Is £277k a fair penalty for being 1 day late on VAT Reply

Businessman and businesswoman in panic of the financial crisis

There have been a couple of recent cases that highlight the importance of filing and paying VAT on time. Both cases were argued on proportionality.

Blue Ocean Associates Ltd v Revenue and Customs (VAT – PENALTIES : Default surcharge) [2016] UKFTT 42 (TC) (26 January 2016)

VALUE ADDED TAX – default surcharge – return submitted one day late – with a penalty of £277,185.00  proportionate – yes

As the default which is the subject of the present appeal was the first such default by the Company in the surcharge period, the surcharge fell to be calculated at the rate of 2% on the amount which was paid late (£13,859,254.00) and was therefore £277,185.00.

Trinity Mirror PLC v Revenue & Customs [2014] UKFTT 355 (TC) (14 April 2014)

VAT – default surcharge – whether penalty proportionate – appeal allowed

In respect of the 06/07 VAT Period, Trinity Mirror was required to (1) make 2 payments on account of £1,546,965.00 each by, respectively, 31/05/2007 and 29/06/2007, and (2) file its VAT return and make a balancing payment of £5,467,130.92 by 01/08/2007.  Trinity Mirror made the 2 payments on account, and filed its VAT return, on time.  It made the balancing payment in full on 02/08/2007, that is, 1 day late.

The Penalty was £70,906.44

Its pretty clear from both cases that HMRC are getting tough on late returns and payments so its vital that businesses don’t miss deadlines!

steve@bicknells.net

What are the rules for claiming reduced VAT on conversions? 1

mounting thermal insulation boards

VAT Notice 708 has the exact details and whether or not the 5% rate can be used is a matter of fact not opinion. HMRC will not give specific clearance, they will refer you to the rules and ask you to check the rules with your builder for your project.

The property owner doesn’t issue a certificate (as would be needed to Zero Rating), its for the builder/developer to determine whether and on what the 5% VAT rate can be applied.

The basic conditions for reduced-rating the conversion of premises to a different residential use

7.1.1 Introduction

If you carry out work to an existing building you will normally have to charge VAT at the standard rate. You may, however, be able to charge VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’ – see paragraph 14.4
  • a different number of ‘single household dwellings’ – see paragraph 14.4
  • a ‘multiple occupancy dwelling’, such as bed-sits – see paragraph 14.5, or
  • premises intended for use solely for a ‘relevant residential purpose’ – see paragraph 14.6

Example 1

A block of flats consists of 4 floors, each with 4 flats. A lift is installed and work is carried out throughout the whole building. On the ground, first and second floors the footprint of each flat is changed to take account of the new lift. This results in the internal configuration of each flat being changed. On the third floor 3 penthouse flats are created from the original 4.

Although the overall number of single household dwellings in the building has changed (there has been a reduction by one unit) only the work to convert the third floor will be eligible for the reduced rate because it is only in this part of the building that the number of dwellings has changed. But see also the next example.

Example 2

Taking the above example, if the reduction in the number of flats on the third floor happens by combining 2 of the original flats together – the other 2 being refurbished – then the reduced rate will only apply to the work to merge the 2 flats together.

Example 3

Taking example 1, as well as the changes to the top floor, the number of flats on the ground floor is changed to 5 smaller units. In this example, the overall number of dwellings in the building has not changed (there are 16 units both before and after the work). However, as parts of the building are examined independently, and because the respective parts of the building meet the conditions at paragraph 7.3, the reduced rate can apply to the work to convert those parts.

What services can I reduced-rate?

Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.

You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:

  • means of providing water, power, heat or access
  • means of providing drainage or security, or
  • provision of means of waste disposal

All other services are standard-rated. For example, you must standard-rate:

  • the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
  • the erection and dismantling of scaffolding
  • the hire of goods
  • landscaping
  • the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors

7.6.1 Garages

You can reduced-rate the:

  • conversion of an outbuilding into a garage
  • construction of a new detached garage, and
  • the construction of a drive serving the garage

provided:

  • the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion, and
  • the work is carried out at the same time as the qualifying conversion

Please note however that you cannot reduced-rate the provision of a hardstanding unless it is also used as an access.

