Tag Archives: input-tax

VAT – Bringing goods into the UK from other EU countries

By   8 June 2018
0

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: Wakefield College – Court of Appeal case

By   1 June 2018
0

Latest from the courts

Further to my article on the Wakefield College case here the Court of Appeal (CA) has dismissed the college’s appeal that certain of its activities were non-business.

Background 

The detailed background was set out in the above linked article, but to recap: In order for certain building works supplied to the appellant to be zero rated the resultant building has to be used for a “relevant charitable purpose” – that is; not for business purposes. This is the case even if there is a small amount of business activity in the building (as long as these can be shown to be insignificant; which is taken to be less than 5% of the activities in the whole building).

The issue

The issue here was whether the education provided by the college could be deemed non-business because, although the majority was grant funded, students were also required to make a contribution to their education. This is dependent upon whether the provision of courses by the college to students paying subsidised fees was, an economic activity carried on by it for the purposes of article 9 of the VAT Directive and consequently, a “business” within Note (6)  of Group 5 in Schedule 8 to the VAT Act 1994.

The 1994 Act provides, at group 5 of schedule 8, for the zero-rating of various supplies made in the course of construction of certain buildings including:

“The supply in the course of construction of

(a) a building … intended solely for use for … a relevant charitable purpose…

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity”.

Note (6) to group 5 provides:

“Use for a relevant charitable purpose means use by a charity… –

(a) otherwise than in the course or furtherance of a business.”

Decision

The CA found that the fact that the students paid for education (an exempt supply) meant that it was a business activity as consideration flowed in both directions. The proportion of the costs paid by the student amounted to between 25% and 30% of the total cost and could therefore not be deemed insignificant.

Commentary

It is worth reconsidering comments made by the judge in his summing up in the Upper Tribunal hearing.

 “We cannot leave this appeal without expressing some disquiet that it should have reached us at all. It is common ground that the College is a charity, and that the bulk of its income is derived from public funds. Because that public funding does not cover all of its costs it is compelled to seek income from other sources; but its doing so does not alter the fact that it remains a charity providing education for young people. If, by careful management or good fortune, it can earn its further income in one way rather than another, or can keep the extent of the income earned in particular ways below an arbitrary threshold, it can escape a tax burden on the construction of a building intended for its charitable purpose, but if it is unable to do so, even to a trivial extent, it is compelled to suffer not some but all of that tax burden. We think it unlikely that Parliament intended such a capricious system. We consider it unlikely, too, that Parliament would consider it a sensible use of public money for the parties to litigate this dispute twice before the FTT and now twice before this tribunal. We do not blame the parties; the College is obliged to maximise the resources available to it for the pursuit of its charitable activities, just as HMRC are obliged to collect tax which is due. Rather, we think the legislation should be reconsidered. It cannot be impossible to relieve 16 charities of an unintended tax burden while at the same time protecting commercial organisations from unfair competition and preventing abuse”.

So, although the result may be seen as “unfair” on the college, the strict letter of the VAT legislation does not provide the courts with any alternative but to impose a VAT charge on the construction works – a charge which the college will have to bear as it is unable to recover it as input tax due to the partial exemption rules.

This illustrates the complexity with both the concept of business/non-business and property and construction issues. When the two technical areas collide, as in this case, matters can get very complicated and proper advice is vital. This is especially important with charities as they benefit from very few VAT reliefs and it is important to ensure that those available are correctly taken advantage of.

VAT – The Partial Exemption Annual Adjustment

By   8 May 2018
0

What is the annual adjustment? Why is it required?

An annual adjustment is a method used by a business to determine how much input tax it may reclaim.

Even though a partly exempt business must undertake a partial exemption calculation each quarter or month, once a year it will have to make an annual adjustment as well.

An annual adjustment is needed because each tax period can be affected by factors such as seasonal variations either in the value supplies made or in the amount of input tax incurred.

The adjustment has two purposes:

  • to reconsider the use of goods and services over the longer period; and
  • to re-evaluate exempt input tax under the de minimis rules.

A MWCL explanation of the Value Added Tax Partial Exemption rules is available here

Throughout the year

When a business makes exempt supplies it will be carrying out a partial exemption calculation at the end of each VAT period. Some periods it may be within the de minimis limits and, therefore, able to claim back all of its VAT and in others there may be some restriction in the amount of VAT that can be reclaimed. Once a year the business will also have to recalculate the figures to see if it has claimed back too much or too little VAT overall. This is known as the partial exemption annual adjustment. Legally, the quarterly/monthly partial exemption calculations are only provisional, and do not crystallise the final VAT liability. That is done via the annual adjustment.

