Tag Archives: international-vat

VAT Implications of Transfer Pricing – Valuation

By Marcus Ward 24 April 2017

The EC has recently published a paper on the possible VAT implications of Transfer Pricing (TP) here

This Working Paper considers when TP adjustments may affect the application of VAT. The main conflict is highlighted as the difference between how sales are valued. For TP purposes value is determined via arm’s length (open market value) versus the subjective value, ie; the price actually paid, for VAT purposes.

Transfer Pricing

The arm’s length principle is the international transfer pricing standard that Organisation for Economic Co-operation and Development (OECD) member countries have agreed, and which should be used for tax purposes by Multinational Enterprise Group (“MNE group”) and tax administrations, including the price, match comparable market conditions and that profits are fairly divided between the jurisdictions in which MNE operates.

According to the OECD TP Guidelines, by seeking to adjust profits by reference to the conditions which would have been obtained between independent enterprises for comparable transactions and under comparable circumstances, ie; in “comparable uncontrolled transactions” the arm’s length principle treats the members of an MNE group as entities operating separately rather than as inseparable parts of a single unified business. Because the separate entity approach treats the members of an MNE group as if they were independent entities, attention is focused on the nature of the transactions between those members and on whether the conditions thereof differ from those that would be obtained in comparable uncontrolled transactions.

VAT

It is not generally required for VAT purposes that the consideration which must be present in order for a transaction to be qualified as taxable, has to reflect the market value of the goods or services supplied. In fact, as to the concept of “consideration”, it is settled case law of the CJEU that the taxable amount for the supply of goods or services is represented by the consideration actually received for them.

I shan’t rehearse the details here as they are clearly set out in the paper linked to above.

However, it is an important area of tax and I strongly recommend reading the Working Paper for any business or adviser involved in international supplies. It is also an interesting read for students of the tax technical side of such supplies.

We have a strong global structure of skilled advisers which are able to assist if you have any queries.

VAT EORI – What is it? Do I need one?

By Marcus Ward 19 April 2017

What is an EORI?

EORI is an acronym for Economic Operator Registration & Identification.

An EORI number is assigned to importers and exporters by HMRC, and is used in the process of customs entry declarations and customs clearance for both import and export shipments travelling to or from the EU and countries outside the EU.

What is the EORI number for?

An EORI number is stored both nationally and on a central EU EORI database. The information it provides is used by customs authorities to exchange information, and to share information with government departments and agencies. It is used for statistical and security purposes.

Who needs an EORI number?

You will require an EORI number if you are planning to import or export goods with countries outside the EU. Also, you may need an EORI number to trade with these countries in Europe: Andorra, Bosnia and Herzegovina, Gibraltar, Guernsey, Iceland, Jersey, Liechtenstein, Macedonia, Moldova, Norway, Switzerland.

Format of the EORI number

VAT registered companies will see the EORI as an extension of their VAT number. Your VAT nine digit VAT number will be prefixed with “GB” and suffixed with “000”.

How do I apply for an EORI Number?

Non VAT registered companies can apply using this link – FORM C220

VAT registered companies can apply using this link – FORM C220A

Once completed, your form should be emailed to: eori@hmrc.gsi.gov.uk

How long will my EORI application take?

EORI applications take up to three working days to process.

Please contact us if you have any issues with importing or exporting.

VAT legislation – relationship between EU and UK law. A guide

By Marcus Ward 10 April 2017

How does the UK system fit with EU legislation?

Further to my recent article on the legal impact of The Great Repeal Bill and Article 50 here I thought it would be a good idea to take a step back and look at the background. We now know that on the day the UK leaves the EU the following rules will still apply and that there will be no immediate changes to the status quo. After Brexit there is likely to be a review of the VAT position, but we expect any changes to the system to be subtle at first with any significant changes (if any) being made over a much longer period.

So where are we now?

As most people will know, UK domestic VAT law is derived from EU legislation, but what is the actual relationship?

It is important to understand how both elements of legislation work in cases of dispute with HMRC as it often provides additional ammunition.

