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VAT: Latest News & Developments Neil Owen BA CTA(Fellow) FBIAC - PowerPoint PPT Presentation

VAT: Latest News & Developments Neil Owen BA CTA(Fellow) FBIAC AIIT Brexit VAT law written in Brussels Little flexibility in UK E.g. no extension of zero rate But, European Court makes decisions favourable to UK taxpayers


  1. VAT: Latest News & Developments Neil Owen BA CTA(Fellow) FBIAC AIIT

  2. Brexit  VAT law written in Brussels  Little flexibility in UK  E.g. no extension of zero rate  But, European Court makes decisions favourable to UK taxpayers  Independence in VAT policy a two-edged sword  Practical effect in cross-border situations

  3. The Brexit Effect  Sale of goods to EU will be exports  Evidential requirements  Duty on imports to EU  Purchases of goods from EU = imports  Cash flow implications  No boxes 2, 8 or 9 on VAT return  No Intrastat  Triangulation an issue  MOSS an issue  Benefit for tour operators (no TOMS?)

  4. Pre-registration Input Tax  Pre-registration VAT not input tax  Recoverable as if it were  Provided relates to making taxable supplies  Six months for services  Provided not absorbed into supplies made prior to registration  E.g. car repairs, accountancy, phone bills, rent  Services = all types of service  Including intangible assets and building works

  5. Pre-registration Input Tax  Four years for goods  Provided still on hand at date of registration  HMRC began insisting on depreciation  Controversial  Conflicted with public notice  Only came to HMRC’s attention in some cases  Subject to challenge in tribunal  Meanwhile full claims were still recommended  Now HMRC have conceded  R&C Brief 16(2016)

  6. VAT Registration  Letters from HMRC  Reviewing tax return (personal or company)  Turnover above threshold, no VAT number  Prompted disclosure  Infrequent in the past  Now more frequent but not (yet?) routine  Other desk- based “trawls”  Charity Commission, Land Registry

  7. Flat-Rate Scheme Changes  1 April 2017  New concept of “limited - cost trader”  Flat rate of 16.5%  “Flat rate” for normal VAT accounting is 16.67%  Perceived abuse  Change to prevent “aggressive abuse”  Makes scheme pointless for most service- based businesses

  8. FRS Changes 2  Triggered by increase in applications  Marketing of scheme  Purely to make money  30,000 additional applications  Construction sector agencies  Change will have wider effect  HMRC say 30% of users  Experience suggests possibly two-thirds

  9. FRS Changes 3  “Limited - cost trader” is any registered person who spends on qualifying goods:  less than 2% of FRS turnover, or  less than £1,000 p.a.,  whichever is the greater  “Goods” means goods, not services  Physical, tangible items  Test applied to every return

  10. FRS Changes 4  Qualifying goods means goods that are not:  food or drink for consumption by the trader and/or any employees  vehicle-related costs – road fuel, car parts, etc – except for a transport business  goods for resale or hire if not main activity  goods for disposal – promotional items, gifts, etc  “capital expenditure goods”

  11. Qualifying Goods  “Capital expenditure goods”  Do not qualify  “Any goods of a capital nature” unless consumed within one year or let to others  Potentially qualifying  Stationery, printer cartridges  Gas and electricity (for business)  Cleaning materials  Goods purchased to supply services  E.g. electrician

  12. FRS Changes 5  Few service-based businesses will escape  Most will need to apply 16.5% or leave scheme (notify HMRC if leaving)  frsapplications.vrs@hmrc.gsi.gov.uk  Consultants, engineers, actors, solicitors, technicians, accountants, etc, etc  Only certain businesses will still benefit  Those dealing in goods, e.g. retailers  Selected service providers  Consult Notice 733 when leaving  Esp. cash basis to cash accounting

  13. Colouring & Dot-to-Dot Books  Zero-rating applies, inter alia, to “children’s picture and painting books”  Zero- rating also applies to “books”  HMRC say adult colouring books etc are neither  Not “books” since they are not “designed to be read or looked at”  Consequently, they are standard-rated

  14. Adult Colouring Books Etc  However, most also suitable for children  Especially as this means up to 18  For clothing it is 14 th birthday of course!  So zero-rated after all  Well, except those which are  marketed specifically for adults  held out for sale with other adult-only books  contain images reflecting profanity, pornography, violence or illegal acts

