Charging the correct rate of VAT

The VAT rules are becoming increasingly complex and businesses need to ensure that the correct rate is applied to the goods and services they supply.

HMRC have recently updated their guidance on VAT rates. It provides a list of goods and services which you can check to determine which rates of VAT apply and which items are exempt or outside the scope of VAT: VAT rates on different goods and services - GOV.UK (www.gov.uk)

The guide is not a comprehensive list, and you may need to check the appropriate VAT Notices that deal with certain supplies in more detail. We can of course assist you if you are unclear on the correct rate to apply.

Changes to VAT rates from 1 April 2022

Many in the hospitality sector were hoping that the Chancellor would extend the 12.5% reduced rate that has applied since 1 October 2021 but, as scheduled, the rate has reverted to 20% from 1 April 2022.

The increase will apply to hospitality, visitor attractions and catering services including restaurants and takeaways.

This has a consequential effect on the VAT Flat Rate Scheme percentages from 1 April 2022 as set out below (flat scheme percentage rates from 1st April 2022):

• Catering services including restaurants and takeaways:12.5%
• Hotel or accommodation: 10.5%
• Pubs: 6.5%

Affected businesses should ensure that their pricing policies and internal systems and processes are updated for the 1 April 2022 change in VAT rate. Please talk to us if you need any assistance with your VAT affairs.

HMRC guidance on VAT place of supply of services

HMRC have recently updated their internal VAT manual to clarify the “place of supply” rules for services. This is one of the most complex areas of VAT legislation and of course the rules changed significantly since the UK left the EU.

The country where a supply is deemed to be made is called the ‘place of supply’ and is the place where it is liable to VAT, if any. These rules are necessary to ensure that VAT, where payable, is paid only in the correct country and to avoid the possibility of supplies being taxed more than once or not at all.

Although there are numerous exceptions depending on the nature of the services, the general rule is that services supplied between businesses (B2B) are taxable where the customer belongs. If the supplier and customer belong in the UK then the UK supplier accounts for VAT on his supply. However, where the supplier is in the UK and the customer is outside the UK the supply will be outside the scope of UK VAT.

Where the supply is to a non-business customer (B2C), the general rule is that the place of supply is the place where the supplier belongs.

Where the place of supply of a service is in an EU member state, that supply is outside the scope of UK VAT and is liable to the VAT rules in that member state and in no other country. If the place of supply of a service is outside the UK and EU, that supply is described as outside the scope of VAT altogether.

It is important to establish whether a supply of services is made to a relevant business person (B2B) or non-business customer (B2C). A person is a relevant business person in relation to a supply of services if:

(a) the person carries on a business, and
(b) the services are not received by the person wholly for private purposes.

For the updated internal HMRC guidance see: https://www.gov.uk/hmrc-internal-manuals/vat-place-of-supply-services

Note that the simplified guidance on the HMRC website has not been updated since December 2020:
https://www.gov.uk/guidance/vat-how-to-work-out-your-place-of-supply-of-services

HMRC Publish Guidance on New Penalty Regime for Late Returns

The Finance Act 2021 introduced a new regime for late VAT returns that will apply to VAT periods commencing on or after 1 April 2022 and to other returns at a later date.

HMRC have now published detailed guidance on the new rules. The reforms come into effect:

• for VAT taxpayers from periods starting on or after 1 April 2022
• for taxpayers within MTD for Income Tax Self-Assessment (ITSA), from the tax year beginning 6 April 2024
• for all other ITSA taxpayers, from the tax year beginning 6 April 2025

The new regime will be a points-based system and will operate in a similar way to motoring penalties in that the points will elapse after a period of time depending on the regularity of the returns.

For details see: Penalties for late submission - https://www.gov.uk/government/publications/penalties-for-late-submission

Guide to VAT rules for supplies of digital services to consumers in the EU

We have produced a new Help Guide for the VAT rules for supplies of digital services to consumers in the EU.

You can download our guide for free from our website here: https://www.hillmans.co.uk/guide-to-vat-rules-for-supplies-of-digital-services-to-consumers-in-the-eu

UK businesses selling digital products and services to consumers in the EU must account for the EU VAT due based on the country of the consumer.