History

Most Member States already had a system of VAT before joining the EU but for some countries VAT had to be introduced together with membership of the EU.

When the UK joined the EU in 1972 it replaced two taxes; purchase tax and selective employment tax with VAT.

In 1977, the Council of the European Communities sought to harmonise the national VAT systems of its Member States by issuing the Sixth Directive to provide a uniform basis of assessment and replacing the Second Directive promulgated in 1967.

Council Directive 2006/112/EC (the VAT Directive) sets out the infrastructure for a common VAT system which each Member State is required to implement by means of its own domestic legislation. This important Directive codifies into one piece of legislation all the amendments to the original Sixth Directive, thus clarifying EU VAT legislation currently in force.

Intention

The aim of the VAT Directive is to harmonise the indirect tax within the EU, and it specifies that VAT rates must be within a certain range. The basic aims are:

Harmonisation of VAT law
Harmonisation of content and layout of the VAT declaration
Regulation of; accounting, providing a common legal accounting framework
Common framework for detailed description of invoices and receipts
Regulation of accounts payable
Regulation of accounts receivable
Standard definition of national accountancy and administrative terms

EU Statements

There are four types of EU statements:

Regulations – Are binding in their entirety and have general effect to all EU Member States. They are directly applicable in the UK legal system
Directives – Are binding as to result and their general effect is specific to named EU countries. The form and methods of compliance are left to the addressees.
Decisions – Are binding in their entirety and are specific to an EU country, commercial enterprise or private individual.
Recommendations and Opinions – Are not binding and are directed to specific subjects on which the Council’s or Commission’s advice has been sought.

EU Legislation as part of UK Legislation

EU law is made effective for UK legislation via European Communities Act 1972 section 2. The effects of EU law as regards UK VAT legislation is summarised as follows.

Direct effect

The Court of Justice has held “wherever the provisions of a directive appear … to be unconditional and sufficiently precise, those provisions may … be relied upon as against any national provision which is incompatible with the directive insofar as the provisions define rights which individuals are able to assert against the state” – Becker. Also, in UFD Ltd it was stated that “in all appeals involving issues of liability, the Tribunal should consider the relevant provisions of the Council directives to ensure that the provisions of the UK legislation are consistent therewith”.

Primacy of EU Directives over UK legislation

A UK court which is to apply provisions of EU law is under a duty to give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation.

Interpretation of UK law

If UK VAT legislation is unclear or ambiguous, Tribunals are “entitled to have regard to the provisions of the relevant EU Directive in order to assist in resolving any ambiguity in the construction of the provisions under consideration’ (English-Speaking Union of the Commonwealth).

Legal principles

In implementing the common VAT structure, domestic legislation is required to recognise certain legal principles.

Examples of some of these are the principle of:

Equality of citizens
Subsidiarity and proportionality
Non-discrimination on grounds of nationality
Fiscal neutrality
Legal certainty and the protection of legitimate expectations.

Practical application for most taxpayers

Practically, a result of the above is that taxpayers are regularly able to recover VAT (plus interest) paid to HMRC in error in cases where the UK domestic legislation has not implemented EU law correctly. However, HMRC has no right to recovery where VAT has been under-collected as a result of inappropriate implementation of the EU legislation.

VAT Legal impact of The Great Repeal Bill and Article 50

By Marcus Ward 3 April 2017

Changes to VAT on the day the UK leaves the EU – details of new White Paper

There has been significant confusion and differing views over how the UK would treat existing CJEU case law and its impact on the UK legislation when the UK leaves the EU.

Welcome certainty and clarity has been provided by the publication of a White Paper in respect The Great Repeal Bill (GRB). Full details of the GRB here

Background

The European Communities Act 1972 (ECA) gives effect in UK law to the EU treaties. It incorporates EU law into the UK domestic legal order and provides for the supremacy of EU law. It also requires UK courts to follow the rulings of the Court of Justice of the European Union (CJEU). Some EU law applies directly without the need for specific domestic implementing legislation, while other parts of EU law need to be implemented in the UK through domestic legislation. As explained in the White Paper, domestic legislation other than the ECA also gives effect to some of the UK’s obligations under EU law. The government states that “…it is important to repeal the ECA to ensure there is maximum clarity as to the law that applies in the UK, and to reflect the fact that following the UK’s exit from the EU it will be UK law, not EU law, that is supreme.” The GRB will repeal the ECA on the day we leave the EU.