If you carry out work that requires statutory planning consent or statutory building control and it has not been granted, then your work is standard-rated.

steve@bicknells.net

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How do you claim VAT Bad Debt Relief? Reply

Debt Envelope Scattered Stack

VAT Notice 700/18 sets out the basic rules

Conditions for claiming bad debt relief

Number Condition(s)
1. You must already have accounted for the VAT on the supplies and paid it to HM Revenue and Customs.
2. You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account.
3. The value of the supply must not be more than the customary selling price.
4. The debt must not have been paid, sold or factored under a valid legal assignment. (See paragraph 3.12).
5. The debt must have remained unpaid for a period of six months after the later of the time payment was due and payable and the date of the supply (one year after the date of supply for supplies made from 1 April 1989 to 31 March 1992), and
6. If the goods were supplied before 19 March 1997, ownership must have passed to your customer, or through the customer to a third party.
7. For supplies made to a VAT registered customer between 26 November 1996 and 30 April 1997, you must send a notice to them. A copy of the notice must also be retained. (See paragraph 2.7 for an example).

 

You must wait at least six months from the later of when payment was due and payable or the date of supply. The due date for payment may be determined by your normal credit terms, or by any longer period for payment which you agree with your customers. You cannot claim on a return for an accounting period earlier than the one in which you become entitled to the relief.

For supplies made after 30 April 1997, you must claim within four years and six months of the later of, when payment is due and payable or the date of supply.

Do I have to keep any records?

Yes, when you can claim a refund you must keep:

  • a copy of the VAT invoices for the supplies on which you are claiming a refund. (If you did not issue a VAT invoice you must have a document showing the equivalent information), and
  • a separate bad debt account showing the:
    (a) amount you have written off as a bad debt
    (b) amount of VAT you wish to claim as bad debt relief
    (c) VAT period in which you have claimed a refund
    (d) total amount of VAT charged on each supply
    (e) VAT period in which you originally accounted for VAT on the supply
    (f) payment received for each supply
    (g) name of your customer, and
    (h) date and number of the invoice to which the bad debt relates. (If you did not issue an invoice you must include sufficient information to allow the time and type of the supply to be readily identified)
    (i) a copy of any notice issued

Important things to note

  1. For Sales after 1st January 2003 it is not necessary to inform the customer that you are claiming bad debt relief
  2. The Bad Debt Relief Account is not part of the statutory accounts and does not mean the bad debt has been written off
  3. The Bad Debt Relief Account is often kept as a separate manual record supplementary to the main VAT records
  4. The VAT Bad Debt Reclaim is entered as Input Tax in period in which it is claimed
  5. Any money which comes in subsequently is considered to include VAT

steve@bicknells.net

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VAT on Tampons but not Jaffa Cakes! Reply

Woman hygiene protection

I have always been amazed by VAT, there are so many odd rules that just seem crazy!

Last week MP’s voted to continue to charge 5% VAT – Tampon Tax – on Women’s Sanitary products.

The motion, brought by Labour, was defeated by 305 votes to 287 with just three Conservative MPs rebelling against the whips – and they were all men.

Women will continue to pay 5% VAT on their Lil-Lets because they’re apparently ‘non-essential, luxury’ items. You know, like private jets and exotic meats.

VAT can be very complicated as highlighted in the case of Jaffa Cakes – Cakes or Biscuits?

The leading case on the borderline is that concerning Jaffa cakes: United Biscuits(LON/91/0160). Customs and Excise had accepted since the start of VAT that Jaffa cakes were zero-rated as cakes, but always had misgivings about whether this was correct. Following a review, the department reversed its view of the liability. Jaffa cakes were then ruled to be biscuits partly covered in chocolate and standard-rated: United Biscuits (as McVities, one of the largest manufacturers of Jaffa cakes) appealed against this decision. The Tribunal listed the factors it considered in coming to a decision as follows.

  • The product’s name was a minor consideration.
  • Ingredients:Cake can be made of widely differing ingredients, but Jaffa cakes were made of an egg, flour, and sugar mixture which was aerated on cooking and was the same as a traditional sponge cake. It was a thin batter rather than the thicker dough expected for a biscuit texture.
  • Cake would be expected to be soft and friable; biscuit would be expected to be crisp and able to be snapped. Jaffa cakes had the texture of sponge cake.
  • Size: Jaffa cakes were in size more like biscuits than cakes.
  • Packaging: Jaffa cakes were sold in packages more similar to biscuits than cakes.
  • Marketing: Jaffa cakes were generally displayed for sale with biscuits rather than cakes.
  • On going stale, a Jaffa cake goes hard like a cake rather than soft like a biscuit.
  • Jaffa cakes are presented as a snack, eaten with the fingers, whereas a cake may be more often expected to be eaten with a fork. They also appeal to children, who could eat one in a few mouthfuls rather like a sweet.
  • The sponge part of a Jaffa cake is a substantial part of the product in terms of bulk and texture when eaten.