The first stage in the process of recovering input tax is to directly attribute the costs associated with making taxable and exempt supplies as far as possible. The VAT associated with making taxable supplies can be recovered in the normal way while there is no automatic right of deduction for any VAT attributable to making exempt supplies.

The balance of the input tax cannot normally be directly attributed, and so will be the subject of the partial exemption calculation. This will include general overheads such as heating, lighting and telephone and also items such as building maintenance and refurbishments.

The calculation

Using the partial exemption standard method the calculation is based on the formula:

Total taxable supplies (excluding VAT) / Total taxable (excluding VAT) and exempt supplies x 100 = %

This gives the percentage of non-attributable input VAT that can be recovered. The figure calculated is always rounded up to the nearest whole percentage, so, for example, 49.1 becomes 50%. This percentage is then applied to the non-attributable input VAT to give the actual amount that can be recovered.

Once a year

Depending on a businesses’ VAT return quarters, its partial exemption year ends in either March, April, or May. The business has to recalculate the figures during the VAT period following the end of its partial exemption year and any adjustment goes on the return for that period. So, the adjustment will appear on the returns ending in either June, July, or August. If a business is newly registered for VAT its partial exemption “year” runs from when it is first registered to either March, April or May depending on its quarter ends.

Special methods

The majority of businesses use what is known as “the standard method”. However, use of the standard method is not mandatory and a business can use a “special method” that suits a business’ activities better. Any special method has to be “fair and reasonable” and it has to be agreed with HMRC in advance. When using a special method no rounding of the percentage is permitted and it has to be applied to two decimal places.

Commonly used special methods include those based on staff numbers, floor space, purchases or transaction counts, or a combination of these or other methods.

However, even if a business uses a special method it will still have to undertake an annual adjustment calculation once a year using its agreed special method.

De minimis limits

If a business incurs exempt input tax within certain limits it can be treated as fully taxable and all of its VAT can be recovered. If it exceeds these limits none of its exempt input tax can be recovered. The limits are:

  • £625 per month on average (£1,875 per quarter or £7,500 per annum) and;
  • 50% of the total input VAT (the VAT on purchases relating to taxable supplies should always be  greater than the VAT on exempt supplies to pass this test)

The partial exemption annual adjustments are not errors and so do not have to be disclosed under the voluntary disclosure procedure. They are just another entry for the VAT return to be made in the appropriate VAT period.

Conclusion

If a business fails to carry out its partial exemption annual adjustment it may be losing out on some input VAT that it could have claimed. Conversely, it may also show that it has over-claimed input tax. When an HMRC inspector comes to visit he will check that a business has completed the annual adjustment. If it hasn’t, and this has resulted in an over-claim of input VAT, (s)he will assess for the error, charge interest, and if appropriate, raise a penalty. It is fair to say that partly exempt businesses tend to receive more inspections than fully taxable businesses.

VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide

By   11 April 2018
0

VAT and TOMS: Complex and costly

Introduction

The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every EU country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK, within the EU but outside the UK, and wholly outside the EU.

Under the scheme:

  • VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
  • A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
  • There are special rules for determining the place, liability and time of margin scheme supplies.
  • VAT invoices cannot be issued for margin scheme supplies.
  • In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
  • No VAT is due via TOMS on travel/accommodation/tours enjoyed outside the EU.

Who must use the TOMS?

TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by

  • Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
  • Coach operators who buy in hotel accommodation in order to put together a package
  • Companies that arrange conferences, including providing hotel accommodation for delegates
  • Schools arranging school trips
  • Clubs and associations
  • Charities.

The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.

Supplies covered by the TOMS

The TOMS must be used by a person acting as a principal or undisclosed agent for

  • ‘margin scheme supplies’; and
  • ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).

‘Margin scheme supplies’ are those supplies which are

  • bought in for the purpose of the business, and
  • supplied for the benefit of a ‘traveller’ without material alteration or further processing

by a tour operator in an EU country in which he has established his business or has a fixed establishment.

A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.

Examples

If meeting the above conditions, the following are always treated as margin scheme supplies.

  • Accommodation
  • Passenger transport
  • Hire of means of transport
  • Use of special lounges at airports
  • Trips or excursions
  • Services of tour guides

Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include

  • Catering
  • Theatre tickets
  • Sports facilities

Of course, who knows how Brexit will impact TOMS. It may be that UK businesses will be unable to take advantage of this easement and will be required to VAT register in every Member State that it does business * shudder *

This scheme is extremely complex and specialist advice should always be sought before advising clients.

