• Zero-rated supplies (other than supplies for acquisition by a person registered in another EC country, see (b) above).

• Supplies where the VAT charged is excluded from credit under VATA 1994, s 25(7) (eg business entertaining and certain motor cars) although a VAT invoice may be issued in such cases.

• Supplies on which VAT is charged but which are not made for a consideration. This includes gifts and private use of goods.

• Sales of second-hand goods under one of the special schemes. Invoices for such sales must not show any VAT.

• Supplies that fall within the Tour Operators’ Margin Scheme(TOMS). VAT invoices must not be issued for such supplies.

• Supplies where the customer operates a self-billing arrangement.

• Supplies by retailers unless the customer requests a VAT invoice.

• Supplies by one member to another in the same VAT group.

• Transactions between one division and another of a company registered in the names of its divisions.

• Supplies where the taxable person is entitled to issue, and does issue, invoices relating to services performed in fiscal and other warehousing regimes.

Documents treated as VAT invoices

Although not strictly VAT invoices, certain documents listed below are treated as VAT invoices either under the legislation or by HMRC.

(1) Self-billing invoices

Self-billing is an arrangement between a supplier and a customer in which the customer prepares the supplier’s invoice and forwards it to him, normally with the payment.

(2) Sales by auctioneer, bailiff, etc.

Where goods (including land) forming part of the assets of a business carried on by a taxable person are, under any power exercisable by another person, sold by that person in or towards satisfaction of a debt owed by the taxable person, the goods are deemed to be supplied by the taxable person in the course or furtherance of his business.

The particulars of the VAT chargeable on the supply must be provided on a sale by auction by the auctioneer and where the sale is otherwise than by auction by the person selling the goods. The document issued to the buyer is treated as a VAT invoice.

(3) Authenticated receipts in the construction industry.

(4) Business gifts

Where a business makes a gift of goods on which VAT is due, and the recipient uses the goods for business purposes, that person can recover the VAT as input tax (subject to the normal rules). The donor cannot issue a VAT invoice (because there is no consideration) but instead may provide the recipient with a ‘tax certificate’ which can be used as evidence to support a deduction of input tax. The tax certificate may be on normal invoicing documentation overwritten with the statement:

“Tax certificate – No payment is necessary for these goods. Output tax has been accounted for on the supply.”

Full details of the goods must be shown on the documentation and the amount of VAT shown must be the amount of output tax accounted for to HMRC.

Invoicing requirements and particulars

A VAT invoice must contain certain basic information.

A VAT invoice must show the following particulars.

(a) A sequential number based on one or more series which uniquely identifies the document.

The ‘invoice number’ can be numerical, or it can be a combination of numbers and letters, as long as it forms part of a unique and sequential series. Where there is a break in the series, eg; where an invoice is cancelled or spoiled and never issued to a customer, this is still acceptable as long as the relevant invoice is retained.

(b) The time of the supply, ie tax point.

(d) The name, address and registration number of the supplier.

(e) The name and address of the person to whom the goods or services are supplied.

(f) A description sufficient to identify the goods or services supplied.

(g) For each description, the quantity of the goods or extent of the services, the rate of VAT and amount payable, excluding VAT, expressed in any currency.

(h) The unit price.

This applies to ‘countable’ goods and services. For services, the countable element might be, for example, an hourly rate or a price paid for standard services. If the supply cannot be broken down into countable elements, the total VAT-exclusive price is the unit price.

(i) The gross amount payable, excluding VAT, expressed in any currency.

(j) The rate of any cash discount offered.

(k) The total amount of VAT chargeable expressed in sterling.

(l) Where the margin scheme for SECOND-HAND GOODS or theTOMS is applied, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994or any indication that the margin scheme has been applied.

The way in which margin scheme treatment is referenced on an invoice is a matter for the business and but we recommend:

• “This is a second-hand margin scheme supply.”

• “This supply falls under the Value Added Tax (Tour Operators) Order 1987.”

