Tag Archives: vat-relief

VAT: Input tax claims – alternative evidence

By   7 March 2019
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What can be used to make a claim?

It is well known that in order to claim input tax on expenditure a business is required to have a valid tax invoice to support it. But what if there is no VAT invoice? Can HMRC accept any other evidence to support a claim? Well, the answer is yes… sometimes.

HMRC has discretion provided by EC law. The right to deduct is given by Article 167 of the Principal VAT Directive (via VAT Regulations 1995/2518 Reg 29(2) in the UK). Specifically, the wording most relevant here is “…such other documentary evidence of the charge to VAT as the Commissioners may direct.” Broadly, a business must hold the correct evidence before being able to exercise the right to deduct.

Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff are required to consider whether there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff should not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. However, this obligation is balanced against a duty to protect the public revenue.

Full details of tax invoices here.

 What HMRC consider

HMRC staff are required to work through the following checklist:

  • Does the business have alternative documentary evidence other than an invoice (for example a supplier statement)?
  • Does the business have evidence of receipt of a taxable supply on which VAT has been charged?
  • Does the business have evidence of payment?
  • Does the business have evidence of how the goods/services have been consumed or evidence regarding their onward supply?
  • How did the business know the supplier existed?
  • How was the business relationship with the supplier established? For example: How was contact made?
  • Does the business know where the supplier operates from (have staff visited?)
  • How did the business contact them?
  • How does the business know the supplier can supply the goods or services?
  • If goods, how does the business know they are not stolen?
  • How does the business return faulty supplies?

Outcome

If the responses to the above tests are credible, HMRC staff should exercise their discretion to allow the taxpayer to deduct the input tax. Overall, HMRC are required to be satisfied that sufficient evidence is held by the business which demonstrates that VAT has been paid on a taxable supply of goods or services received by that business and which were used by that business for its taxable activities

Challenge HMRC’s decision

A business may only challenge HMRC’s decision not to allow a claim (did not exercise its discretion) if it acted in an unfair or unreasonable way. In these cases, the onus is on the taxpayer to demonstrate that HMRC have been unreasonable in not using the available discretion. This is quite often a difficult thing to do.

Case law

Not surprisingly, there is significant case law on this subject. The most relevant and recent being the Upper Tribunal (UT) cases of James Boyce and Scandico Ltd.

Tips

If possible, always obtain a proper tax invoice from a supplier, and don’t lose it! The level of evidence required when no invoice is held usually depends on the value of the claim. There would be a difference between persuading an inspector that £20 input tax on stationery is recoverable and the claiming of £200,000 VAT on a property purchase is permissible. As always in VAT, if you get it wrong and claim VAT without the appropriate evidence there is likely to be a penalty to pay.

If you, or your clients are in dispute with HMRC on input tax claims, please contact us.

Claiming EU VAT refunds after Brexit

By   25 February 2019
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HMRC has confirmed that in the event of a No Deal Brexit businesses belonging in the UK will no longer be able to make claims for VAT incurred in other EU Member States using the electronic refund system.

Businesses claiming via the EU VAT refund electronic system need to submit a refund claim for 2018 by 5pm on 29 March 2019. If claims are submitted after that date HMRC will be unable to send the claim to the relevant EU Member State.

If a business incurs VAT in an EU Member State in 2019 it should not use the EU VAT refund system to make a claim as it is likely to be rejected by that Member State.

After 29 March, a business must claim VAT refunds from EU Member States directly by using the existing process for businesses based outside the EU (similar to the previous EC Eighth Directive claims for those with a good memory and in line with current the EC Thirteenth Directive). This includes outstanding claims that relate to 2018 expenses, and claims relating to 2019.

It is important to understand the process for each EU Member State as it can vary. For example:

  • the deadline for making your claim may be different
  • you may need to supply a certificate of Taxable Status to support a claim
  • you may need to appoint a tax representative in the EU Member State of refund

Check the EU’s Europa website for country specific information on VAT.