Taking all these factors into account, Jaffa cakes had characteristics of both cakes and biscuits, but the tribunal thought they had enough characteristics of cakes to be accepted as such, and they were therefore zero-rated.

http://www.hmrc.gov.uk/manuals/vfoodmanual/vfood6260.htm

Surely there must be a way to simplify the rules?

steve@bicknells.net

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10 ways to pay less VAT 1

3D Vat button block cube text

Here are my top 10 ways to pay less VAT

1 Choose the best VAT Scheme for your business

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate Scheme – try our calculator

Flat Rate Calculator 2

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

2 Claim Pre-registration VAT

When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

Be careful not to over claim – see this blog for details https://stevejbicknell.com/2015/06/24/preregistration-vat-confusion/

3 Property Investors might benefit from a Development Company

Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.

If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.

Assuming you employ a builder…

The VAT Rules are in VAT Notice 708 Buildings & Construction

Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’
  • a different number of ‘single household dwellings’
  • a ‘multiple occupancy dwelling’, such as bed-sits, or
  • premises intended for use solely for a ‘relevant residential purpose’

As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.

If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.

If your Development Company is VAT registered you can reclaim all the VAT.

4 Do you need to charge VAT on Intercompany Charges

There are situations where one company is VAT registered and other related companies are either partially exempt or not registered for VAT, so in these circumstances not charging VAT is an advantage.

The following are not Taxable supplies for VAT:

Common Directors – Notice 700/34 (May 2012)

Joint Employment – Notice 700/34 (May 2012)

Paying a Bill on behalf of an associated business

Insurance

5 Use VAT Groups for Business Acquisition Costs

Basically HMRC disallow Input VAT relating to Investments.

The most well known example of this was when BAA purchased Airport Development Investments Limited in June 2006, the decision was upheld by the Court of Appeal in February 2013.

The BAA VAT group sought to recover the VAT (£6.7m) incurred on the acquisition costs but recovery was refused by HMRC on the basis that they considered ADIL had not made onward taxable supplies, had not demonstrated any intention to make taxable supplies and was not a member of the VAT group at the time costs were incurred.

BAA used an SPV (Ferrovial) to purchase ADIL but did not bring the SPV into the BAA VAT Group until September 2006, 3 months after the acquisition.

The lessons to learn from this are:

  1. Once you have successfully made the acquisition join a VAT Group immediately and make it clear in correspondence that the SPV intends to join the VAT Group at the earliest opportunity
  2. Consider not using an SPV
  3. Buy the Assets instead of the Shares
  4. Show that the SPV will make taxable management charges
  5. Consider the scope of the advisors work, HMRC may disallow advice focussed on passively holding shares

6 How Hotels save VAT

Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :

The Long Stay Rule

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

VAT Exempt Meeting Rooms and Refreshments

Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation.

7 VAT on Pool Cars

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used exclusively for a business purpose.

8 Use a Tronc for Tips

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.

If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.

Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food

9 Get your TOGC right – Transfer of a Going Concern

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

10 Choose the best time to register for VAT

You may decide to voluntarily register to reclaim VAT you have paid out to set up you business or you might decide to wait till you have to register to gain a competitive advantage.

You must register for VAT if:

  • your VAT taxable turnover is more than £82,000 (the ‘threshold’) in a 12 month period
  • you receive goods in the UK from the EU worth more than £82,000
  • you expect to go over the threshold in a single 30 day period

steve@bicknells.net

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Will Small Businesses be exempted from VAT MOSS? Reply

Europa Impressionen

Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.

Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.

So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.

To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).

Overview

If your business supplies digital services to consumers in the EU, you can register with HM Revenue and Customs (HMRC) the VAT Mini One Stop Shop (VAT MOSS) scheme. There are 2 UK VAT MOSS schemes that operate in an almost identical way:

  • Union VAT MOSS scheme for businesses established in the EU including the UK
  • Non-Union VAT MOSS scheme for businesses based outside the EU (for example, the USA, Canada, China)

By using the VAT MOSS scheme, you won’t have to register for VAT in every EU member state where you make digital service supplies to consumers.