Overview

The main point stressed in the White Paper is that “The same rules and laws will apply on the day after exit as on the day before. It will then be for democratically elected representatives in the UK to decide on any changes to that law, after full scrutiny and proper debate” and “This Bill will, wherever practical and appropriate, convert EU law into UK law from the day we leave so that we can make the right decisions in the national interest at a time that we choose.”

The intention is that the GRB will do three things:

It will repeal the ECA and return power to UK institutions.
The Bill will convert EU law as it stands at the moment of exit into UK law before we leave the EU. This allows businesses to continue operating knowing the rules have not changed significantly overnight, and provides fairness to individuals, whose rights and obligations will not be subject to sudden change. It also ensures that it will be up to the UK Parliament (and, where appropriate, the devolved legislatures) to amend, repeal or improve any piece of EU law (once it has been brought into UK law) at the appropriate time once we have left the EU.
The Bill will create powers to make secondary legislation. This will enable corrections to be made to the laws that would otherwise no longer operate appropriately once we have left the EU, so that our legal system continues to function correctly outside the EU, and will also enable domestic law once we have left the EU to reflect the content of any withdrawal agreement under Article 50.

This means that case law precedent from the CJEU will continue to apply (for a time at least). Any uncertainties/disagreements over the meaning of UK law after the UK leaves the EC that has been derived from EU cases will be decided by reference to the CJEU case law as it exists on the day the UK leaves. As a consequence, the GRB is likely to give CJEU case law similar precedent status to the UK Supreme Court. The result is that Tribunals (and other court cases) will be heard in a similar way as they are now and both sides may continue to rely on case law as they have up to this point. Any changes to the VAT legislation, if any, may then be made at a more leisurely pace while providing certainty while this is done.

Customs

There will also be changes to the current UK Customs regime as a consequence of the UK leaving the Single Market. The Customs Declaration Services (CDS) programme is intended to replace the existing system for handling import and export freight (CHIEF) from January 2019. Now that the Government has made a decision to leave the EU customs union, there is concern that this project is in place on time. A letter from the Treasury Select Committee states that “even modest delays, there is potential for major disruption to trade and economic activity”.

There are still a lot of uncertainties which will not be dealt with until we know the terms of the UK leaving and we will try to report these as soon as we have any information. Please subscribe to our free monthly e-newsletter to keep up to date on this, and other VAT developments. Simply email us at marcus.ward@consultant.com

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 Latest from the courts – Evidence for zero rated exports

By Marcus Ward 10 March 2017

In the First Tier Tribunal case of Grange Road Car Sales one of the main issues was the evidence required to satisfy HMRC that goods have actually left the UK (and, as exports, be zero rated). If a business cannot satisfy HMRC then the sales must be standard rated. There are different levels of evidence required for different types of export, and this case is a handy reminder of the importance of having the correct documentation. I have briefly set out below the different requirements and would strongly advise that any business that exports, regularly or occasionally, to keep this situation under constant review. It is an area which is easy for HMRC to “pick off” transactions and to be “unsatisfied”…

The case

In this case the supplier of cars was based in Northern Ireland and purportedly exported cars to the Republic of Ireland. The purchasers were said to drive the cars over the land boundary. In brief, the appeal was thrown out because both the evidence given in court and the documentation provided appears to have been woefully lacking; which is putting it politely. The case makes entertaining reading (if reading about VAT cases is your thing!). However, it does raise a serious point about exports.

An overview of export requirements

These requirements for exports are set out in Public Notice 703 (although in this case, as the supply was said to be intra-EU, the rules are set out in Public Notice 725). Not only are the requirements prescribed in detail, but they have the force of law (unlike a lot of HMRC’s published Notices). Unless these conditions are met, it is not possible to treat an export as zero rated, even if a business knows that the goods have physically left the UK.

