VAT « Broomfield & Alexander Chartered Accountants

VAT

Proposed VAT Cost Sharing Exemption

Wednesday, May 9th, 2012

Liz Maher, Director Centurion VAT

Our regular guest contributor, Liz Maher of Centurion VAT discusses the proposed VAT Cost Sharing Exemption.

It seems a long time in coming since it was announced in the Autumn Statement 2011 but Centurion now have sight of the Draft proposals for the introduction of this new VAT exemption for qualifying recharges, between a shared service centre and its members, to benefit from a VAT exemption treatment rather than a taxable VAT treatment. Comments about “my horse could have had a foal in same time” from me are being ignored by the rest of the Centurion team!

The draft proposals are open for consultation until the 18^th May and Centurion are happy to consolidate any comments from interested parties on the plans for implementation of this VAT exemption or if you’d like to discuss the proposals as the details of its working are becoming clearer (or less opaque!).

What is clear is that the intention is that exemption will only to apply to recharges for services from a shared services consortium that meets the criteria set out in the proposals. We are pleased to report that as a result of feedback from the consultation process there has been a widening of the definitions being applied which should allow more bodies particularly in the charity sector to benefit should a shared service consortium approach look like a valuable tool to have in the cost management tool kit.

The key issues to look at include:

HMRC’s definition of an “independent group of persons” for the Cost Sharing Group (CSG)
All CSG members must carry on exempt or non business activities
HMRC’s definition of “ directly necessary” supplies to members that qualify for the VAT exemption treatment
Direct re imbursement of costs condition to be applied by the CSG to its members
Distortion of competition condition that the CSG could be open to from commercial operators

It’s clear that these arrangements will not be the “silver bullet” that sectors such as charities, housing associations, universities across Wales might have initially hoped that it would be, but there is still enough of flexibility in the proposals to make this a serious option to consider where critical mass can be achieved to deliver volume savings: Areas such as maintenance services across the housing association sector perhaps? – and the cost sharing group doesn’t have to restrict itself to groups of entities from the same sector; local authorities could join with charities or with housing associations for a commonly incurred service cost as well.

The proposals can equally apply to the business sector, of course, but those businesses would have to have significant levels of exempt business activity to meet the qualifying conditions but in other European States businesses in the health and insurance markets do take advantage of the relief that the legislation brings to the burden of VAT on their costs so perhaps businesses in the property, exempt training sector, welfare, betting and gaming sectors should at least be aware of the potential this change could yield.

Any responses to this draft proposal will need to be back in with Policy Division in HMRC by the 18^th May.

Centurion will be including the topic for our VAT Forum for FD’S in the Welsh Housing Association Sector to be held on 15 May at ESIS Nantgarw and at our Annual Forums for Welsh Universities and Further Education Colleges held in June.

If you’ve not had sight of the Draft Proposal from HMRC as it currently stands give me a call 01633415390 or send me your comments liz.maher@centurionvat.com for inclusion in our response to the proposal by the 17^th May.

Liz Maher, Centurion VAT Specialists Ltd

www.centurionvat.com

Follow VATbat on Twitter

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on finance in the charity and the third sector and other business and financial topics, or by simply registering for our monthly newsletter

VAT online returns and electronic payment

Tuesday, January 10th, 2012

Mark Jones, Director, Broomfield & Alexander

Effective from 1 April 2012, it will be compulsory for all VAT registered businesses to file all VAT returns online.

You must submit your VAT Return online and pay any VAT due electronically if either of the following applies:

you registered for VAT before 1 April 2010 and had an annual VAT-exclusive turnover of £100,000 or more for the 12 months ended 31 December 2009
you registered for VAT on or after 1 April 2010 (regardless of your turnover)

In the case of the first group, you must continue to submit all your VAT Returns online (including nil and repayment returns) even if your turnover drops below £100,000 in the future.

From 1 April 2012, all remaining VAT-registered businesses – those registered for VAT before 1 April 2010 with a VAT-exclusive turnover of less than £100,000 – will also have to submit VAT Returns online and pay any VAT due electronically.