The requirement only applies to TOMS invoices in business to business transactions.

(m) Where a VAT invoice relates in whole or in part to a supply where the person supplied is liable to pay the VAT, either a reference to the appropriate provision of EC Council Directive 2006/112/EC or the corresponding provision of VATA 1994 or any indication that the supply is one where the customer is liable to pay the VAT.

This covers UK supplies where the customer accounts for the VAT (eg under the gold scheme or any reverse charge requirement under the missing trader intra-community rules). The way in which margin scheme treatment is referenced on an invoice is a matter for the business and we recommend: “This supply is subject to the reverse charge”.

Exempt or zero-rated supplies

Invoices do not have to be raised for exempt or zero-rated transactions when supplied in the UK. But if such supplies are included on invoices with taxable supplies, the exempt and zero-rated supplies must be totalled separately and the invoice must show clearly that there is no VAT payable on them.

Leasing of motor cars

Where an invoice relates wholly or partly to the letting on hire of a motor car other than for self-drive, the invoice must state whether the car is a qualifying vehicle

Alternative evidence to support a claim for input tax

In certain situations HMRC can use its discretion and allow an input tax with documentary evidence other than an invoice. Their guidance here

Electronic invoices

Full information on electronic invoicing here

Retailers

Retailers may issue a “less detailed tax invoice” if a customer requests one. the supply must be for £250 or less (including VAT) and must show:

your name, address and VAT registration number
the time of supply (tax point)
a description which identifies the goods or services supplied
and for each VAT rate applicable, the total amount payable, including VAT and the VAT rate charged.

Summary

As may be seen, it is a matter of law whether an invoice is valid and when they must be issued. Therefore it is important for a business to understand the position and for its system to be able to produce a valid tax invoice and to recognise what is required to claim input tax. As always with VAT, there are penalties for getting documentation wrong. Please contact us should you have any queries.

VAT – A Christmas Tale

By Marcus Ward 17 December 2018

Well, it is Christmas…. and at Christmas tradition dictates that you repeat the same nonsense every year….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better, I can be found in most decent sized department stores from mid-September to 24 December.

First of all, I am based in Greenland, but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT?

The toys are of course mainly for children and I wonder if zero rating might apply? I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it? My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

My next question concerns barter transactions. Dads often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return. If I’m given Tesco’s own brand sherry I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks. Have I made a supply and what is the value please? My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or is it catering? Oh, and what if the food is hot?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit twelve passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK, or the EU? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

May I also ask about VAT registration? I know the limit is £85,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold, but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts, I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the Reverse Charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT and Customs Duty – Impact of No-Deal Brexit

By Marcus Ward 4 October 2018

HMRC has published guidance on the likely implications of a No-Deal Brexit. The guidance states that it is “unlikely” that the UK will leave the EU without a deal, however, in the recent political climate, observers comment that a No-Deal scenario is increasingly likely (to put it conservatively). Consequently, business must be in a position to deal with a No-Deal from 29 March 2019. The guidance may be summarised as follows:

Current position

VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods are acquisitions (EU) or imports (non-EU)
no requirement to pay VAT when goods from the EU arrive in the UK. A business acquiring goods from the EU accounts for VAT on the goods in its next VAT return, offsetting input tax against output tax (acquisition tax, a simple “reverse charge” bookkeeping exercise)
no Customs Duty on goods moving between EU Member States
goods that are exported by UK businesses to non-EU countries and EU businesses are UK VAT free
goods that are supplied by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds
for services the place of supply (POS) rules determine the country in which a business needs to charge VAT

From 29 March 2019 with a No-Deal Brexit

the UK will continue to have a VAT system
the government will attempt to keep VAT procedures as close as possible to the current systems
acquisitions from the EU will become imports
imported goods from the EU (or elsewhere) will be subject to VAT deferment
Customs and Excise Duty formalities will now be required for EU imports
UK businesses supplying digital services are likely to be required to register for the one stop shop (MOSS) in a country within the EU
the rate of input recovery for providers of financial services (FS) and insurance may be improved
Low Value Consignment Relief (LVCR) is likely to be abolished for goods entering the UK as parcels, whether from within or outside the EU.
no requirement to comply with existing Distance Selling rules (exports of goods to individuals will be UK VAT free)
EC Sales Lists will not be required
Businesses need to take steps to examine their import and export procedures (!)