This is yet another reason (should one be needed) that a No Deal Brexit will create significant burdens on businesses. It will mean that up to 27 separate claims, in the language of the Member State in which the claim is made, rather than a single application. Good luck everybody!

VAT: Place of supply of “erotic services”

By   19 February 2019
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Latest from the courts

Readers of a nervous disposition may want to look away now.

In the case of Geelen C-568/17 (in French) the advocate General (AG) was asked for an opinion on the supply of what was coyly called webcam sessions.

Background

The defendant in the main proceedings, Mr Geelen, was a VAT registered person in The Netherlands. He provided the services of the organisation and provision of interactive erotic sessions broadcast live over the Internet. The models were located in the Philippines and Mr Geelen provided them with the necessary hardware and software to transmit the sessions over the Internet. Customers contacted the models via a website after creating an account for this purpose. The sessions were broadcast live and were interactive, which meant that customers had the opportunity to communicate with the models and give them instructions. The services provided by the defendant were intended for the Dutch market. I set out the arrangements here, as I am sure that none of my readers will be aware of such things * polite cough *

This is interesting as an example of technology overtaking legislation which was enacted before such services could even be contemplated (well, by the people drafting the VAT legislation anyway).

The issue 

The issue was where was the place of supply of these services. If they were in The Netherlands, then Dutch VAT would apply, but if they were deemed to be outside the EU, no EU VAT would be payable. The tax authorities considered that such services were subject to VAT in The Netherlands and issued a tax assessment notice.

Technical

Generally, the rule is that for B2C services the place of supply (POS) is where the supplier belongs. However, there is an exception for cultural, artistic, and entertainment activities. These are taxed where performed (outside the EU in this case if the exception is applicable).

Opinion

It was the AG’s opinion that, in the first place, there was no doubt that the services in question were entertaining…

However, he opined that the only way to provide cultural activities, entertainment, education, etc. was either to bring service users together at the actual place of service delivery, or to provide a service at the location of the users.

The technological development that has taken place since the relevant legislation was drafted has enabled services in which beneficiaries participate remotely, sometimes even actively, in a cultural, entertainment or other event, without necessarily doing so in real time. In a cultural reference: The “unity of action, time and place”, to refer to the categories of classical theatre, was thus upset.

In the AG’s opinion, these services were not intended to be covered by the exception. Consequently, these were not services “supplied where performed” and the general B2C rules applied, so the POS was The Netherlands and Dutch VAT was applicable.  It was concluded that performance does not take place where the models are based, or where the consumer was located, but where Mr Geelen brought together all elements of the supply.

Summary

The legislation must be interpreted as meaning that the services of organising and providing live interactive webcam sex do not constitute services for entertainment purposes within the meaning of the relevant provisions.

VAT: Preparing for a No Deal Brexit. A checklist

By   13 February 2019
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A guide for Customs, Excise and VAT for exporters

This is a brief overview of certain issues that an exporter needs to consider if, as seems increasingly likely, there is a No Deal Brexit. There are a number of helpful links to assist. This could be an enormous change. HMRC estimate the number of customs declarations will rise from 55m to 255m annually and the EU requires eight copies of each customs declaration.

UK businesses need to plan for Customs and VAT processes, which will be checked at the EU border. They should check with the EU or Member State the rules and processes which need to apply to their goods.

Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers. Current EU rules would mean that EU Member States will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.