From the 1st January 2021, it is possible to register for a Non-Union VAT MOSS (mini one stop shop) scheme in an EU member state (of your choice), which enables you to report all of your EU VAT sales in a single VAT return.

A common option is to register in the Republic of Ireland due to the English language benefits.

Under the Non-Union VAT MOSS, UK businesses must record for each country the total sales made and VAT collected in that EU country, along with the rate of VAT that has been applied. Note that the rate of VAT depends on the rate that applies in the EU country where supplies are made and not the EU country of registration.

The Digital Services Threshold (which was £8,818) is no longer available to UK suppliers of B2C Digital Services from 1st January 2021. This means as soon as a covered digital service is provided to an EU consumer, the UK business will need to account for the EU VAT (either by the Non-Union VAT MOSS) or direct with the relevant EU country.

Please contact us if you would like further information. 

HMRC guidance on re-importing and re-exporting

HMRC have released guidance about some of the approvals and special procedures that help simplify customs processing and reduce VAT and Customs Duty owed. These are useful if you are a business that usually re-imports or re-exports as part of your business process.

Inward processing

This is a customs special procedure that allows you to suspend Customs Duty and import VAT on goods you bring into the UK for repair or as materials for manufacturing. You will not need to pay duty or import VAT on the goods if you re-export them following processing or repair.

For example, this may apply if you’re bringing your camera equipment into the UK from France for repairs with the intention of returning them to France. Or, if you are bringing in fabric to be made into dresses which you will then export.

Find more information on using inward processing at https://www.gov.uk/guidance/using-inward-processing-to-process-or-repair-your-goods. 

Outward processing

This allows you to temporarily export goods outside the UK for processing or repair and pay less Customs Duty and import VAT when you re-import them into the UK.

This may apply, for example, if you are exporting a batch of computers to Germany to be repaired and returned to the UK. Or if you’re exporting bales of fabric to Romania to be made into prom dresses and then re-imported into the UK.

Find out more on using outward processing at https://www.gov.uk/guidance/using-outward-processing-to-process-or-repair-your-goods.

Temporary Admission

This is a special procedure that allows you to temporarily import goods into the UK or move goods from Great Britain into Northern Ireland without paying Customs Duty or import VAT. You may use the goods for up to two years or more, before re-exporting them.

For example, this may apply if you are temporarily bringing in samples, professional equipment or items for auction, exhibition or demonstration into the UK.

You can apply for Temporary Admission if you are the person using the goods or you’re arranging for the goods to be used on your behalf.

Find more information on how to apply to import goods temporarily at https://www.gov.uk/guidance/apply-to-import-goods-temporarily-to-the-uk-or-eu#who-can-apply.

Returned Goods Relief

This allows you to claim relief from Customs Duty and import VAT if you are re-importing items into the UK that have previously been exported. When you re-import your items, you will need to make sure they have not been altered, apart from work to maintain them.

This may apply, for example, if you are re-importing office furniture, equipment or instruments because you’re moving back to the UK from an EU country where you previously exported the goods to.

Find out more on paying less import duty and VAT, when re-importing goods at https://www.gov.uk/guidance/pay-less-import-duty-and-vat-when-re-importing-goods-to-the-uk-and-eu

Customs warehousing

This allows you to suspend Customs Duty and VAT on goods that you import into the UK and store in a warehouse to be re-exported. Duty and VAT will only become payable when the goods are removed from the warehouse into UK circulation.

For example, no duty or VAT will be payable if you import goods from China to be stored in a warehouse in the UK before being re-exported to Europe. 

Find out more information on how to use a customs warehouse at https://www.gov.uk/guidance/apply-to-operate-a-customs-warehouse.

See: Customs processing: Check if you can make them quicker, simpler or cheaper (https://content.govdelivery.com/accounts/UKHMRCED/bulletins/2e580c3)

Recovery of VAT on Electric car charging

The government are committed to encouraging more and more people to drive electric cars and have reduced or eliminated the income tax benefits of providing electric company cars or charging points for employees. Since 6 April 2019 there has been no taxable benefit for employees where they use an electric charging point at their place of work, provided the facility is available to all staff. But what are the VAT implications of the supply of electricity and what if public charging points are used?