I have paraphrased some of the guidance for clarity and technical accuracy and the above points are not direct quotes.

Commentary

The apparent good news is that UK businesses importing goods from the EU will not have to pay VAT on the date that the goods enter the UK, but rather, will be able to account for the VAT later via a deferment system, presumably similar to the one in place for current non-EU imports. Helpful for cashflow, but an unwanted additional complexity, especially for small businesses. A concern is that HMRC cannot deal with the documentation requirements even before Brexit see here

A big negative for UK business is the fact that customs declarations and the payment of any other duties will now be required for imports from the EU – in the same way as currently applies when importing goods from outside the EU. Consequently, for goods entering the UK from the EU

an import declaration will be required
customs checks may be carried out
customs duties must be paid.

This is an additional complication and a cost to a business which is currently able to bring goods into the UK from the EU without any of these declarations, payments or inspections. This is likely to lead to additional delays at the border and will certainly increase administration and costs. Whether this will encourage UK businesses to purchase more goods from UK suppliers remains to be seen. It is worth mentioning that HMRC has also said that UK importers need to take steps apply for an Economic Operator Registration and Identification Number (EORI) for businesses which do not already have one. Details here

Brexit may provide a ray of sunshine for FS and insurance suppliers (well for VAT anyway, the commercial impact may be somewhat different). In the event of a No-Deal Brexit, for UK FS and insurance providers, input VAT deduction rules in respect of services to the EU may be changed. Although no details are provided, it appears to me that input tax attributable to these supplies will be treated similarly to those currently provided to recipients outside the EU. Which will broadly mean that those supplies which would be exempt if provided in the UK would provide full input tax recovery if the recipient belongs anywhere outside the UK. This will be very good news for The City.

LVCR currently relieves goods worth under £15 which come into the UK from outside the EU from UK VAT. Its abolition means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are zero-rated from VAT) if the value is under £15. An unwelcome and apparently unnecessary change.

Generally

It is prudent for businesses to consider how their imported goods will be classified and how they will submit import declarations in the result of a No-Deal Brexit. HMRC suggests that importers may want to consider looking at suitable commercial software and, or, engaging a commercial customs broker, freight forwarder or logistics provider. We advise contacting the relevant providers sooner, rather than later, to establish what you, or your client’s business may require. Of course, all of the above will increase the potential of a business receiving penalties and interest if it gets it wrong.

If you would like to discuss any of the above, please contact me, or a member of my team. Readers that know me, may admire my restraint in commenting, politically, on Brexit…

As I often find myself saying recently – good luck everybody.

VAT – Bringing goods into the UK from other EU countries

By Marcus Ward 8 June 2018

VAT Reverse Charge for Goods – Acquisition Tax and Intrastat

If a business registered for VAT in the UK receives goods from other Member States in the EU (technically known as acquisitions rather than imports) it will not pay overseas VAT in the Member State from which they are purchased. However, a “Reverse Charge” applies to such purchases The rate of VAT payable is the same rate that you would have paid had the goods been supplied to the purchasing business by a UK supplier. This VAT is known as acquisition tax and a business can normally reclaim this VAT if the acquisitions relate to taxable supplies it makes. This is usually resale of the goods, but in some circumstances the goods will be “consumed” by a business. In these cases, if the business is partly exempt, there may be a restriction of the amount of acquisition tax claimable.

VAT free

In order to obtain intra-EU goods VAT free a business must give its supplier its UK VAT number. The supplier is obliged to make checks to determine whether the number is valid and if it is it allows the supplier to treat the supply as VAT free. VAT number validity may be checked here

Why?