Checklist

  • Get an EORI number
  • Check if you can use transitional simplified procedures
  • Apply the correct customs procedure code
  • Identify the UK tariff codes for all your products by searching trade tariffs on gov.uk. A tariff code allows you to:
    • complete declarations and other documentation
    • check if there is duty or VAT to pay and any potential duty reliefs
  • If you use a UK roll on roll off location you will need to declare your goods before they board the ferry or train
  • Pay Customs Duty on goods
  • Research the destinations you want to export to. This background information, along with the commodity code of the goods will enable you to establish if goods will incur import duty in the destination country
  • Check if you need a licence to import or export your goods
  • Obtain software or an agent to make declarations
  • Identify what documentary requirements apply for your products when exported to EU countries by searching the EU Commission Market Access Database. (When choosing a market, you cannot currently select the UK so, assuming the UK would have no tariff preferences under a no-deal scenario, select a country such as the US or China, where no preferential arrangements exist, to establish a comparable level of duty your product would face)
  • Check for updates. Check the EU Brexit Preparedness portal, to understand the potential outcomes for your sector
  • Check the origin of all products when exported to, or imported from EU countries. Identify the UK/EU/non-EU content (including all components and raw materials) and whether your goods may qualify as being of UK or EU origin. Access further information on rules of origin
  • Customs delay – If working in time sensitive sectors, consider how your EU customers may be affected by customs delays. These may include; just-in-time practices, timed deliveries and potential penalties and short shelf-life goods
  • Identify EU customers and suppliers who are cost-sensitive and who might be reluctant to pay more for goods with the addition of import duties, customs clearance costs, higher freight costs, or currency fluctuations.
  • Identify exports to countries which have Free Trade Agreements (FTA) with the EU. Are they dependent on duty preferences or other FTA provisions? Consider the implications, particularly where main competition is with other EU businesses
  • Access details of which countries have FTA with the EU
  • Identify purchases from other countries which have FTA or Generalised System of Preferences (GSP) agreements with the EU.
  • Identify sales to EU customers who incorporate those goods into their products, for re-export to countries with FTAs. Check whether supplier declarations are provided
  • Cash flow – Consider protecting against foreign exchange fluctuations within your business
  • Map and audit supply chains. Even if a company is ready for Brexit, it will be disrupted if a supplier is not prepared and cannot meet its contracts
  • Check international contracts and renegotiate if required. Some intra-EU contracts will not include incoterms, the legal provisions for importing and exporting that define who is responsible for shipping goods across borders
  • Develop a contingency plan – There is no guarantee that border procedures will operate smoothly immediately after Brexit, and businesses may need a contingency plan in case systems fail
  • Stay up to date by registering for HMRC’s EU Exit update service www.gov.uk/hmrc/business-support, select ‘business help and education emails’, add your email address, select ‘Submit’, select ‘Add subscription’, choose ‘EU Exit’ then ‘Submit’
  • Customs checks – Establish what level of risk of physical or documentary examination might apply for your goods imported from, or exported to EU countries
  • For goods being exported to the EU which are not “wholly obtained” in the UK, and which have undergone processing in another third country as part of their production, it is important to understand the supply chain of components going into the product.  Goods with components coming from non-UK countries will mean that that product is not able to benefit from any continued zero-tariff trade with the EU unless arrangements are put in place between the EU and UK

I hope that this is helpful. Please contact us if you have any queries.

VAT: Yet more cases on food

By   11 February 2019
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Latest from the courts

Like London buses, few cases on the VAT liability of food, then a veritable deluge (although I am unsure whether there can be a deluge of buses…).

Following Eat Ltd and my summary, two further food cases have been heard at First Tier Tribunal (FTT). These are on the subjects of juicing and brownies.

Juice

In The Core (Swindon) the issue was whether fruit and vegetable juices sold as meal replacements were beverages and therefore standard rated or whether they were not beverages and therefore zero-rated as food.

Background

The appellant provides “juice cleanse programmes” (JCPs) which consist of fresh drinkable products made from juicing raw fruits and vegetables and are intended to replace normal meals. The relevant test was how the product was objectively “held out for sale” by the supplier.

What needed to be considered was:

  1. How is the product marketed?
  2. Why it is consumed by the customer?
  3. What is the use to which it is put?

Case law

 Similar products were considered in Fluff, Ltd. Roger Skinner and Bioconcepts where the above tests were set out.

Decision

Judging the JCPs by reference to the above tests the Tribunal found that the purchasers of the JCPs purchase them as meal replacements. Customers do not purchase them as beverages (they drink water in addition to consuming the products). They do not therefore purchase them in order to increase their bodily fluid, or to slake their thirst, or to fortify themselves or to give pleasure. The products are deliberately made palatable, in order not to deter consumers from drinking them, and they are not unpleasant to drink, but they are not consumed for pleasure. Customers purchase and consume them as a meal replacement, not as a beverage. As a consequence, they were zero rated food.