HMRC strongly recommends you sign up to using the online service before April 2012, so that you have time to get familiar with the new service.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

VAT and entertaining

Friday, January 6th, 2012

Mark Jones, Director, Broomfield & Alexander

HMRC has recently changed its position relating to input tax on entertaining expenses following a case in the European Court of Justice.

Input tax on business entertaining has never been claimable since VAT was first introduced in the UK, and it has been some years since recovery of input tax on entertaining an overseas customer was also blocked.

However, following the Danfoss and Astra Zeneca case, HMRC has concluded that the UK’s block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law.

The block on claiming input tax on entertaining UK customers (and overseas contacts who are not customers) remains in place. But going forward, businesses can now claim the input tax incurred when entertaining overseas customers. Subject to the normal four year limit, HMRC will also now allow claims for previously restricted input tax on entertainment of overseas customers.

The VAT notice 700/65 was amended in November to reflect this change.

HMRC Brief 44/10 details this and also sets out three scenarios to help businesses to ascertain whether the input tax on entertainment costs is claimable:

1) Meetings in the office: HMRC considers that when an overseas customer is entertained in a staff canteen or similar to facilitate a business meeting, the input tax on such entertaining will be recoverable. HMRC takes the view that any private benefit derived by the overseas customer is accessory to the needs of the business

2) External meetings or events: where meetings cannot be held in house due to lack of space or facilities, the same general principle will apply as for meetings in the office, and the input tax will be recoverable. This will apply only to the basic provision of refreshments and food. If the expenditure goes beyond that, there should be a private use charge, or, alternatively, no claiming of the input tax

3) Corporate hospitality events: businesses sometimes offer customers or potential customers general hospitality, such as golf days and the like. HMRC will not allow the input tax deduction as such events are unlikely to have a strict business purpose.

Why not follow @BroomfieldWales on Twitter to keep up with the latest business information, or simply register for our monthly newsletter.

Christmas shopping online

Wednesday, November 16th, 2011

Mark Jones, Director, Broomfield & Alexander

Online shoppers should be careful when ordering gifts from outside the EU, as they could face an unexpected tax bill.

HM Revenue & Customs (HMRC) want to remind consumers that while they may think they have found a bargain, many people fail to factor in VAT and customs duty.

There are strict levels of how much you can actually bring back from abroad or buy from an online overseas seller without having to pay import duty or VAT.

Goods valued at more than £15 that are purchased over the internet or by mail order from outside the EU are liable to VAT.

Customs duty might also be due for goods valued at more than £135, although this will depend on what they are and where they have been sent from.

If someone receives a gift from outside the EU, import VAT will be due if the package is valued at over £40. To qualify as a gift, the item must be sent from one private individual to another, with no money changing hands.

You don’t want to be faced with unexpected extra charges, when you thought you had found a bargain.

VAT for charities

Tuesday, October 11th, 2011

Sarah Case, Director, Broomfield & Alexander

Charities only need to account for VAT on those parts of its activities that are within the scope of VAT. A quick checklist follows:

• Sale of donated goods from a charity shop – zero rated supply
• Investment income, bank interest etc – outside the scope of VAT
• Donations from general public – outside the scope of VAT
• Fundraising events – exempt from VAT
• Grants, see below

The VAT status of the charity shops is advantageous. Even if the zero rated sales are below the current registration limit of £73,000, it would be worthwhile registering the trade voluntarily as any associated costs that include VAT can be reclaimed.

Grants received

Although most grants received by a charity are outside the scope of VAT, occasionally grant providers will require the charity to provide services to individuals or groups as a direct condition of grants made. If this is the case the grant is a standard rated transaction. In most cases this will not cause difficulties as most grant providers are Local Authorities that are VAT registered and can claim back any VAT charged.

Nevertheless charities should take care to seek advice and ensure that they charge VAT on grant income when appropriate as it can become very complicated and when necessary we call in VAT specialists Centurion VAT.

What is unjust enrichment?

Wednesday, September 7th, 2011

Leighton Reed, Director, Broomfield & Alexander

If you charge a customer VAT and subsequently discover that the supply of goods or services was exempt, zero rated or outside the scope of VAT you can make a claim to HMRC to refund the VAT overcharged.