HMRC have issued Revenue and Customs Brief 7 (2021) which explains HMRC’s policy concerning the VAT treatment of charging of electric vehicles when using charging points situated in various public places.

The brief clarifies that supplies of electric vehicle charging through charging points in public places are charged at the standard rate of VAT. It also explains when input tax can be recovered for charging electric vehicles for business purposes.

The HMRC brief confirms that input tax can be recovered on electricity used to fuel a car intended for business use where:

• The charging takes place at the business premises of the VAT-registered business
• The charging is at the home of a sole proprietor

VAT cannot be recovered where the charging is at the home of an employee as the supply is then not made to the company.

Where employees charge an employer’s electric vehicle (for both business and private use) at the employer’s premises the employee needs to keep a record of their business and private mileage so that the employer can work out the amounts of business use and private use for the vehicle.

It is hoped that a simpler system can be found such as a scale charge similar to that used for the supply of fuel for private use.

See: Revenue and Customs Brief 7 (2021): VAT liability of charging of electric vehicles -https://www.gov.uk/government/publications/revenue-and-customs-brief-7-2021-vat-liability-of-charging-of-electric-vehicles/

Reimburse private fuel by 6 July to avoid fuel benefit

One consequence of the recent periods of lockdown is that employees may have driven fewer private miles in their company cars, particularly where they have not been driving to the office.

If they are to avoid being taxed on the provision of private fuel, they need to fully reimburse their employer for the cost of private fuel by 6 July 2021 for the 2020/21 tax year. If not, the benefit needs to be reported on the employee’s form P11d for 2020/21.

Note that the CO2 emissions percentage for the car is multiplied by the £24,500 notional list price used to calculate the benefit for 2020/21. For example, a director driving a Mercedes Benz E200 saloon company car (CO2 emissions 169g per km) would be assessed on 37% = £9,065 for 2020/21. If they are a higher rate taxpayer that would mean £3,626 tax. That would be an awful lot of private fuel!

In addition to the tax payable by the director on the provision of private fuel, there would be £1,251 Class 1A national insurance contributions payable by the employer.

Note that the private fuel benefit is an all or nothing benefit. There must be full reimbursement by 6 July 2021 to eliminate the benefit. The simplest method would be to multiply private miles by the HMRC advisory fuel rate for the vehicle which is amended every 3 months.

Advisory fuel rates from 1 June 2021

These are the suggested reimbursement rates for employees' private mileage using their company car from 1 June 2021. Where there has been a change the previous rate is shown in brackets.

Note that for hybrid cars you must use the petrol or diesel rate. You can continue to use the previous rates for up to 1 month from the date the new rates apply.

For earlier quarterly figures see: Advisory fuel rates https://www.gov.uk/guidance/advisory-fuel-rates

Recovery of Input VAT on Employee Fuel

These HMRC advisory fuel rates may also be used to calculate input VAT that may be claimed by the employer where an employee uses their own car for business journeys. The tax free reimbursement amount continues to be 45p per mile (plus 5p per passenger) so for a 1800 cc diesel car 11p of the 45p is deemed to be diesel and 20/120 of that amount, 1.83 pence per mile, may be reclaimed by the employer provided there are petrol station receipts to cover the amounts claimed.

Partially exempt VAT registered businesses affected by coronavirus (COVID-19)

There is an accelerated process for VAT registered businesses to request temporary alterations to their partial exemption methods (including combined methods) to reflect changes to their business practices because of the coronavirus (COVID-19) pandemic.

Businesses who make a mixture of taxable and exempt supplies can only recover input tax to the extent that it is used in making taxable supplies. Residual input tax (VAT incurred on purchases used to make both taxable and exempt supplies) must be apportioned using a fair and reasonable method to calculate the percentage which is recoverable.

The standard method, based on the value of taxable supplies made as a proportion of all supplies made by the business, is the default method. A Partial Exemption Special Method (PESM) may, however, be used if HMRC is satisfied that it would produce a fairer reflection of the use of residual input tax than the standard method. Proposed PESMs must be approved by HMRC before they can be used.

