In or out?
If a biscuit is covered, even partially, in chocolate the VAT is 20%, but if the chocolate is inside, say a choc chip cookie or a bourbon, it is VAT free.
Tag Archives: marcus-ward-vat
VAT: New support for small businesses from HMRC
HMRC has launched new online guidance and interactive tools aimed at helping small business owners and those considering self-employment understand their tax responsibilities. It is aimed at supporting new and existing ‘sole traders’ and helping them to understand their responsibilities. The new interactive tool explains the records they need to keep, taxes that may apply to their business, and includes other useful information.
The resources include a step-by-step guide for registering as a sole trader and a newly developed VAT registration estimator tool to help businesses assess their VAT registration needs based on turnover.
The guidance and interactive tools are free and available directly from GOV.UK. They have been launched for information purposes only, and users will not be registered for any taxes as a result of using them. HMRC will not collect or store any information about the user.
VAT in the Digital Age (ViDA)
EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.
The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.
What is ViDA?
ViDA aims to tackle what have been identified as three main challenges:
- Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.
It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
More on e-invoicing here.
- Updated rules for the platform economy
Technological and business developments, especially in e-commerce, mean that VAT rules have struggled to keep pace. Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.
This will ensure a uniform approach across all MS and contribute to a level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
- Single VAT registration
Building on the already existing VAT One Stop Shop (OSS) model for e-commerce, the package allows more businesses selling to consumers in another MSs to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the Import One Stop Shop (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.
Commentary
Many countries worldwide already have versions of e-invoicing and real-time reporting or plan to introduce them. Businesses operating in the EU will need to consider how the new rules impact them and what changes are needed for; systems, procedures, tax declarations, along with the commercial implications.
ViDA should result in a more harmonised VAT system and the UK will need to keep in step in order to avoid becoming even more of a commercial outlier.
The UK has also confirmed a consultation on e-invoicing so lessons which can be taken from ViDA will undoubtably inform the UK process.
VAT: Personal Liability Notices
A Personal Liability Notice (PLN) can be issued by HMRC to a company’s director(s) to transfer the liability to pay VAT or a VAT penalty from the company to an individual. A PLN can also be issued to a member of an LLP.
When a PLN is issued
An officer or officers of a company may be personally liable to pay all or part of the company penalty where:
- a company is liable to a penalty for a deliberate wrongdoing and
- the wrongdoing is attributable to the deliberate action of an officer or officers of the company
Additionally, one of the two circumstances below must also apply
- the officer gained or attempted to gain personally from the wrongdoing, or
- the company is insolvent or likely to become insolvent
Any grounds for suspicion that the company may become insolvent should to be supported by evidence, for example, where there are cash flow problems, insufficient assets to cover liabilities, or evidence of phoenixism.
An officer’s liability to pay a penalty also applies to inaccuracy penalties.
Liable persons
The company officers are known in HMRC guidance as “liable officers”. These include:
- elected officers
- managers
- directors
- company secretary
- any other person managing or purporting to manage any of the company’s affairs.
LLP officers are members.
A PLN’s power gives HMRC the right to recover all or part of the penalty from the liable officer rather than the company/LLP itself.
Where there is more than one deliberate wrongdoing, each deliberate wrongdoing must be considered separately for the purpose of establishing whether it should be attributed to an officer or officers.
Wrongdoings
There are four types of wrongdoings:
- the issue of an invoice showing VAT by an unauthorised person
- misuse of a product so that it attracts a higher rate of excise duty
- the handling of goods on which payment of excise duty is outstanding
- knowingly disposing of, or causing or permitting the disposal of, material at an unauthorised waste site
The wrongdoing must arise from the deliberate action of an officer of the company.
Personal gain
Once HMRC has attributed the deliberate wrongdoing to one or more company officers it must consider whether any of the officers, by fact or implication, have gained or attempted to gain personally from the wrongdoing. It is sufficient to show that each officer has gained or attempted to gain. It will not however always be possible to establish the full extent to which each officer has gained or attempted to gain, in which case HMRC would issue the PLN based on best judgment of the amount they attempted to gain personally, eg:
- the officer may accept that there was an actual or attempted personal gain from a deliberate wrongdoing that can be attributed to them, or
- it may be clear from business records or the officer’s lifestyle that they gained or attempted to gain personally from the results of the deliberate wrongdoing
Appeals
A liable officer can appeal against
- a decision to pursue them for all or part of the penalty assessed on the company, as set out in the PLN, including whether the penalty is attributable to them, and
- the amount of the penalty HMRC has allocated to them
- They cannot however appeal against a decision that they have gained or attempted to gain personally from the deliberate wrongdoing, or that the company is likely to go into liquidation
PLNs are subject to the same procedures as company penalties.
Legislation
Finance Act 2008, Schedule 41: Penalties: failure to notify and certain VAT and Excise wrongdoing.
HMRC publish 2024 VAT annual statistics
This document provides an overview of VAT statistics and covers; VAT receipts in the UK (including home and import VAT). It also contains statistics and analysis on the VAT business population and registrations.