The phrase “unjust enrichment” means that you are required by HMRC to refund any VAT repaid to you in this way to your customers, you cannot keep the refund for yourself!

HMRC have a special reimbursement scheme that deals with claims for repayment. When making a claim you will have to agree to:

1. Sign a formal undertaking that you will comply with the terms of the reimbursement.
2. Make all refunds to your customers within 90 days.
3. Repay any residual amounts not returned to customers within 14 days of the 90 day time limit.
4. Pass on any statutory interest paid with the refunds to your customers.

Additionally you will have to keep the following records:

* Names and addresses of the customers you intend to reimburse.
* Total amount paid to each customer.
* Amount of interest paid to each customer.
* Date you refunded the money.

HMRC will also seek to reduce refunds due if the supply resulted in a claim for associated VAT input tax. For example if you supplied services at standard rate and there were associated costs where you recovered input tax, and then you discovered that the supply should have been an exempt supply, then HMRC would reduce the refund of over-declared output tax by the over-claimed, associated, input tax.

If you need to make a claim under the reimbursement scheme you will need to submit a formal undertaking in writing.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

VAT and it’s ever changing qualities

Thursday, September 1st, 2011

Liz Maher, Director Centurion VAT

Our regular guest contributor, Liz Maher of Centurion VAT discusses the changing features of VAT and it’s wide ranging impact.

With the commentary in today’s Western Mail over the “stealth tax” VAT content in the soon to arrive, carrier bag levy in Wales (OK so it was me they quoted… but hey, everyone has their 5 min’s of fame)… I was reminded of the phrase: “Looking a gift horse in the mouth.”

Why? Well the issue being discussed in the article centred on the fact that within a charge purported to be levied to help raise funds for good causes in Wales…. yet .83p of the 5p a bag levy will be VAT going off to the Treasury representing the element that VAT registered organisations (including Charity Shops) selling the bag will have to account for on the income. Also the net income is recorded as trading income for the business and will add to any net profit calculation on which corporation tax would be due.

For those of us who specialise in looking after the not-for-profit sector from the VAT perspective it is difficult to be surprised anymore that what is first promoted as good news for charities quickly gets eroded by the demands of the VAT accounting rules.

Such is the ever changing complexities of tax and the pressures on keeping up to speed with VAT we’ve been running a series of VAT awareness seminars for the not for profit sector in Wales. As well as bespoke courses for clients in the third sector, we have recently, in conjunction with Sarah Case at Broomfield & Alexander, have put together a half-day training session to build VAT awareness and introduce entities to basic Direct Tax responsibilities. I have to say we’ve been very pleased with the level of interest and attendance.

Part of the success is the fact that we recognise that whilst the third sector needs access to high quality VAT & Tax training it can’t afford to travel far, incurring both travel and time costs in addition to course fees. So running short courses based locally in Wales for a minimal charge, really did seem to appeal. The next two dates for the diary are 15 Sept at the offices of Broomfield & Alexander, Cardiff Gate and 12 October at The Village Hotel, Swansea (by the way!)

VAT is a constantly changing feature… just look at the proposed drafting of the VAT exemption for cost sharing recharges currently being consulted on by HMRC… a change which could remove the charge of VAT on cost recharges between independent parties coming together to share costs of a project an issue directly relevant to the third sector.

I’ve managed to arrange with the HMRC policy team for them to come down to Wales on the 14^th Sept to run presentations to the charity sector and the housing association sector through a WCVA hosted event in the morning and a Community Housing Cymru hosted event in the afternoon… let’s get our voices heard I believe, before the legislation is set in stone.

More changes are lurking ahead, as next year the proposal is that all entities with a turnover under £100k will be required from 1 April 2012 to submit their VAT returns online and pay electronically. Further moves to the digital management of VAT are likely for such areas as VAT registration, deregistration and recording variations in business’s details such as addresses. Even now, businesses are encouraged to register online and all those over the £100k turnover have to submit returns online.