This system ensures that tax is paid (and paid in the “correct” Member State) and also avoids “rate shopping” where a business which cannot recover input tax could, without these rules, buy goods VAT free to the detriment of suppliers in its own country. With acquisition tax, it is a level playing field for all EU businesses.

Record-keeping for acquisition tax

A business must enter the VAT details on its VAT return. The time of supply for VAT purposes is the time of acquisition – normally, the earlier of:

the 15th day of the month following the one in which the goods come into the UK
the date the supplier issued their invoice

A business must account for the acquisition tax on the return for the period in which the time of supply occurs, and may treat this as input tax on the same return. This, for most businesses is a bookkeeping exercise and is far preferable than the previous system when goods had to be physically entered at borders. This issue forms part of the problems for Brexit, especially with the UK’s only land border between Northern Ireland and the ROI.

Value of acquired goods for VAT purposes

The value for VAT of any goods brought into the UK is the same as the value for VAT of the goods had they been supplied to the purchaser by a UK supplier. A business must account for the value of the goods or services in £sterling, so it must convert their value into £sterling if the goods were priced in another currency.

Intrastat

Intrastat is the name given to the system for collecting statistics on the trade in goods between EU Member States. The requirements of Intrastat are similar in all EU Member States.

It is worth noting that:

the supply of services is excluded from Intrastat
only movements which represent physical trade in goods are covered by Intrastat, although there are some movements that are excluded

Intrastat – use of information

The information collected by the Intrastat system is a key component for Balance of Payments (BOP) and National Accounts (NA) data, which is regarded as an important economic indicator of the UK’s performance.

The Office for National Statistics uses the monthly trade in goods figures collected by HMRC together with the trade in services survey to produce the BOP and NA figures.

The Bank of England uses monthly trade data as part of its key indicators for gauging the state of the UK and world economic environment to set interest rates each month.

Government departments use the statistics to help set overall trade policy and generate initiatives on new trade areas.

Beyond the UK, trade statistics data are used by the EU to set trade policy and inform decisions made by such institutions as the European Central Bank, the United Nations and the International Monetary Fund.

The commercial world uses statistics to assess markets both within the UK (for example, to assess import opportunities) and externally (for example, to establish new markets for its goods).

Intrastat – the practicalities

All VAT registered businesses acquiring goods must complete two boxes (8 and 9) on its VAT return showing the total value of any goods acquired from VAT registered suppliers in other EU Member States (known as arrivals). In addition, larger VAT registered businesses must supply further information each month on their trade in goods with other EU Member States. This is known as an Intranet Supplementary Declaration (SD) …which is a subject for another day. For arrivals, the current threshold is £1.5 million and this limit is reviewed annually.

How this system will work (if at all) after Brexit remains to be seen, but given past experiences I am not optimistic.

VAT – A Christmas Tale

By Marcus Ward 12 December 2017

Well, it is Christmas…. and at Christmas tradition dictates that you repeat the same nonsense every year….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better I can be found in most decent sized department stores from mid September to 24 December.

First of all I am based in Greenland but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

If I do this for philanthropic reasons, am I a charity, and if so, does that mean I do not pay VAT?

My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit 12 passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK, or the EU? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

Can I also ask about VAT registration? I know the limit is £85,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the reverse charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT Triangulation – What is it? Is it a simple “simplification”?

By Marcus Ward 24 March 2017

Unusually in the VAT world, Triangulation is a true simplification and is a benefit for businesses carrying out cross-border trade in goods.

What is it?

Triangulation is the term used to describe a chain of intra-EU supplies of goods involving three parties in three different Member States (MS). It applies in cases where, instead of the goods physically passing from one to the other, they are delivered directly from the first to the last party in the chain. Thus:

trig (2) In this example; a UK company (UKco) receives an order from a customer in Germany (Gco). To fulfil the order the UK supplier orders goods from its supplier in France (Fco). The goods are delivered from France to Germany.

