How to Defer VAT – COVID-19 Reply

For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.

 

All UK businesses are eligible. How to access the scheme

 

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

 

Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do so in sufficient time so that HMRC do not attempt to automatically collect on receipt of your VAT return.

 

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

steve@bicknells.net

Are you an agent for supplies to your clients? VAT Reply

You’re an agent if you act for, or represent, someone else (your principal) in arranging supplies of goods or services. The supplies that you arrange are made by, or to, the principal you represent.

Principals cannot avoid their liability to account for VAT on their supplies or to pay VAT on their purchases by using an agent.

Persons who carry on a business on their own account sometimes use the words ‘agent’ and ‘agency’ to describe their trading style. For example:

# distributors, sole concessionaires and motor agents usually trade as principals on their own account
# employment agencies and travel agents are not usually agents in all their activities

On the other hand, some people who normally trade as principals, such as solicitors and architects, may occasionally arrange supplies as agents for their clients.

To act as an agent, you must have agreed with your principal to act on their behalf in relation to the particular transaction concerned. This may be a written or oral agreement, or merely inferred from the way you and your principal conduct your business affairs. Whatever form this relationship takes:

# it must always be clearly established between you and your principal, and you must be able to show to HMRC that you’re arranging the transactions for your principal, rather than trading on your own account
# you will not be the owner of any of the goods, or use any of the services which you buy or sell for your principal
# you will not alter the nature or value of any of the supplies made between your principal and third parties

https://www.gov.uk/guidance/vat-guide-notice-700#section22

Supplies made through an undisclosed agent are those where the supplier and purchaser are not known to each other as the agent acts in his own name.

Supplies of goods through an agent acting in his own name are treated as to him and by him and consequently count towards his turnover for VAT registration.

VQOTW: Agency Status and Impact on VAT Turnover

steve@bicknells.net

If TOMS applies is the VAT threshold based on Sales or Margin? Reply

HMRC say…

You must register your business for VAT with HM Revenue and Customs (HMRC) if its VAT taxable turnover is more than £85,000.

You can of course voluntarily register below the threshold

However, there are special rules for TOMS which mean instead of Turnover the threshold is based on margin. This can make a massive difference as it takes a lot longer for your margin to hit £85,000!

Tour Operators Margin Scheme (VAT Notice 709/5)

https://www.gov.uk/guidance/tour-operators-margin-scheme-for-vat-notice-7095#sect-4

4.1 What taxable turnover is for VAT registration or de-registration purposes
If you’re considering whether you must register for VAT, or whether you may de-register, your taxable turnover is regarded as the total of:

total margin on your taxable (including zero-rated) Margin Scheme supplies

full value of:
taxable (including zero-rated) in-house supplies
taxable agency commission
any other taxable (including zero-rated) supplies you make in the UK

 

steve@bicknells.net

What is a C79 and how do you account for Import VAT? Reply

The Economic Operator Registration and Identification (EORI) scheme was implemented in the EU UK 1 July 2009. You will require an EORI number if you import from or export to countries outside of the EU.

Goods are declared to customs using form C88 Single Administrative Document (SAD) that in most cases is presented in an electronic format. Import VAT is dealt with in the same way as a Customs Duty. You can pay it outright at importation, or under the duty deferment arrangements explained in Notice 101: deferring duty, VAT and other charges which also covers Simplified Import VAT Accounting (SIVA). This is a scheme that reduces the level of financial security required to guarantee the payment of import VAT through the duty deferment system.

Subject to the normal rules, you can claim as input tax any import VAT you pay on goods, provided those goods are imported for the purpose of your business. Your claim must normally be made on the VAT Return for the accounting period during which the importation took place.

C79
The normal evidence of payment of import VAT is the import VAT certificate (form C79), which is issued monthly.

You need to hold official evidence of VAT paid on imported goods before you can recover the VAT as input tax.

The C79 certificate is issued in connection with most import procedures, and also post importation corrections and removals from a customs warehouse.

The certificate is made up of twin sided A4 sheets with a blue print background.