The problem is, and I speak as a trustee board member for one national charity and the Treasurer of a small local charity, that the pressures on the third sector seem to be ever increasing at the moment as funding options disappear and income generation options face the same commercial spending downturn as everyone else. It’s tough out there, there’s no denying it.

…..and as for the ‘gift horse’ bit well I can offer some genuine knowledge transfer on VAT matters to help you to keep pace with the VAT side and a convivial atmosphere at a venue hopefully not too far from you… oh and did I mention jelly beans!! Neigh!

Liz Maher

Twitter: @VATbat

www.centurionvat.com

HMRC concede on bank interest in Flat Rate Scheme calculations

Thursday, August 18th, 2011

Leighton Reed, Director, Broomfield & Alexander

HMRC have recently re-written Notice 733 covering Flat Rate Schemes for Small Businesses. Included in the changes are some important amendments to the operation of the Scheme.

Following a recent Tribunal decision, HMRC have now agreed that bank interest is no longer included in exempt supplies so businesses that have included bank interest should now review the turnover for their Flat Rate Scheme and exclude any from any Flat Rate Scheme calculations.

Businesses should look to review previous Flat Rate Scheme calculations where bank interest has been included and reclaim over-paid VAT.

For more information or guidance on the above, please contact us on tax@broomfield.co.uk

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

HMRC pushes on with VAT campaign

Thursday, July 7th, 2011

Leighton Reed, Director, Broomfield & Alexander

HM Revenue and Customs (HMRC) is in the process of sending out some 40,000 letters to businesses that may have failed to register for VAT when the law requires them to have done so.

HMRC announced back in May that it would be embarking on a campaign to track down businesses that are not complying with the VAT laws.

Any business that has had an annual turnover of £73,000 or more for the previous 12 months, or that expects to breach the threshold in the next 30 days, must register for VAT payments.

The campaign is aimed at firms that have exceeded the threshold but have not contacted HMRC informing them of the fact.

But it is offering businesses that should have registered a partial amnesty.

Under the terms of the VAT Initiative, those that have not registered to pay VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most will face a reduced penalty rate of 10 per cent on VAT that has been paid late.

However, HMRC has reserved the right to impose fines of up to 100 per cent in those cases where a business was aware of the fact that it should have registered but had failed to notify the tax authorities.

They will also be invited to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the customary penalty of up to 100 per cent.

After 30 September, HMRC have promised to investigate those who have failed to come forward. Substantial penalties or even criminal prosecution could follow.

Mike Wells, HMRC’s director of risk and intelligence, said: “Our campaigns are designed to ensure tax is paid so that the money is available to spend on public services used by everyone.

“The aim is to make it easy for individuals and businesses to contact us, make a full disclosure of their income and face a reduced penalty on any tax owed.

“I urge people who have not registered their businesses for VAT to get in touch with HMRC and get their tax affairs in order simply and on the best available terms.”

To use the VAT initiative businesses must register with HMRC by 30 September to notify that they plan to make a voluntary VAT disclosure and to tell the tax authorities about the VAT due and make arrangements to pay it, along with any penalties due, by 31 December.

The VAT threshold is currently £73,000 turnover on a rolling annual basis. In previous years it was: 2006/07 – £61,000; 2007/08 – £64,000; 2008/09 – £67,000; 2009/10 – £68,000; 2010/11 – £70,000.

HMRC consultation to be held on VAT cost sharing exemption

Thursday, June 30th, 2011

Sarah Case, Director, Broomfield & Alexander

The Government wants to hear the views of businesses and organisations on plans to make use of the VAT cost sharing exemption.

The exemption, which is a European law, allows businesses and organisations making VAT exempt and/or non business supplies to form groups to achieve cost savings and economies of scale. Once formed the groups are relieved of a VAT charge on their supplies, if all the conditions of the exemption are met.

The aim of the consultation is to examine how the VAT cost sharing exemption might best be used by UK businesses and organisations, and to look at a framework for its possible implementation. Were it to be implemented, the exemption could remove the VAT charge preventing institutions such as universities and charities from gaining efficiencies by sharing costs with each other.

The consultation will run until the end of September.

More details can be found on the HMRC website

VAT

Categories