New VAT Road Fuel Scale Charges from 1 May 2018

By   28 March 2018
0

HMRC have announced new figures for the valuation of Road Fuel Scale Charges.

These are used to calculate how much VAT is payable to HMRC on fuel if a person uses a business car for private purposes. This avoids having to keep detailed mileage records.

A summary here:

Description of vehicle: vehicle’s CO2 emissions figure VAT inclusive consideration for a 12 month prescribed accounting period (£) VAT inclusive consideration for a 3 month prescribed accounting period (£) VAT inclusive consideration for a 1 month prescribed accounting period (£)
120 or less 562 140 46
125 842 210 70
130 900 224 74
135 954 238 79
140 1,013 252 84
145 1,067 266 88
150 1,125 280 93
155 1,179 295 98
160 1,238 309 102
165 1,292 323 107
170 1,350 336 111
175 1,404 351 116
180 1,463 365 121
185 1,517 379 125
190 1,575 393 130
195 1,630 407 135
200 1,688 421 140
205 1,742 436 145
210 1,801 449 149
215 1,855 463 154
220 1,913 477 159
225 or more 1,967 491 163

HMRC have made a simple tool available for these calculations (which will now have to be updated…..).

VAT: Making Tax Digital (MTD) New Regulations

By   5 March 2018
0

The regulations for MTD have been published. These are known as The Value Added Tax (Amendment) Regulations 2018 and full details are available here

The Regulations set out that businesses to which the Regulations apply (see below) will be required to retain electronic records using functional compatible software and submit VAT returns via an Application Programming Interface (API) platform. HMRC has previously announced that acceptable software will include spreadsheets, but these will be required to be used in specific ways.

We are yet to see precise details of the relevant software and API platform, but it makes sense for VAT registered businesses to consider the implications of MTD and to plan for its introduction. 1 April 2109 seems a way off, but as always, it’s best not to wait until the last minute.  We expect more information in the coming months and we will endeavour to keep you up to date.

Background

MTD for VAT will come into effect from 1 April 2019. From that date, businesses with a turnover above the VAT threshold (currently £85,000) will have to:

  • keep their records digitally (for VAT purposes only), and;
  • provide their VAT return information to HMRC through MTD functional compatible software

What is compatible software?

The VAT Notice defines “functional compatible software” as “a software program or set of compatible software programs the functions of
which include—recording and preserving electronic records in an electronic form; providing to HMRC information from the electronic
records and returns in an electronic form and by using the API platform; and receiving information from HMRC using the API platform in
relation to a person’s compliance with obligations under these Regulations which are required to be met by use of the software”.

Submission to HMRC may be either through linking/bridging software or via API enabling the spreadsheets to access HMRC APIs and report data to HMRC systems.

What HMRC say about MTD

MTD was introduced with the following comments:

“The government recognises that the majority of businesses want to get their tax right, but the latest tax gap figures published by HMRC show that too many otherwise compliant businesses find this hard, even some who use an agent to help them. As a result over £8 billion a year in tax is lost from avoidable taxpayer errors.  This not only costs the public purse, it also causes businesses cost, uncertainty and worry when HMRC is forced to intervene to put things right.

HMRC wants to do more to help businesses get their tax right and MTD is a very important step in that direction. It will help businesses steer clear of avoidable errors, and give them a clearer view of their tax position in-year.

Businesses (including self-employed and landlords) will keep records of their income and expenditure digitally, and send summary updates quarterly to HMRC from their software (or app).

MTD will bring the tax system into line with what businesses and individuals now expect from other online service providers: a modern digital experience

MTD will help businesses get their tax and NICs right first time. That will reduce the likelihood of errors, giving businesses greater certainty

MTD is anticipated to take out around 10% of error on an ongoing basis, and give businesses a clearer view of their tax position in-year, enabling them to plan to meet their tax obligations at minimum cost and minimum disruption…”

 Please contact us if you have any queries or would like to discuss MTD.

VAT: Latest from the courts – Hastings Insurance Place Of Supply

By   22 February 2018
0

In the First Tier Tribunal (FTT) case of Hastings Insurance the issue was where was the place of supply (POS) of services?