Proof of export

The section of the Notice covering evidence is mainly set out in paragraph 6.

Official evidence

Official evidence is produced by Customs systems, for example Goods Departed Messages (GDM) generated by NES.

Commercial transport evidence

This describes the physical movement of the goods, for example:

Authenticated sea-waybills
Authenticated air-waybills
PIM/PIEX International consignment notes
Master air-waybills or bills of lading
Certificates of shipment containing the full details of the consignment and how it left the EC, or
International Consignment Note/Lettre de Voiture International (CMR) fully completed by the consignor, the haulier and the receiving consignee, or Freight Transport Association own account transport documents fully completed and signed by the receiving customer

Photocopy certificates of shipment are not normally acceptable as evidence of export, nor are photocopy bills of lading, sea-waybills or air-waybills (unless authenticated by the shipping or airline).

Supplementary evidence

You are likely to hold, within your accounting system some, or all, of the following:

customer’s order
sales contract
inter-company correspondence
copy of export sales invoice
advice note
consignment note
packing list
insurance and freight charges documentation
evidence of payment, and/or
evidence of the receipt of the goods abroad.

You must hold sufficient evidence to prove that a transaction has taken place, though it will probably not be necessary for you to hold all of the items listed.

What must be shown on export evidence?

The evidence you obtain as proof of export, whether official or commercial, or supporting must clearly identify:
the supplier
the consignor (where different from the supplier)
the customer
the goods
an accurate value
the export destination, and
the mode of transport and route of the export movement

Vague descriptions of goods, quantities or values are not acceptable. An accurate value, for example; £50,000 must be shown and not excluded or replaced by a lower or higher amount.

How long must I retain export documentation?

To substantiate zero-rating a transaction you must make sure that the proof of export is:

kept for six years, and
made readily available to any visiting VAT Officer to substantiate the zero-rating of your exports

What happens if I do not hold the correct export evidence?

If you do not hold the correct export evidence, within the appropriate time limits, then the goods supplied become subject to VAT at the appropriate UK rate.

Additional, or different, evidence is required in the following cases:

The supply is to a recipient in the EU
Where the supplier does not arrange shipment of the goods
Where an overseas customer arranges his own export
Merchandise in baggage (MIB)
Groupage or consolidation transactions
Postal exports
Exports by courier and fast parcel services
Exports by rail
Exports through packers
Exports through auctioneers
Exports from Customs, Excise and/or Fiscal warehouses
Supplies to the Foreign and Commonwealth Office
Exports to the Channel Islands

This list is not exhaustive.

Summary

As may be seen, there is a degree of complexity here, and curiously, just waving a car off to a different country does not create, in itself, a zero rated export.

We are able to review a business’ export procedures to ensure that, as far as possible, HMRC is satisfied that goods have left the UK and that the correct documentation is held to evidence this.

Please contact us if this service is of interest.

VAT Latest from the courts – Reverse Charge

By Marcus Ward 13 February 2017

The First Tier Tribunal case of University Of Newcastle Upon Tyne is a useful reminder of the impact of the Reverse Charge.

A brief guide to the Reverse Charge is included below.

Background

As with many UK universities, Newcastle was keen to encourage applications to study from new students from overseas. This is an important form of income for the institution. It used local (overseas) agents to recruit students. Some 40% of those students were studying as undergraduates, 40% as postgraduates on one year “taught” courses and 20% as postgraduate research students studying for doctorates. In 2014 the University had agreements with more than 100 agents worldwide. The agents used their own resources to recruit students for universities around the world, including in the UK. The University entered into contractual arrangements with agents and paid commission to them. In 2008 the University paid agent commissions of £1.034m, rising to £2.214m in 2012.

The Tribunal was required to consider whether the services supplied by the agents were a single supply to University or separate supplies to both the University and students. If the entire supply is to the University then the Reverse Charge is applicable and, because the University is partly exempt, this would create a VAT cost to it. If the supplies are to both the students and the University, the Reverse Charge element would be less and the VAT cost reduced. (There were changes to the Place Of Supply legislation during the period under consideration, but I have tried to focus on the overall impact in this article.)