Once you register for a UK VAT MOSS scheme HMRC will set you up automatically for the online VAT MOSS Returns service.

You need to submit a single VAT MOSS Return and payment to HMRC each calendar quarter. HMRC will then forward the relevant parts of your return and payment to the tax authorities in the member state(s) where your consumers are located. This fulfils your VAT obligations.

Unless businesses opt to register for MOSS, businesses that make intra EU B2C supplies of telecommunications, broadcasting and e-services will be required to register and account for VAT in every Member State in which they have customers. MOSS will give these businesses the option of registering in just the UK and accounting for VAT on supplies to their customers in other Member States using a single online MOSS VAT return submitted to HMRC. This will significantly reduce their administrative burdens.

  • Examples of telecommunications services include: fixed and mobile telephone services; videophone services; paging services; facsimile, telegraph and telex services; access to the internet and worldwide web.
  • Examples of broadcasting services include: radio and television programmes transmitted over a radio or television network, and live broadcasts over the internet.
  • Examples of e-services include: video on demand, downloaded applications (or “apps”), music downloads, gaming, e-books, anti-virus software and online auctions.

Fiscalis conference (7th to 9th September 2015)

Representatives from all EU finance ministries were at the Fiscalis conference in Dublin last week to discuss the implementation of the new EU VAT rules, and how they have been working since their introduction in January 2015.

Accounting Web reported …

One of the key takeaways from the consultation was a general agreement that there should be a threshold to exempt smaller businesses from the rules. The commission stated that it intends to propose legislation for a threshold beneath which companies will be VAT exempt, but did not confirm a figure.

There was also a general agreement that above this threshold there should be what many are calling a ‘soft landing’: A simplified version of the rule for businesses that does not create a financial cliff for those who hit the threshold.

Let’s hope that an exemption can be put in place very soon and ideally as proposed in the EU VAT Action Campaign below

EU VAT Action Campaign (started 28th August 2015)

Please circulate this article as widely as possible, as soon as possible, with as many of your business contacts and other networks.

Write to your national tax authority and finance ministry, to your MPs, MEPs, other elected representatives and to any business organisations which you belong to, insisting that the EU act immediately to:

1. Introduce a threshold of €100,000 for cross-border trade (i.e. based on how much you’re selling digitally to the rest of the EU, outside of your home country). As far as your domestic turnover is concerned, your own country’s VAT rules will still apply.

2. Simplify the rules for all micro businesses (i.e. sub-€2m turnover) to allow ONE piece of data as evidence of place of supply, instead of the current 2-3, with that piece of data being the customer location as supplied by the payment processor to businesses using all levels of their services, not just to those purchasing premium options.

3. Immediately suspend these rules for micro businesses, so that they can revert to their domestic VAT rules and pay taxes according to those regulations during the 2 years it could take for the agreed idea of a VATMOSS threshold to become law.

4. Amend the legislation so that all Member States are legally required to direct their VATMOSS communications through the business’s home tax authority for all micro businesses, to remove the threat and fear of receiving demands and ‘system error’ letters from 27 different tax authorities.

One last thing; please take the few extra minutes to contact these people direct rather than using a bulk-emailing service. These websites have become a victim of their own success in flooding inboxes, so letters coming via these routes are increasingly ignored. You can still send the same letter to them all but you will need to copy and paste and send it individually to be most effective.

 

steve@bicknells.net

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Would you like to pay less VAT? have you tried Flat Rate? 1

Flat Rate Calculator 2

Google Docs Link https://docs.google.com/spreadsheets/d/1NyVN2XW3hjpcAYFdjGPCrbeMa-HyfOcgy3eKnNj2wi0/edit#gid=68376799

Usually, how much VAT a business pays or claims back from HM Revenue and Customs (HMRC) is the difference between the VAT they charge customers and pay on their purchases.

With the Flat Rate Scheme:

  • you pay a fixed rate of VAT over to HMRC
  • you keep the difference between what you charge your customers and pay over to HMRC
  • you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000

To join the scheme your VAT turnover must be less than £150,000 (excluding VAT) and you must apply to HMRC.

You can join the scheme:

Confirmation you’ve joined the scheme is sent to your VAT online account (or in the post if you don’t apply online).

In your first year as a VAT-registered business the rate is reduced by 1% until the day before your registration anniversary.