Brownies

In Pulsin’ Ltd the issue was whether a raw choc brownies was a cake (zero rated) or a biscuit (standard rated). So, shades of the infamous Jaffa Cake case.

Background

The products in question were individually wrapped bars produced by cold compression of predominantly: dates, cashews, cacao, various syrups, concentrated grape juice and brown rice bran. All ingredients used are intended to be as natural, unprocessed, hypoallergenic and as nutritionally beneficial as possible.

Case law

The cases set out above were also referred to in this case, along with Kinnerton which I considered here although the judge dismissed HMRC’s contention that the decision in that case was helpful in this.

Decision

The judge formed the view that the products do show enough characteristics of cakes to be so categorised. Therefore, all variants of the raw choc brownies were properly classified as cakes and are therefore eligible to be zero rated.

Commentary

What was interesting here was the judge’s comments on the current position regarding food and VAT.

“It is the Tribunal’s view that the current state of the law on the taxation of food items is not fit for purpose and will necessarily present apparently anomalous results as tastes and attitudes to eating change. The Tribunal fundamentally disagrees with HMRC’s guidance that the borderline between cake and confectionary presents few problems. The lines set and perceived by HMRC in the application of this out of date provision (as recognised by them in their anguished consideration of flapjacks and cereal bars) drives anomalous outcomes….”

And so say all of us…

The zero rating of food is complicated as the provision under VAT Act 1994, Schedule 8, Group 1 provide for a wide general description (qualifying for zero rating) subject to excepted items (which must therefore be standard rated) with exclusions and overriding items to those exceptions (which then requalify to be zero rated).

VAT: Zero rated food – a summary

By   8 February 2019
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Food – What’s hot and what’s not?

Further to my article on the recent Eat case I have had a number of queries on what “hot” food can be zero rated. So, as a brief overview of the current position a quick look at types of food:

Pasties, sausage rolls, pies or other pastries

  • If they are hot and straight from the oven: Although the pasty is hot, it is not being kept warm, so therefore there is no VAT
  • Left to cool to room temperature: The pasty is not being kept warm, so no VAT is chargeable.
  • Kept hot in a cabinet, on a hot plate or under a heat lamp: The pasty is being kept warm so VAT is due

Sandwiches

  • Cold food is zero-rated for tax purposes so no VAT.
  • Heated for a customer – standard rated per the Eat case.

Bread

  • Freshly baked, cooling or cold – the bread is not kept warm, even though it may be straight from the oven, so would be VAT free.

Rotisserie chicken

  • If hot from the spit; VAT on takeaway food intended to be served hot is VATable.
  • Kept hot in a cabinet, on a hot plate or under a heat lamp – As the food is kept hot and served hot, VAT is applicable.
  • Left to cool to room temperature – If the chicken is cooked then left to cool, such as in bags in a supermarket, it will be VAT free.

Takeaways

  • such as fish and chips: VAT remains on all takeaway food served hot.

Catering

  • All supplies of catering is subject to VAT regardless of what food and drink is being provided. This includes all restaurants and cafés.

This is a general guide and, as case law shows, there will always be products on the “borderline”.

VAT: What’s hot and what’s not?

By   4 February 2019
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Latest from the courts

In the seemingly never-ending series of cases on hot/cold food comes the latest instalment in the Eat Limited (Eat) First Tier Tribunal (FTT) case.

Issue

Via VAT Act 1994 Schedule 8, Group 1, the sale of certain food is zero rated. However, there is an exception for supplies in the course of catering. Anything coming within the definition of catering reverts to the general rule and is taxable at the standard rate.

The definition of catering includes “any supply of hot food for consumption off those premises…” Note 3 (b).

So, the issue here was whether grilled ciabatta rolls and breakfast muffins which were heated by Eat were hot… or not. HMRC decided that the relevant sales were the standard rated sale of hot food and disallowed a retrospective claim by Eat that they should have been correctly zero rated.