Flexible Accounting System (FAS) paid VAT transactions will be shown under your EORI number.

Neither the agent’s VAT number nor the agent’s reference number appears on the certificate for immediate payment and FAS paid transactions. If this causes you particular difficulties you may wish to consider arranging duty deferment facilities.

The accounting date will be shown against each item on the certificate, and transactions will appear on the certificate for the month covering that accounting date – for example, transactions bearing an accounting date of October will normally appear on the October C79 certificates. For transactions paid by duty deferment the accounting date is normally the date of clearance of the goods. For immediate payment and FAS items the accounting date may, in some instances, be later than the date of the declaration. So some goods cleared in late October may have a November accounting date, and will therefore appear on the November certificate.

Transactions that are the subject of an accounting query will appear on the first certificate issued after the query has been dealt with.
A single total of VAT for the period will appear at the end of the final page.

Certificates cover accounting transactions made in each calendar month should be received around the 24th of each month following imports logged the previous month.

Here are the instructions on how to enter C79 import VAT

The cost including the freight will have been paid to the freight company such as FEDEX

Sage One

https://help.sageone.com/en_uk/accounting/import-vat-and-duty.html

Xero

https://central.xero.com/s/article/Using-non-standard-tax-rates-UK

steve@bicknells.net

Factsheet – Construction Industry VAT – Reverse Charge Reply

 

Reverse Charge for the Construction Industry starts in October 2019, its complicated and will be confusing!

Read our 2 page fact sheet to understand how you need to account for VAT.

The new rules will affect Subcontractors and Contractors.

Click here to get the factsheet

steve@bicknells.net

Is there VAT on Part Complete Conversions? Reply

So you bought a commercial property, applied a 1614D to remove the option to tax, you started work and ran out of money, what happens to VAT you have reclaimed?

The good news it you can keep it and zero rate the sale, provided..

For conversions, real and meaningful works must have been carried out before they have ‘person converting’ status. Judgement should be used to decide whether works are real and meaningful.

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst04700

steve@bicknells.net

If you build a new building is it covered by the previous buildings option to tax? Reply

Croner Taxwise question of the week covered this

My client purchased a small industrial unit in 2010 on which he was charged VAT. He lodged an option to tax on the building and charged the tenant VAT on the rent. The last tenancy expired in 2014 but he found he could not get a new tenant easily because the unit was built in the early 1970s and businesses looking to rent space were more attracted by newer units with modern facilities. My client decided that to reap real benefit from the investment he would demolish the existing unit and build a new one on the site, which would then command a higher rental figure. He has now done this at a cost of around £100,000 and is ready to market the unit for rental. He is assuming that he will not charge VAT on rents to any new tenant as he has not lodged an option to tax on the new property. Is he able to do this?

Legislation on the option to tax underwent some changes in 2008 and since then it has no longer been possible to opt land and buildings separately. This means that the option to tax made on the unit in 2010 covers not only the original unit, but also the land on which it was built and also to any buildings later constructed on that land if the original building is demolished. Therefore in your client’s case, as he opted to tax the unit, the option is still in force and will apply to his supplies of the new unit, and allow him input tax recovery on the redevelopment.

The corollary is also true that if he had placed an option to tax on the land then that option would apply to any buildings on the land at the time of the option and to any future buildings constructed on the land. However, where the option to tax has been made on land, rather than on a building, it is possible to exclude a new building constructed on the opted land from the option to tax, provided the new building is not within the curtilage of any existing building. Notice 742A explains how this is done in paragraph 2.7.

VAT Notice 742A

2.4 What is covered by the option to tax?

2.7.1 In what circumstances can I exclude a new building from the effect of an option?
If you construct a new building on opted land (and that building is not within the curtilage of an existing building – for the meaning of ‘curtilage’, see paragraph 2.4) you may exclude the new building (and land within its curtilage) from the effect of the option to tax by notifying us of the exclusion.
If you decide to do this, the new building will be permanently excluded from the effect of your existing option to tax. But you may, if you wish, make a fresh option to tax in the future, subject to obtaining permission from us if appropriate – see Section 5.
If you choose to exclude a new building from the effect of an option to tax this may affect your entitlement to recover input tax on your costs. See Section 9 for further information about input tax.