Businesses using the standard method may, in any given tax year, find that their actual deductible input tax differs significantly from that calculated based on the use of input tax in making taxable supplies. Where this difference exceeds £50,000, or 50% of the residual input tax and £25,000, they must account for the difference between the 2 amounts by applying the standard method override.

A special method override may be required when an existing PESM is found to be unfair. A business can serve a Special Method Override Notice on HMRC, or HMRC can serve one on the business.

HMRC will be using an accelerated process to make sure coronavirus-related changes to partial exemption methods are considered, and where appropriate, approved swiftly.

Requests for such changes should be sent to the email address: PESMcovid19@hmrc.gov.uk.

All PESM requests must be accompanied by a declaration that the method proposed is fair and reasonable. An example of the format this should take is available in appendix 1 of Partial Exemption (VAT Notice 706).

Where HMRC are satisfied that the aim of the proposal is to address coronavirus issues only, in order to facilitate a quick decision, HMRC will restrict its enquiries to how that proposal addresses those issues. Where there may be significant risk that the remainder of the existing method produces an overall result which is not fair and reasonable, further examination of that method will be considered.

HMRC will apply normal scrutiny to method requests where there is a risk the accelerated process is being used to increase recovery for businesses whose activities have not been directly affected by coronavirus.

See: https://www.gov.uk/government/publications/revenue-and-customs-brief-4-2021-partially-exempt-vat-registered-businesses-affected-by-coronavirus-covid-19/

VAT on purchases from the EU

Here is a quick reminder of the post Brexit VAT rules if you purchase goods from the EU either privately or as a business.

Before Brexit, if anyone purchased goods from the EU on an online platform (say Amazon or E-bay), VAT was paid at the rate charged by the country you purchased the item from. VAT would have been applied at the point of purchase and customers paid the price they saw advertised. In addition many EU businesses selling goods online were below the VAT threshold and there was no VAT charged.

Now all EU sellers have UK VAT charged automatically by online platforms that they use, and this is why some prices have increased by 20%. In addition any purchases from the EU over £135 will have VAT payable by the purchaser at the point of delivery, which could be your doorstep!

In addition because of the customs documentation required some sellers have increased their prices to cover the costs. Some have ceased selling to the UK completely. 

Making Tax Digital for VAT

MAKING TAX DIGITAL (MTD) FOR VAT

From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of the level of turnover. The first VAT period to which MTD applies to all VAT registered businesses (who are not already doing so) will be the one commencing on or after 1 April 2022.

What is “Making Tax Digital”?

Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.

Will it affect me?

If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax, then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non- compliance.  

When is all this happening?

MTD for VAT has already started and has been “live” for nearly two years.  It started with businesses above the VAT threshold limits (currently £85,000) in April 2019.

From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of level of turnover.

This notice below explains the rules for Making Tax Digital for VAT and about the digital information you must keep if they apply to you. It was last updated 31 December 2020.

Please talk to us about how we can help your business comply with the new rules. We can recommend the right software and provide the training and support you need.   

New VAT Rules For Construction Sector Starts on 1 March 2021

New VAT rules are finally due to come into effect this March which will impact on accounting for VAT for transactions in the construction sector. These new rules, which were originally scheduled to start back in October 2019, have already been delayed twice as there was a lack of awareness of the changes in the industry.

The new “reverse charge” system of VAT accounting will affect sub-contractors supplying their services to main contractors in the construction sector.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the new reverse charge system, the sub-contractor will not show VAT on their invoice to the main contractor and will not account for output VAT.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors, some of whom were allegedly not paying over the VAT charged to HMRC.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system when it starts. If you are a sub-contractor using the VAT flat rate scheme, it may be beneficial to leave that scheme as you may be entitled to a VAT refund on your expenses from 1 March 2021.

How long you need to keep VAT records

All VAT-registered businesses must:  

- keep records of sales and purchases; 
- keep a separate summary of VAT; 
and 
- issue correct VAT invoices  

In the UK, VAT records must be kept for at least six years (or ten years if the trader uses the HMRC VAT mini-one-stop-shop (VAT MOSS) service). 

VAT records may be kept on paper, electronically or as part of a software program (e.g. book-keeping software) - but whichever method is used, the records must be accurate, complete and readable. 