The POS rules determine under which VAT regime the supply is treated, whether the associated input tax may be recovered and how the services are reported. Consequently, determining the POS for any supply is vitally important because getting it wrong may not only mean that tax is overpaid in one country, but it is not declared in the appropriate country so that penalties and interest are levied. Getting it wrong also means that the input tax position is likely to be incorrect; meaning that VAT can be over or underclaimed.  The rules for the POS of services are notoriously complicated and even subtle differences in a business’ situation can produce a different VAT outcome.

Background

Hastings is an insurance services company operating in the UK.  The appeal relates to whether the appellant was able to recover input tax it incurred in the UK which was attributable to supplies of; broking, underwriting support and claims handling services made to a Gibraltar based insurance underwriter (Advantage) which supplied motor insurance to UK customers through Hastings. In order to obtain credit for the relevant input tax, the supply to Advantage must have a POS outside the EU, eg: the recipient had a place of belonging in Gibraltar and not the UK. HMRC argued that Advantage belonged in the UK so that the input tax could not have been properly recoverable.  Consequently, the issue was where Advantage “belonged” for VAT purposes.

The POS rules set out where a person “belongs”.

A taxable person belongs:

  • where it has a business establishment, or;
  • if different, where it has a fixed establishment, or;
  • if it has both a business establishment and a fixed establishment (or several such establishments), where the establishment is located which is most directly concerned with the supply

Further details on this point are explained here

Contentions

It was not disputed that Advantage had a business establishment in Gibraltar. The question was whether it also had a fixed establishment in the UK and, if so, whether the supplies of services were made to that fixed establishment rather than to its business establishment in Gibraltar. HMRC contended that Advantage had a fixed establishment in the UK which was “more directly concerned with the supply of insurance” such that the POS was the UK. This was on the basis that Advantage had human and technical resources in the UK which were actually used to provide its services to UK customers. Hastings obviously argued to the contrary; that Advantage had no UK fixed establishment and that services were supplied to, and by, Advantage in Gibraltar.

Technical

It may be helpful to look briefly at CJEU case law which considered what an establishment other than a business establishment is. It is: “characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources”, where looking at the location of the recipient of the supply, “to enable it to receive and use the services supplied to it for its own needs” or, where looking at the location of the supplier, “to enable it to provide the services which it supplies”. 

Decision

The FTT concluded that the input tax in dispute is recoverable because it was attributable to supplies made to Advantage on the basis that it belonged outside the EU (as interpreted in accordance with the relevant EU rules and case law). After a long and exhaustive analysis of the facts the summary was;

  • The appellant’s human and technical resources, through which it provided the services to Advantage, did not comprise a fixed establishment of Advantage in the UK, whether for the purposes of determining where Advantage made supplies of insurance or where the appellant made the supplies of its services.
  • Even if, contrary to the FTT’s view, those resources comprised a fixed establishment in the UK, there is no reason to depart from the location of Advantage’s business establishment in Gibraltar as the place of belonging/supply in the circumstances of this case.

Summary

If this case affects you or your clients it will be rewarding to consider the details of the arrangements which are helpfully set out fully in the decision. This was, in my opinion, a borderline case which could have been decided differently quiet easily.  A significant amount of the evidence produced was deemed inadmissible; which is an interesting adjunct to the main issue in itself. Whether HMRC take this matter further remains to be seen.  It is always worthwhile reviewing a business’ POS in depth and we are able to assist with this.

VAT: Timeshare is exempt

By   19 February 2018
0

Latest from the courts

The Fortyseven Park Street Ltd (FPSL) Upper Tribunal case.

Brief technical overview

In general terms the provision of a “timeshare” in the UK is standard rated for VAT. This is because HMRC regard supplies of this type to be similar to hotels, inns, boarding houses and are treated as “serviced flats” (other than those for permanent residential use). The appellant sought to argue that what it provided was not “similar” to a hotel or boarding house.

Background

The issue in the FPSL case was whether “Fractional Interests” (akin to timeshares) in a property amount to an exempt supply of that property. The Fractional Interests entitled FPSL’s clients up to 21 days a year in block of apartments in Mayfair.

The First Tier Tribunal (FTT) determined that here were three main issues:

  • The FTT decided that the supplies of the Fractional Interests fell within the exemption from VAT provided for the leasing or letting of immovable property.
  • However, the FTT further found that the land exemption was excluded because the grant of the Fractional Interests was the provision of accommodation in a similar establishment to an hotel.
  • The therefore FTT dismissed FPSL’s argument that under the principle of fiscal neutrality the supplies of the Fractional Interests should be treated in the same way (exempt) as more traditional timeshare interests.