Basic Treatment

Without simplification, UKco would be required to VAT register in either France or Germany to ensure that no VAT is lost. That is; if registered in France, French VAT (TVA) would be charged to UKco, this would be recovered and the onward supply to Gco would be VAT free. The supply to Gco would be subject to acquisition tax in Germany. VAT therefore is neutral to all parties. Alternatively, UKco may choose to VAT register in Germany. This would mean that it would be able to produce a German VAT number to Fco so to obtain the goods VAT free. UKco would recover acquisition tax it applies to itself on the purchase and charge German VAT to Gco. Again, VAT is neutral to all parties.

Triangulation does away with these requirements.

To avoid creating a need for many companies to be structured in this way, Triangulation simplification was created via the EU VAT legislation (which is implemented across all MS) so, in this example, UKco is not required to register in any MS outside the EU.

Simplification

Under the simplification procedure Fco issues an invoice to UKco without charging VAT and quoting UKco’s VAT number. UKco, in turn, issues an invoice to Gco without charging VAT. The invoice is required to show the narrative “VAT Simplification Invoice Article 141 simplification”. Gco should account for the purchase from UKco in its German VAT Return using the Reverse Charge mechanism. Details of the Reverse Charge here

The Conditions

EU VAT Directive 2006/112/EC, Article 141 sets out the conditions which must be met for Triangulation simplification to apply. Using the example above these may be summarised as:

There are three different parties (separate taxable persons) VAT registered in three different MS
The goods are transported directly from Fco to Gco
The invoice flow involves Fco selling the goods to UKco (the intermediate supplier)
UKco supplier in turn invoices its customer, Gco
UKco must obtain a valid VAT number from Gco (MS of destination) and quote this number on its invoice
UKco must quote “Article 141 simplification” on its invoice to Gco.

Impact on businesses

A business may be involved in triangulation as either:

the first supplier of the goods (Fco in the example above),
the intermediate supplier (UKco in the example above), or
the final consumer (Gco in the example above).

In whichever role, it is important to ensure all relevant details have been obtained and the documentation is correct.

And after Brexit?

As in many areas, we do not yet know how Brexit will affect the UK’s relationship with the EU. In general, the “worse” case scenario for UK business is that this simplification will be unavailable and all cross-border transactions will be treated as exports and imports similar to any other transactions with countries outside the EU and UK business will need to VAT register in one or more MS in the EU. This will add complexity and possibly delays at borders for goods moving to and from the UK. It is also likely to create additional cash flow issues.

In these uncertain times it makes sense to keep abreast of the (likely) changing requirements and take advantage of the simplification while it lasts.

VAT – A Christmas Tale

By Marcus Ward 12 December 2016

Well, it is Christmas….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better I can be found in most decent sized department stores from mid September to 24 December.

First of all I am based in Greenland but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit 12 passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

Can I also ask about VAT registration? I know the limit is £83,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the reverse charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT – Latest from the courts: treatment of web-based introductions

By Marcus Ward 14 September 2016

First Tier Tribunal (FTT) – What intermediary services may be exempted?

Background

The provision of intermediary services (putting those who require a financial product in touch with those who provide them) is exempt from VAT if certain conditions apply. Broadly, the requirement is mainly the need to provide something more than just the introduction, eg; negotiation of credit. If a business acts as a mere conduit or in an advertising capacity its supplies will be standard rated.

The case

In the FTT case of Dollar Financial UK Limited TC05334 (Dollar) the applicant received web-based services from overseas The Reverse Charge was applied to these supplies (details of the Reverse Charge here). Dollar provides “payday loans” which are themselves exempt from VAT. As Dollar was unable to recover all of the VAT on the Reverse Charge it represented a VAT cost to the business. However, if the supplies were exempt there would be no need to apply the Reverse Charge and so the loss would be avoided.