 

steve@bicknells.net

Is TOMS an option for Serviced Accommodation VAT? Reply

TOMS is the Tour Operators Margin Scheme (VAT Notice 709/5).

It is a special scheme for businesses that buy-in and re-sell travel, accommodation and certain other services (see paragraph 2.9) as a principal or undisclosed agent (that is, acting in your own name).

TOMS does not apply to:
# supplies you have arranged as a disclosed agent/intermediary and your commission is readily identifiable (see paragraphs 2.14 and 6.7)
# in-house or agency supplies you make which are not packaged/supplied with margin scheme supplies (see paragraphs 2.12 and 2.13)
# supplies you make to business customers for subsequent resale by them (that is, wholesale supplies), or
# supplies that are incidental to your other supplies (see paragraph 3.6)

If you are registered for VAT, you must normally account for tax on the full selling price of your supplies, but you can reclaim the VAT charged on purchases (subject to the normal rules).

Under the TOMS, you cannot reclaim any UK or EC VAT charged on the travel services and goods you buy-in and re-supply – the tax on such goods or services is accounted for in the relevant Member State by the providers of those services (hotels, airlines and so on).
However, as a tour operator based in the UK, you only account for VAT on the margin you make on your margin scheme supplies (see paragraph 2.7), that is, the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers.

A margin scheme supply is defined in law (see paragraph 1.2) as a ‘designated travel service’.
This means it is a supply of goods or services which is:
bought in from another person and re-supplied without material alteration or further processing, and
supplied by a tour operator from an establishment in the UK, for the direct benefit of a traveller – see paragraph 2.8

The following are always margin scheme supplies:
# accommodation
# passenger transport
# hire of a means of transport
# trips or excursions
# services of tour guides
# use of special lounges at airports

The reason why this would be useful for Serviced Accommodation is because often its done on Rent to Rent basis and the landlord supplies Residential Accommodation (which exempt from VAT), Serviced Accommodation is Vatable (if you cross the £85k threshold), so the VAT bill would be lower using TOMS. However, its not like a normal tour operator, normally they would buy in holiday accommodation not residential accommodation!

So before using TOMS you should get prior approval from HMRC after full disclosure of all the facts.

Surely in these circumstances HMRC would want the original landlord to change the status from Residential to Holiday Accommodation so that they will become subject to VAT?

steve@bicknells.net

 

How do DIY builders reclaim VAT? Reply

You can apply for a VAT refund on building materials and services if you’re:

  • building a new home
  • converting a property into a home
  • building a non-profit communal residence – eg a hospice
  • building a property for a charity

The building work and materials have to qualify and you must apply to HM Revenue and Customs (HMRC) within 3 months of completing the work.

But its important to note..

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst24350

When a sole proprietor or partnership is in the business of constructing property for sale and builds a house on his own land for his own occupation, or by a connected person, he can either:

  • recover the VAT through his VAT return in the normal way

or

  • claim the VAT through the Refund Scheme.

Until 1 January 2011, a sole proprietor or partnership (in the business of constructing property for sale) who built a house on his own land for his own occupation, or by a connected person, could either:

  • recover the VAT through his VAT return in the normal way

or

  • claim the VAT through the DIY Refund Scheme.

After 1 January 2011, however, this choice is no longer available to him and it will only be possible to recover VAT through his return to the extent that the services and materials will be used for taxable business purposes. Where the house has not been constructed for a business purpose it will not be possible to claim back the VAT through his return. The only option that will now be available to him will be to make a claim through the Refund Scheme.

Companies and other corporate bodies who build dwellings for their staff or officers of the company can’t make a Refund Scheme claim because the tax is incurred in the course or furtherance of their business.

VAT incurred in relation to staff accommodation is input tax and can be recovered through the company’s VAT return, subject to the normal rules.

As such the only way to recover the VAT is by making a DIY claim for the cost of materials and this should be made as one claim within 3 months of completion.

steve@bicknells.net