HMRC can visit businesses to inspect record-keeping and impose penalties if the records are not in order.

VAT scrapped on E-publications

Plans to scrap VAT on e-publications fast-tracked and will come force into today.

lans to scrap VAT on e-books and e-newspapers have been significantly fast-tracked in a boost to readers and publishers during the coronavirus outbreak, the Chancellor announced yesterday.

Rishi Sunak said the zero rate of VAT will now apply to all e-publications from the 1st May 2020 - seven months ahead of schedule – potentially slashing the cost of a £12 e-book by £2 and e-newspapers subscriptions by up to £25 a year.

Read more information on the HMRC website here: https://www.gov.uk/government/news/vat-scrapped-on-e-publications

Making Tax Digital Phase 2 postponed to April 2021 due to COVID-19

HMRC has announced that the second phase of Making Tax Digital for VAT (‘MTD’), originally scheduled for April 2020, has now been delayed by 12 months and will come into effect on the 1st April 2021. This is to help ease against the impact of the COVID-19 crisis.

Phase 2 relates to businesses who are VAT registered but whose sales are under the VAT threshold (currently £85,000). 

This 'phase two' required businesses to digitally link their software all the way from entry of each transaction at one end of the process through to submission of the VAT return at the other, irrespective of how many pieces of software were used.

This means the rules on maintaining digital links from original transaction to tax return will not be enforced until 1 April 2021.

Businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place. HMRC have updated VAT Notice 700/22 Making Tax Digital to reflect this extension.

Digital links summary

MTD requires businesses to maintain relevant information about sales and purchases in an electronic format, using 'functional compatible software'. This means a software programme which allows information to be recorded in an electronic form which sends and receives information to/from HMRC using the API platform (including API-enabled spreadsheets). It is possible to use more than one software programme but there must be a digital link between them.

Broadly, the functions of the compatible software must include:

- keeping records in a digital form as required by regulations;
- preserving digital records in a digital form as required by regulations;
- creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally;
- providing HMRC with VAT data on a voluntary basis;
- receiving information from HMRC via the API platform in relation to a relevant entity's compliance with obligations under the regulations.


Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC.

If you have any queries about this, please drop me a line. 

Best wishes, 

Steve

Steven Hillman ACA
Chartered Accountant
Tel: 01934 444100
https://www.hillmans.co.uk/covid-19-updates 

Weekly Update 24.04.2020

Weekly Update 24.04.2020

Below I have summarised all the main tax updates we’ve seen this week from HMRC.

•    HMRC Online Service Now Open for Coronavirus Job Retention Scheme
•    Coronavirus Future Fund for tech start-ups
•    Coronavirus and VAT 
•    Turn2us Benefits Calculator

As always if you need any support or advice please don’t hesitate to contact me.

Have a great weekend!

Coronavirus and VAT

Coronavirus and VAT 

If your sales turnover has fallen due to the Coronavirus, it may be beneficial to review whether it would be worth your business deregistering for VAT. You can deregister if you think your turnover will be below the VAT deregistration threshold of £83,000 for the next 12 months.

We can also review whether it would be worth moving to a cash accounting or flat rate scheme. 

Please drop us a line if you would like to discuss this further. 

December 2019 Tax Tips & News

Welcome...

To December's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances. We're here to help!                  

 

December 2019

· Tax-free Christmas parties

· Proposals to pay doctors' pension tax bills: update

· Should I register for VAT?

· Should I incorporate my business?

· December questions and answers

PLEASE NOTE:

Our office will be closed for the Christmas and New Year holidays from 5pm on Friday 20th December 2019 until 9am on Thursday 2nd January 2020. 

Wishing you a very Merry Christmas and a Happy New Year!

Making Tax Digital: are you ready?

If you're a VAT-registered business you need to be signed up to the UK Government's Making Tax Digital (MTD) scheme – an initiative that’s moving tax returns to the digital space.

Autumn Budget 2018

Welcome... To Autumn Budget 2018, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice on your own specific circumstances. We're here to help! Autumn Budget 2018 · Summary · Individuals · Business · VAT · Indirect taxes · Administration and other matters