The FTT was required to consider what precisely the suppliers (so called lead generators) provided to Dollar in return for a commission based on the value of the loan. The lead generators operated websites which are mainly comparison sites and which referred potential borrowers to loan providers such as Dollar. HMRC formed the view that these services did not amount to intermediary services and hence were subject to the Reverse Charge.

The FTT ruled that there were differences between the two examples of services received by Dollar. In one example it was decided that despite;

there being no legal relationship between the lead generator and the potential borrower
that the leads were sold to the lender offering the best commission
that the assessment for loan suitability was quick, only involved only a few basic checks, and did not require any judgment or discretion, and
that only 1% of the introductions resulted in offers of loans to borrowers,

the appellant was acting as more than a mere conduit or in an advertising capacity, and was providing exempt introductory services. Consequently, there was no need to apply the Reverse Charge.

In the other example, the Tribunal considered that a single supply of online chat assistance was more akin to an outsourced, principally back-office function which did not amount to intermediary services and was therefore standard rated such that Dollar must apply the Reverse Charge.

Commentary

This case demonstrates the need to identify precisely what is being provided by a business’ suppliers and to review contracts intently. A small change in the circumstances between one supply and another may result in different VAT treatment. This is a comprehensive judgement and it is worth reading in its entirety if a business is involved in these type of transactions. We recommend that advice is sought by those businesses which could be affected by this case; either as supplier or recipient.

Reclaiming VAT Overseas

By Marcus Ward 16 August 2016

Refunds of VAT for UK businesses incurring other EC Member States

If a business incurs VAT in another EC Member State it is possible to recover it. It is not claimed on a UK VAT return, but via a special claim process which I have set out below. Unfortunately, this procedure is likely to be unavailable after Brexit. I hope that this is a timely reminder as well as a guide as the deadline for the year of the claim is 30 September.

My next article will look at precisely what VAT is recoverable in each Member State in a country by country guide – here

Claim Process

Gone are the days when a business had to make claims directly to the Member State where VAT was incurred; using numerous, complicated forms, in the language of the Member State of claim, and then waiting months, if not years to hear anything.

Now, a simple online claim to HMRC is all that is required. HMRC then coordinate payment for a business from the relevant country. This is a practical overview of the procedure.

All applications must be submitted using the electronic online system. You must be VAT registered in the UK to obtain a refund.

In order to make a claim a business must meet the following conditions:

you must not be registered, liable or eligible to be registered in the Member State of Refund
you must not have any fixed establishment, seat of economic activity, place of business or other residence in the Member State of Refund
during the refund period you must not have supplied any goods or services in the Member State of refund with the exception of;

a) transport services and ancillary services

b) any goods or services where VAT is payable by the person to whom the supply is made (the reverse charge).

By submitting your application you are declaring that you meet these conditions.

How do I claim?

A separate online application is required for each Member State from which you wish to claim. In order to start an application you must access the relevant online services section and enter standard data into the required fields, along with invoice for expenditure you wish to reclaim.

Period application covers

The refund period must not be more than one calendar year or less than three calendar months. Generally refund periods do not have to cover strict calendar quarters. However, some Member States have their own requirements, and details of these can be obtained from the relevant tax authority.

Minimum amount that may be claimed

If the refund application relates to a period of less than a calendar year, but not less than three months the minimum amount claimable is EUR 400 or the equivalent in national currency.

If the refund application relates to a period of a calendar year or the remainder of a calendar year the minimum amount claimable is EUR 50 or the equivalent in national currency.

Invoices included on the application

Invoices relating to supplies of goods or services with a tax point during the period of the refund application should be included. Additionally, a business may claim for invoices not included in a previous application as long as they relate to the same calendar year.