  15. VAT Visits, Enquiries, Etc  Reduced number of visits  Risk-based approach  Desk-based checks of single returns  Unusual repayment likely to trigger  Write to explain  Details in letter  Enclose copy invoices  Enclose full purchase listing

  16. VAT Return Enquiries  New procedures  Standard letter  Edinburgh, Cardiff, Manchester, Newcastle  Request for copious information  Unfocused  National database not checked  Initial letter may help focus enquiries and limit documentation required

  17. Error Correction Notifications  Formerly voluntary disclosures  VAT652 or letter  Apparent £50,000 threshold for detailed checks  Repayment and payment  Occasional mention of penalties  Supporting documentation essential  Unless >£10,000?

  18. Repayment Supplement  Penalty on HMRC  Failure to repay within 30 days  VAT return claims only  5% of tax repayable  Time for enquiries excluded  Vogrie Farms  2 hours = 1 day

  19. Alternative Dispute Resolution  Opportunity for discussion and compromise  Application required  Best where middle ground  But sometimes for technical issues  Make case for acceptance  Dispute must be live  Tribunal appeal may be necessary

  20. ADR 2  Mediation not arbitration  HMRC trained staff, genuinely independent  Open forum with breakout  Two rooms needed  Allow whole day  Taxpayer and adviser  HMRC caseworker and manager  No records kept  Aim is agreement on the day

  21. Non-Business Activities 1  Yarburgh Children’s Trust  St Paul’s Community Project Limited  Nursery and/or crèche for local disadvantaged community  Charges to parents  Subsidised by other income sources  Not in competition with commerce  Not run on fully commercial lines

  22. Non-Business Activities 2  High Court in England  Intrinsic nature of enterprise  Not carrying on a business  Provision of social welfare  In a manner lacking commerciality  Consequently not in business  Customs disagree but do not appeal  Self-evidently a principle at stake  Has taken years for another case

  23. Non-Business Activities 3  Longridge on the Thames  Activity centre  Furtherance of charitable aims  Reduced or waived fees  High reliance on volunteer labour  No resources for capital projects  First-Tier and Upper Tribunal say not in business  Overturned by CoA  No Supreme Court appeal

  24. Non-Business Activities 4  The charity is therefore in business  On European criteria  Economic activity  Direct link  Status quo ante  Easier than the alternative  Calls into question Yarburgh and St Paul’s

  25. Antiques Fairs, Etc  Pitch fees historically seen as exempt  Shift of policy  Now seen as provision of selling opportunity  But no formal announcement or legal change  IACF loses in FTT  Craft Carnival wins in FTT but loses in UT  Distinct from arcades  Antiques Within  Similar issue for bespoke wedding venues

  26. Reduced Rate Conversions  Contractors’ services  Non-residential to dwelling(s)  Dwellings to dwelling  Dwelling to dwellings  Different no of dwellings  but not any part remaining unchanged  Dwelling unoccupied > 2 years  Relevant residential ditto  Multiple occupancy ditto

  27. Reduced Rate 2  Converting non-residential to  relevant residential use  multiple occupancy  Converting between  dwelling(s)  multiple occupancy use  relevant residential use  Constructing a garage  in connection with r/rated project

  28. Reduced Rate 4  Applies to work on fabric of building  Also some works in curtilage  Bringing in utilities  Providing drainage and  Providing security  Walls, fences, gates, etc  Providing means of access  Paths, drives, etc  Other works in grounds standard-rated

  29. Standard-rated Items  Supply and installation  Prefabricated furniture  except kitchen units  Electrical or gas appliances, except  if part of heating, ventilation or alarm systems  lifts and hoists  Carpets and carpeting material  Any item not ordinarily installed by a builder as a fixture in a new dwelling  E.g. soft furnishings  List in Notice 708

  30. Reduced Rate Summary  5% rate, where, broadly  change of use or > 2 years unoccupied, and  resultant use residential, or  change of number of dwellings within a building or part of a building  Word of caution  Definition of qualifying dwelling  No prohibition on separate use or disposal  Prohibition = no reduced-rating

  31. And that’s it… Goodbye and thanks for listening

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