The University contended that agents made two supplies: a supply to the University of recruitment services and a supply to students of support services. The commission paid by the University should therefore be apportioned so as to reflect in part direct consideration paid by the University for supplies of services to it, and in part third party consideration for services supplied to the students. The supplies to students would not made in the UK and therefore were not subject to UK VAT.

Decision

After thorough consideration of all of the relevant material, the judge decided that the agents made a single supply of services to the University and make no supplies to students. This meant that the University must account for VAT on the full value of services received since 2010 under the Reverse Charge (although before 2010 different rules on place of supply applied). Additionally, it was decided the University was not entitled to recover as input tax VAT for which it is required to account by means of a Reverse Charge. There was no direct and immediate link between the commission paid to agents and any taxable output of the University or the economic activities of the University as a whole.

Commentary

It is understood that the way the University recruited students using overseas agents is common amongst most Universities in the UK, so this ruling will have a direct impact on them. It was hardly a surprising decision, but underlines the need for all businesses to consider the impact of the application of the Reverse Charge. Of course, the Reverse Charge will only create an actual VAT cost if a business is partly exempt, or involved in non-business activities. The value of the Reverse Charge also counts towards the VAT registration threshold. This means that if a fully exempt business receives Reverse Charge services from abroad, it may be required to VAT register (depending on value). Generally, this means an increased VAT cost. This situation may also affect a charity or a NFP entity.

The case also highlights the importance of contracts, documentation and website wording (should any more reminders be needed). VAT should always be borne in mind when entering into similar arrangements. It may also be possible to structure arrangements to avoid or mitigate VAT costs if carried out at an appropriate time.

We can assist with any of the above and are happy to discuss this with you.

Guide – Reverse charge on services received from overseas

Normally, the supplier of a service is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. This is known as the ‘Reverse Charge’ procedure. Generally, the Reverse Charge must be applied to services which are received by a business in the UK VAT free from overseas.

Accounting for VAT and recovery of input tax.

Where the Reverse Charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services. On the same VAT return, the recipient must

account for output tax, calculated on the full value of the supply received, in Box 1;
(subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
include the full value of the supply in both Boxes 6 and 7.

Value of supply.

The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.

Time of supply.

The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

The outcome

The effect of the provisions is that the Reverse Charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus the charge aims to avoid cross border VAT rate shopping. It is not possible to attribute the input tax created directly to the deemed (taxable) supply.

VAT (GST) Introduction in India delayed

By Marcus Ward 23 January 2017

It was recently announced that the Indian version of VAT: Goods & Services Tax – GST is intended to be rolled out across the country on 1 July 2017 rather than the previously announced date of April 2017. This is after details of how the income will be shared between various authorities has been agreed.

It is anticipated that GST will follow the European model and that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will incorporate and replace all the various central taxes such as: Central Excise Duty, Additional Excise Duty, Service Tax, Additional Custom Duty and Special Additional Duty as well as state-level taxes such as Value Added Tax or Sales Tax, Central Sales Tax, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax.

The introduction of GST is likely to bring in significant changes to doing business in India or with Indian suppliers/customers cross-border.

Please contact us should you have any queries on this matter.

VAT – Overseas Holiday Lets: A Warning

By Marcus Ward 16 January 2017

Do you, or your clients, own property overseas which you let to third parties when you are not using it yourself?

It is important to understand the VAT consequences of owning property overseas.

The position of UK Holiday Lets

It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £83,000 pa. and this is only likely if a number of properties are owned.

It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.

Overseas Holiday Lets

Other EC Member States have nil thresholds for foreign entrepreneurs. This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located. Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs. This may be restricted if the home is used for periodical own use.

Given that every EC Member State has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.

Please contact us if you are affected by this matter; we have the resources to advise and act on a worldwide basis.

www.marcusward.co

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?

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 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.

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!