The issue here was whether the products had been heated for the purpose of enabling them to be consumed at a temperature above ambient air temperature. In considering the purpose of the heating, the Tribunal needed to ascertain the common intention of Eat and the customer.

Background

Eat sells a range of hot and cold food and drink products through its outlets in the UK. The food and drink can either be consumed at the outlet or be taken away for consumption elsewhere.

The breakfast muffins are filled bread rolls. The rolls are supplied to the appellant by a bakery in a condition that enables Eat to finish baking the rolls at their outlets. The specification requires the rolls to be “pale and 90% baked”. The muffin is assembled at a central kitchen from various ingredients, bagged, and then distributed to Eat’s retail outlets. The ciabatta rolls are also supplied to Eat part-baked and a similar process applied. If a customer purchases a breakfast muffin or a ciabatta roll, the product is “finished-off” in the outlet’s grill.

For zero rating to apply, Eat had to prove that its intention and that of its customers, was that the breakfast muffins and grilled ciabatta rolls were not supplied to customers in order to be eaten “hot”.

The products are treated as “hot” if:

  • They have been heated for the purposes of enabling them to be consumed at a temperature above the ambient air temperature; and
  • They are above that temperature at the time they are provided to the customer.

It was not disputed that the products were above ambient air temperature at the time they were provided to customers,

Case law

There has been considerable litigation on the meaning of hot food. The decision of the Court of Appeal in Sub One Limited (t/a Subway) (in liquidation) v 30 HMRC [2014] EWCA Civ 773 reviews the meaning of the legislation, and in particular whether the “purpose” test in the legislation should be construed objectively or purposively.

Submissions

Eat contended that the common intention of the parties was that the supply of the products was to be finished as being “fresh” rather than partially complete. Any residual heat in the products was merely incidental to that common intention.

HMRC submitted that it was part of the deal between Eat and its customers that the products should be sold hot (and obviously so).  Further, that no customer seeks to enter into a bargain in a takeaway restaurant containing a term that the food he or she is to purchase is “to be finished as fresh rather than partially complete”. The customer either wants hot food or does not. Either the supplier proposes to supply hot food, or it does not. It was also noted that in Eat’s advertising (at the point of sale and on its website) that the products were described as “hot”

Decision

The judge decided that this was a “hopeless appeal” and that it was the common intention of Eat and its customers that the products were heated for the purpose of enabling them to be consumed at a temperature above ambient air temperature. Further, that they were wrapped in foil-backed sheets that keep them warm. This showed an intention on the part of Eat that the products should be consumed whilst they were hot. So, they were hot and standard rated.

Commentary

Only in the world of VAT can something too hot to touch be treated as cold (as certain foods are). However, in this case common sense prevailed and not unsurprisingly, food which was sold hot was treated as hot food! There is a lesson here however. In such cases, the outcome depends on the precise facts of the relevant transactions and that it is unhelpful to make assumptions.

Now, about that proposed pasty tax…

VAT: Latest on holding companies and input tax recovery

By   21 January 2019
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Latest from the courts

In the First Tier Tribunal (FTT) case of W Resources plc (WRP) the enduring matter of input tax recovery by a holding company was considered. This follows similar considerations in the cases of Norseman and BAA and HMRC’s updated guidance on the matter. This case considered whether a holding company could recover input tax incurred on certain costs.  This is turn depended on whether the holding company intended to make taxable supplies. Specifically; the intention to recharge professional expenses incurred to two non VAT-grouped subsidiary companies contingent on those companies receiving income at a future time.

Background

WRP acquired two subsidiary companies. The subsidiary company’s business the exploration and exploitation of tungsten in the EU. WRP contended that it incurred the relevant input tax

  • to enable the subsidiaries to raise funds to carry out their exploration activities
  • to exercise financial control over the subsidiaries
  • to obtain geological expertise, project management and supervision and day to day management and supervision for the subsidiaries so that they could carry on their exploration and exploitation activities

HMRC denied the claim of input tax on the basis that the WRP was not carrying on an economic activity or making supplies for a consideration (such that it should not be VAT registered).