VAT which cannot be included on a claim

A claim cannot include VAT which has been;

incorrectly invoiced,
invoiced in respect of goods despatched to another Member State or exported from the EC
incurred in respect of non-business activities

Information required from invoices being claimed

Name and address of your supplier
Except in cases of importation the VAT identification number or tax reference number of the supplier and the prefix of the Member State of Refund
Date and number of the invoice or importation document
Taxable amount and amount of VAT expressed in the currency of the Member State of refund
The amount of deductible VAT expressed in the currency of the Member State of refund
Where applicable the deductible proportion
Nature of the goods and services acquired, described according to the following expenditure codes: Fuel, Transport Hire, Road Tolls, Travel Expenses (taxi, public transport), Accommodation, Food and Restaurant Services, Admissions to Fairs and Exhibitions, Luxuries/Amusements/Entertainment.

If an invoice includes items covering more than one expenditure code the code relating to the highest proportion of expenditure is the one that should be used.

Restriction of applications in respect of partial exemption

A business must apply the appropriate recovery rate for the goods or services purchased against each invoice or importation on your application, and show the amount of VAT recoverable in the appropriate box. The recovery rate to be applied is the last percentage appropriate to the refund period covering the invoice date. Following an annual adjustment, you will not be required to amend refund applications already submitted. The invoices can only be entered once and the percentage to be used is that covering the invoice date.

Restriction of applications in respect of non-business expenses

Expenditure incurred in another Member State that relates to non-business activities is not claimable under the refund scheme.

Language needed on the application

Member States generally require the application to be in their own language they may allow the use of a second language in the free text fields, and English is a common option. The language(s) required by the Member State of Refund will be displayed on the electronic portal as you complete the application.

Invoices which may be required to be submitted electronically

A business may be requested to submit invoices with values of EUR 1,000 or more (EUR 250 or more in the case of fuel) with the application. All other invoices should be retained as they may be requested at a later date by the Member State of Refund.

Claim updates

A business will be informed electronically at the following key stages of the process.

If your application fails basic validation checks by the electronic portal
When HMRC forwards your application to the Member State of Refund
When the Member State of Refund receives the application
If the Member State of Refund requires additional information from you
When the Member State of Refund makes its decision

Time limits for submitting an application

Applications must be submitted to HMRC at the latest by 30 September of the calendar year following the refund year and will only be considered submitted if the applicant has completed all of the required standing data fields (see above).

Time limits for the Member State of refund to process an application

The Member State of Refund must notify the applicant of its decision to approve or refuse the application within four months of the date they first received the application.

Payment method

The refund will be paid in the Member State of Refund or, at the applicant’s request, in any other Member State. In the latter case, any bank charges for the transfer will be deducted by the Member State of Refund from the amount to be paid to the applicant.

Error on applications

The electronic portal provides a correction facility whereby a business can recall the original application and amend existing details. You may not, however, add new lines.

Penalties

All Member States take a very serious view of incorrect or false applications. Refunds claimed incorrectly on the basis of incorrect or false information can be recovered and penalties and interest may be imposed and further refund applications suspended.

Applications refused

If the Member State of Refund refuses an application fully or partly they must also notify you of the reasons for refusal.

If this happens you can appeal against the decision using the appeals procedure of that Member State. This means that the normal VAT appeals rules of that Member State on time limits, form of appeal etc., will apply.

Interest on delayed applications

Interest may be payable to you by the Member State of Refund if payment is made after the deadline. If applicable, it will be paid from the day following the deadline up to the date the refund is actually paid. Interest rates must be the same as those applied to refunds of VAT to taxable persons established in the Member State of Refund under the national law of that Member State.

Claims on UK VAT returns

VAT incurred overseas must not be claimed on a UK VAT return. If it is, it is liable to an assessment, penalties and interest levied in the UK by HMRC.

UK VAT Registration For Overseas Businesses – A Guide

By Marcus Ward 5 January 2016

When must an overseas business register for VAT in the UK?

This question is increasingly being asked by overseas entities which do business in the UK. So what are the requirements, and what choices are there?

Compliance

An overseas business must VAT register in the UK if:

• it makes any taxable supplies of goods and services in the UK in the course of furtherance of his business. These supplies could be of any description, but commonly are the sale of goods which are physically located in the UK and the operation of certain events that take place in the UK.