The Headlines
- total VAT receipts in the financial year 2023 to 2024 increased by 6% to £169 billion compared to £160 billion in 2022 to 2023
- the VAT population in 2023 to 2024 was 2,178,950, with 238,176 new registrations and 273,768 de-registrations in-year
- total net home VAT liability in 2023 to 2024 was £173 billion
- the wholesale and retail sector was the largest contributor to net VAT liability (32%) with a total of £55 billion
- businesses with an annual turnover of greater than £10 million paid 75% of total net VAT liability (£130 billion)
VAT: New Annual Accounting Scheme guidance published
HMRC have issued new guidance on the Annual Accounting Scheme.
A business can use form VAT600AA if it is already registered for VAT and wants to join the Annual Accounting Scheme.
VAT: HMRC introduce Chatbot
HMRC has introduced a generative AI chatbot to support users in accessing information on business rules and support, including tax.
The digital assistant is being trialled and HMRC request feedback on its effectiveness.
A disclaimer informs users of the chatbot’s limitations and advises them to verify answers using included GOV.UK links before proceeding. Users must confirm understanding of these limitations.
It is unlikely, in its current form, that the chatbot will be able to address complex issues, particularly as it excludes HMRC manuals.
VAT: DIY Housebuilders’ Scheme – The Brian Lawton case
Latest from the courts
In the First-Tier Tribunal (FTT) case of Brian Lawton the issue was whether a second claim under the DIY Housebuilders’ Scheme was valid.
Background
Mr Lawton appealed against the refusal of HMRC to pay a claim submitted in respect of the conversion of a barn into a dwelling and subsequent extensions. Unfortunately, the project faced delays and increased costs due to the Covid-19 pandemic. He claimed a refund of VAT in June 2021, which HMRC repaid. The appellant submitted a second planning application for an extension, which was approved, and the work was completed in October 2022. He then made a second VAT claim October 2022 which HMRC refused.
The issue
Whether it was possible to make more than one single VAT refund claim via the scheme when the project was split into two specific phases. Planning permission was granted for two developments, the:
- first permission was for the conversion of a barn to a dwelling
- second permission was for an extension to existing barn conversion for two bedrooms
– whether the second claim was ineligible for a refund as an extension to an existing dwelling and whether decision to disallow claim for a VAT refund was correct.
Arguments
Lawton contended that it was possible to make two separate claims due to the distinct nature of the projects, and that his first claim had been erroneous since the barn conversion was uninhabitable.
HMRC’s view was that the second claim related to an extension to a dwelling and not the actual conversion and was consequently ineligible.
Decision
Despite the FTT being sympathetic to BL’s predicament in progressing the first application development at the time of the Covid pandemic and the lockdown with the financial and economic challenges these brought about, the appeal was dismissed.
The Tribunal considered that HMRC were entitled to insist that only one claim was made under the scheme in circumstances where there has been no repayment in error or invoices and works carried out before the claim was submitted and left out of account in error or invoices issued late by a contractor.
It considered that the first claim was the only one which could be made and was restricted to the stage of development that Lawton had submitted and was covered by the completion certificate of March 2021, being “the conversion of a barn to a dwelling”.
The court emphasised that completion for VAT purposes must align with original planning permissions and agreed with HMRC’s position that extensions to existing dwellings do not qualify for refunds under the scheme.
Legislation
Commentary
This case highlights how important both timing and adhering precisely to the rules of the scheme are. The cost of a self-build can be significant and recovering any VAT incurred is important to ensure budgets are met as far as possible.
Further reading
Background to the scheme here, ten top tips here and further information and other cases on the scheme:
- Changes to the DIY Housebuilders’ Scheme
- DIY Housebuilders’ Scheme – deadline for claims extended
- The Spani case
- The Dunne case
- The Ellis case
VAT late payment interest rates reduced
HMRC has announced that late payment interest rates to be reduced after the Bank of England lowered the base rate.
The Bank of England base rate will be reduced to 4.75% from 5.0%.
The changes will come into effect on:
- 18 November 2024 for quarterly instalment payments
- 26 November 2024 for non-quarterly instalments payment
The press release is available here.
VAT: New HMRC Tax Agents Handbook
On 1 November 2024 HMRC published a new handbook for agents acting on behalf of their clients in tax matters.
The handbook contains information to help tax agents and advisers; find guidance, use HMRC’s services and contact HMRC.
HMRC is trialling this manual as an alternative to the collection of linked guidance on the tax agents and advisers: detailed information page. It covers:
- About agents and HMRC – An overview
- Appeals and penalties – How appeals, tribunals and penalties work.
- Compliance checks – Information about processes, factsheets and guidelines for compliance.
- Contacting HMRC – How to check service levels, forums, contact HMRC and raise complaints or issues.
- Guidance help – Tips for navigating guidance and using search, email alerts, feedback and archives.
- News and support – How you can keep up-to-date with latest news and information from HMRC.
- Services and registering – Links to services, how to register and what to do if your agent business changes
Tax agents have the right to represent their clients in appeals and penalty proceedings, ensuring that their clients’ interests are effectively advocated.