It was common ground that, if it was decided that all of the supplies which were made by the WRP to the subsidiary companies (following their acquisition by the appellant) were supplies made for a consideration and in the course of carrying on an “economic activity”, then the input tax which was incurred during the preparatory phase should be recoverable.

So, the issue was – were the intended recharges so uncertain such that there could be no direct link to an economic activity?

Decision 

The appeal was dismissed.

Although the judge distinguished Norseman (above) where there was only a vague intention to make charges to subsidiary companies and here the position was different because there was a fixed intention that WRP would be able to invoice in due course for its supplies of services at an amount quantified by reference to the value of the services received but only if the relevant subsidiary began to generate revenues, the fact that it was uncertain whether the subsidiaries would generate income was to sufficient to break the link between supply and consideration. The fact that the intended charges were contingent was fatal to the appeal.

Commentary

The judge appears to have come to the decision reluctantly and entertained the thought that “the contrary is certainly arguable”. This case demonstrates, yet again, the difficulties in determining future intentions of a business. Such intentions dictate whether a business may VAT register and/or recover input tax. It is often difficult to evidence intentions and HMRC seem intent to challenge input tax recovery in such circumstances and will be buoyed by this result.

This case again emphasises the importance of holding companies having appropriate processes and ensuring that proper documentation is in place to evidence, not only the intention to make taxable supplies of management charges, but that those charges were actually made to subsidiaries.

Often significant costs can be incurred by a holding company in cases such as acquisitions and restructuring.  It is important that these costs are incurred by, and invoiced to, the appropriate entity in order for the VAT on them to be recovered.  Consideration should be given to how the input tax is recovered before it is incurred, and the appropriate structure put in place if possible.

Further information and advice on inter-company charges may be found here

What VAT CAN’T you claim?

By   3 January 2019
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The majority of input tax incurred by most VAT registered businesses may be recovered.  However, there is some input tax that may not be.  I thought it would be helpful if I pulled together all of these categories in one place:

Blocked VAT claims – an overview

  •  No supporting evidence

In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice)” although it may be import, self-billing or other documentation in specific circumstances.  A claim is invalid without the correct paperwork.  HMRC may accept alternative evidence, however, they are not duty bound to do so (and rarely do).  So ensure that you always obtain and retain the correct documentation.

  • Incorrect supporting evidence

Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation.  HMRC are within their rights to disallow a claim if any of the details are missing.  A full guide is here

  •  Input tax relating to exempt supplies

Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it.  If a business makes only exempt supplies it cannot even register for VAT.  There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here

  •  Input tax relating to non-business activities

If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief.  Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here 

  •  Time barred

If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.

  •  VAT incurred on business entertainment

This is always irrecoverable unless the client or customer being entertained belongs overseas.  The input tax incurred on staff entertainment costs is however recoverable.

  •  Car purchase

In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.

  •  Car leasing

If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged.  The 50% block is to cover the private use of the car.

  •  A business using certain schemes

For instance, a business using the Flat rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on TOMS users

  •  VAT charged in error

Even if you obtain an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate.  A business’ recourse is with the supplier and not HMRC.

  •  Goods and services not used for your business

Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for business use.  This may be because the purchase is for personal use, or by another business or for purposes not related to the business.

  • VAT paid on goods and services obtained before VAT registration

This is not input tax and therefore is not claimable.  However, there are exceptions for goods on hand at registration and which were purchased within four years of registration, and services received within six months of registration if certain conditions are met.

  •  VAT incurred by property developers

Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked.

  •  Second hand goods

Goods sold to you under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.

  •  Transfer of a going concern (TOGC)

Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.

  •  Disbursements

A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here

  •  VAT incurred overseas

A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant authorities in those States. Details here. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.

VAT Invoices – A Full Guide

By   3 January 2019
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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.

(c) The date of issue of the document.

(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.