• the business is registered for VAT in another EC country, and it sells and delivers goods in the UK to customers who are not VAT-registered;so-called ‘distance sales’ (details here) and the value of those distance sales exceeds the relevant threshold (currently £70,000).

• it acquires goods in the UK directly from a VAT-registered supplier in another EC country and the total value of the acquisitions exceeds the acquisitions threshold.

• it makes a claim under the EC 8th Directive or EC 13th Directive and subsequently supplies the relevant goods in the UK.

If these tests are met, a supply is made in the UK. It does not matter in which country where the business “belongs” or where it’s staff or technical resources are located. A guide to the place of belonging here.

For VAT purposes, the UK includes the territorial sea of the UK (ie waters within twelve nautical miles of the coastline).

There is no need to register if the only UK supplies are those on which the customer is liable to account for any VAT due under the ‘reverse charge’ procedure.

An overseas trader may also be registered if:

• he has started in business but is not yet making taxable supplies, provided he can show the intention of making taxable supplies in the future as part of his business; or

• his turnover is below the threshold, provided he can prove to HMRC that he is carrying on a business for VAT purposes and making taxable supplies.

Consequences of registration

An overseas business which is registered or required to be registered for VAT in the UK must account for VAT in respect of those supplies and acquisitions taking place in the UK. It is also liable to VAT on imports of any goods into the UK and on the acquisition in the UK of excisable goods or of new means of transport from another EC country. It also usually means that any VAT incurred in the UK may be recovered as input tax. This is particularly relevant if import VAT is incurred on importing goods into the UK.

Registration options available

An overseas trader who is not normally resident in the UK, does not have a UK establishment and, in the case of a company, is not incorporated here, and which is required or entitled to be registered in the UK can normally choose between three registration options:

(1) It may appoint a VAT representative who will be jointly and severally liable for any VAT debts. The overseas trader must still complete a VAT registration form. In addition to this, both the overseas trader and the VAT representative must complete a Form VAT 1TR. It is understood that, in practice, very few businesses are prepared to provide the services of a VAT representative because they are unwilling to become liable for any VAT debts of the overseas trader.

(2) It may appoint an agent to deal with the VAT affairs. The agent cannot be held responsible to HMRC for any VAT debts and HMRC reserve the right not to deal with any particular agent. (In some cases, HMRC could insist that a tax representative is appointed although this cannot now be done where the overseas trader is based in a country where certain mutual assistance arrangements exist.) The overseas trader must still complete a VAT registration form. In addition, HMRC will need a letter of authority. A suggested letter of authority approved by HMRC is:

(Insert principal’s name) of (insert principal’s address) hereby appoints (insert name of UK agent or employee) of (insert address of UK agent or employee) to act as agent for the purpose of dealing with all their legal obligations in respect of Value Added Tax.

This letter authorises the above-named agent to sign VAT return forms 100 and any other document needed for the purpose of enabling the agent or employee to comply with the VAT obligations of the principal.

Signed (insert principal’s signature)

Date (insert date)

(3) It may deal with all the VAT obligations (including registration, returns and record-keeping) itself. To register, the overseas business should contact the Aberdeen VAT office at Ruby House, 8 Ruby Place, Aberdeen, AB10 1ZP (Tel: 01224 404807/818). This is known as a Non-Established Taxable Person (NETP) registration.

Summary

There can be confusion around this matter, not only from a technical aspect, but with an overseas business’ unfamiliarity with the UK authority’s requirements and also possibly language and communication problems. Additionally, the practical aspects of identifying the need to VAT register in the UK and the completion of forms etc can delay matters. Of course, just like any other VAT registration, there are penalties for not registering, or not registering at the appropriate time. There is also the reluctance of certain overseas businesses to deal with UK VAT at all. Unfortunately, a head in the sand attitude just stores up problems for the future. We have been called on to firefight on this topic a number of times, and it rarely ends well.