The Flat Rate Scheme has its own Cash Basis and Retail Systems. (VAT Notice 733)

Try our calculator to see if you could save money!

steve@bicknells.net

Can you Zero Rate Charity adverts? Reply

Gruppe junge Leute People multikulturell halten Wort Marketing

The supply of advertising to a charity is zero-rated. The zero-rating covers advertisements on any subject, including staff recruitment. A charity can also purchase pre-printed collecting boxes, envelopes and appeal letters at the zero rate. Low cost lapel stickers, emblems and badges that a charity gives in acknowledgement of a donation can also be zero-rated. More information can be found in Notice 701/58 Charity advertising and goods connected with collecting donations.

In what media can charities advertise VAT free?

Any medium which communicates with the public. This includes all the conventional advertising media such as television, cinema, billboards, the sides of vehicles, newspapers and printed publications. The important factor is whether the advertisement is placed on someone else’s time or space. If it is not there will be no scope for zero-rating.

If space is sold to a charity for advertising on other items, such as beer mats, calendars, or the reverse of till rolls, this will also be covered by the zero rate. The sale of the items themselves will not be VAT free, unless they qualify for other reliefs for example as books or children’s clothing.

Recently I was asked if a website would be able to zero rated, but its specifically excluded under UK Law VCHAR11000

10B None of items 8 to 8C includes a supply used to create, or contribute to, a website that is the charity’s own.For this purpose a website is a charity’s own even though hosted by another person. 10C Neither of items 8 to 8C includes a supply to a charity that is used directly by the charity to design or produce an advertisement.

steve@bicknells.net

Do you need help with HMRC? Reply

Unhappy office worker on the phone, isolated on white

HMRC aren’t easy to speak to and unless you know the tax rules its easy to make mistakes, that’s why HMRC allow you to appoint agents to help you with your tax affairs.

To appoint an agent you use form 64-8

Form 64-8 covers authorisation for individual tax affairs (partnerships, trusts, tax credits and individuals under PAYE) and business taxes (VAT, PAYE for employers and Corporation Tax). If you’re a personal representative you can use form 64-8 in certain circumstances to ask HMRC to deal directly with an agent.

There are times when you might want extra help for example with an HMRC Compliance Visit and you can appoint a temporary agent using form COMP1.

The Comp1 relates only to the appointment of an adviser to deal with a compliance check. It does not authorise us to deal with that adviser for anything outside that check. Form Comp1 does not replace or amend any existing authorisation made using form 64-8 or the online authorisation facility, or in CITEX cases a letter giving authority for the agent to act.

The temporary authorisation can be used to:

  • extend an existing authorisation, for example where there is an adviser acting for one tax under a form 64-8, and the customer wants that adviser to act for more taxes just for the purpose of the compliance check
  • appoint an adviser to deal solely with the compliance check where there is no existing adviser authorisation
  • appoint a ‘specialist’ tax adviser, for example in Specialist Investigation cases, just to deal with a compliance check. In such cases this will allow the existing adviser to continue to act for the customer in their day to day tax matters.

[HMRC CH201550]

Do you need help?

steve@bicknells.net

Preregistration VAT confusion 2

tax refund

When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

Accountingweb reported on 12th June that the goal posts seem to have moved, here is their example..

Ken has been a self-employed pest controller for many years. He registered for VAT with effect from 1 May 2015, at which point he held a van that cost him £24,000 on 1 May 2013, and equipment that he bought for £9,000 on 1 May 2012, both inclusive of VAT. He expects to use the van for eight years and the tools for five years.

Previously most VAT advisers would advise Ken to reclaim VAT of £4,000 in respect of the van and £1,500 paid on the equipment.

The new HMRC interpretation of EC VAT Directive 2006/112 article 289 (set out in VAT Input Tax Manual para 32000) is that as the van has been used for 2/8th of its life, just £3,000 (6/8 x 4000) of the input VAT can be reclaimed. For the equipment a similar calculation reduces the VAT reclaim to £600 (2/5 x1500).

Ken is obviously losing out by £1,900 of unrecoverable VAT.

Taxation Magazine also have an article pointing out the goal posts have moved

What is worrying is that as so many tax advisers will have given potentially incorrect advice based on the new interpretation by HMRC (which HMRC say isn’t a change), will this mean that we will see backdated enquiries and penalties for clients?

steve@bicknells.net