Decision

The UT decided that the relevant interests provided amounted to an exempt supply of the property. This was on the basis that the judges concluded that the grant of the Fractional Interest was the grant of a right to occupy a residence and to exclude others from enjoying such a right, and was thus within the concept of the “letting of immovable property”.  It was also found that the supply was a passive activity and not outside the land exemption by reason of FPSL having added significant value to the service despite providing; certain additional facilities, services (eg; concierge) and benefits to clients – this was not, it was decided, a situation where the appellant had actively exploited the asset to add value to the supply (which may have made it taxable). The UT also ruled that as the concierge was provided by a third party, it could not be combined to form a single supply made by FPSL thus emphasising the fact that this was a more passive activity.

It was noted that there was a distinction in this case from supplies of boutique hotels (which are standard rated hotel accommodation) because residents were contracting for the supply of a long-term right to occupy an apartment and not a series of short-term stays and that the high amount paid for the Fractional Interest brought with it certain financial obligations which are not found in the hotel industry.

Commentary

This is an interesting case and the decision somewhat surprising.  There is a subtle distinction between what was provided here and serviced flats or hotel accommodation, but the UT found it sufficient to apply exempt treatment. If you, or your clients may be affected by this decision, please contact us.

VAT: Doctors and healthcare professionals

By   29 January 2018
0

VAT and Doctors

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.)

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?”

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 the value of them. 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 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 predominately 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 partial exemption rules (see below). You will have to keep records in a certain way 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. There is a set way in which the recoverable portion of this VAT is calculated. 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.

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, paperwork and staff time
  • Exposure to VAT 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 EU cases
  • Potential increased costs to the practice in respect of professional fees.

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

VAT – What records must be kept by a business?

By   9 January 2018
0

Requirements for VAT records by taxable persons

I thought that it may be useful to round-up all the record-keeping requirements in one place and focus on what HMRC want to see. It is a good time to review record-keeping requirements as Making Tax Digital (MTD) is on the horizon. More on MTD in a later article.

General requirements

Every taxable person must keep such records as HMRC may require. Specifically, every taxable person must, for the purposes of accounting for VAT, keep the following records:

  • business and accounting records
  • VAT account
  • copies of all VAT invoices issued
  • VAT invoices received
  • certificates issued under provisions relating to fiscal or other warehouse regimes
  • documentation relating to acquisitions of any goods from other EC countries
  • copy documentation issued, and documentation received, relating to the transfer, dispatch or transport of goods by him to other EU countries
  • documentation relating to imports and exports
  • credit notes, debit notes and other documents which evidence an increase or decrease in consideration that are received, and copies of such documents issued
  • copy of any self-billing agreement to which the business is a party
  • where the business is the customer party to a self-billing agreement, the name, address and VAT registration number of each supplier with whom the business has entered into a self-billing agreement

Additionally

HMRC may supplement the above provisions by a Notice published by them for that purpose. They supplement the statutory requirements and have legal force.

Business records include, in addition to specific items listed above, orders and delivery notes, relevant business correspondence, purchases and sales books, cash books and other account books, records of daily takings such as till rolls, annual accounts, including trading and profit and loss accounts and bank statements and paying-in slips.

Unless the business mainly involves the supply of goods and services direct to the public and less detailed VAT invoices are issued, all VAT invoices must also be retained. Cash and carry wholesalers must keep all till rolls and product code lists.

Records must be kept of all taxable goods and services received or supplied in the course of business (standard and zero-rated), together with any exempt supplies, gifts or loans of goods, taxable self-supplies and any goods acquired or produced in the course of business which are put to private or other non-business use.

All records must be kept up to date and be in sufficient detail to allow calculation of VAT. They do not have to be kept in any set way but must be in a form which will enable HMRC officers to check easily the figures on the VAT return. Records must be readily available to HMRC officers on request. If a taxable person has more than one place of business, a list of all branches must be kept at the principal place of business.

Comprehensive records

In addition, we always advise businesses to retain full information of certain calculations such as; partial exemption, the Capital Goods Scheme, margin schemes, TOMS, business/non-business, mileage and subsistence claims, promotional schemes, vouchers, discounts, location of overseas customers, MOSS, and distance selling amongst other records. The aim is to ensure that any inspector is satisfied with the records and that any information required is readily available. This avoids delays, misunderstandings and unnecessary enquiries which may lead to assessments and penalties.

If you have any doubts that your business records are sufficient, please contact us.