ad5f3a9f 29d5 4c1b 98d3 2ba2eee749ec 800x380 - When you can or can’t use the VAT Cash Accounting Scheme

When you can or can’t use the VAT Cash Accounting Scheme

Under standard VAT accounting, VAT is payable on sales whether or not the customer has paid and can lead to a claim for Bad Debt Relief. Under the Cash Accounting Scheme, VAT does not need to be paid over until the customer has paid.

A business can enter this scheme provided their estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. The business can continue to use the scheme until their VAT taxable turnover exceeds £1.6 million.

Businesses can’t use the Flat Rate Scheme together with the Cash Accounting Scheme. However, the Flat Rate Scheme has its own cash based method for calculating turnover. Businesses are also ineligible to use the scheme if they are behind with their VAT payments, late filing returns or have committed a VAT offence in the last 12 months. 

Businesses do not need to complete an application form or advise HMRC to start using the Cash Accounting Scheme. They can commence using the Cash Accounting Scheme at the beginning of any VAT period or if they are not already registered for VAT from the day their VAT registration starts.

Businesses can leave the Cash Accounting Scheme voluntarily at the end of any VAT accounting period. They do not need to notify HMRC. They can then re-join the scheme at the beginning of any VAT accounting period, provided they continue to meet the necessary criteria.

Source: HM Revenue & Customs Wed, 21 Oct 2020 00:00:00 +0100
d1a0b7aa 20dc 4b72 9a84 b30540eb87ae 800x380 - Extended deadline for VAT payments

Extended deadline for VAT payments

The coronavirus VAT payment holiday gave businesses the chance to defer the payment of any VAT liabilities between 20 March 2020 and 30 June 2020. The option for businesses to defer their VAT payments ended on 30 June 2020.

In delivering his Winter Economy Plan to Parliament, the Chancellor confirmed that businesses will now have the option to pay back any deferred VAT in smaller payments over a longer period. Instead of having to repay the full amount by 31 March 2021, businesses will now be able to make smaller interest-free payments during the 2021-22 financial year and thus clear the VAT due by 31 March 2022. 

Businesses will need to opt-in to the new scheme and more information on the process is expected to be published over the coming months. Businesses that can pay their deferred VAT can still to do so by 31 March 2021. No interest or penalties will accrue on deferred payments that are paid by the new due date.

The choice to defer VAT payments was optional and businesses could still choose to pay any VAT due as normal. The deferral did not cover payments for VAT MOSS or import VAT. HMRC has continued to process VAT reclaims and refunds as normal during this time.
 

Source: HM Revenue & Customs Wed, 30 Sep 2020 00:00:00 +0100
d34511f1 352b 4790 bf48 ff0a1b7dfdca 800x380 - VAT on compensation payments

VAT on compensation payments

HMRC has published a new Revenue and Customs Brief on the VAT treatment of early termination fees and similar compensation payments following recent judgments of the Court of Justice of the European Union (CJEU). HMRC has said that this will impact anyone who charges their customers to withdraw from agreements to supply goods or services.

Previous HMRC guidance said when customers are charged to withdraw from agreements to receive goods or services, these charges were not generally for a supply and were outside the scope of VAT.  

Following the CJEU judgements, HMRC is of the opinion that these charges are normally considered as being for the supply of goods or services for which the customer has been contracted. Most early termination and cancellation fees are therefore liable for VAT. This is the case even if they are described as compensation or damages. 

HMRC guidance on charges described as compensation or early termination fees in a contract, have been changed to make it clear that they are generally liable for VAT. This marks a significant change from HMRC’s previous position that early termination payments described as compensation payments would ordinarily not be subject to VAT.

A business that has failed to account for VAT on such fees should correct the error unless a specific ruling has been obtained from HMRC stating that such fees are outside the scope of VAT. 

Source: HM Revenue & Customs Sun, 13 Sep 2020 00:00:00 +0100
d7f7863a a9b1 41d6 ab13 4b33333dbe6c 800x380 - VAT – partial exemption defined

VAT – partial exemption defined

A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. This means that the business is required to make an apportionment between the activities using a 'partial exemption method' in order to calculate how much input tax is recoverable.

HMRC’s guidance explains that as a VAT-registered business, you can recover the VAT on your purchases which relates to taxable supplies that you make or intend to make. There are some items where input tax recovery is ‘blocked’. Supplies that are made outside the UK that would be taxable if in the UK and certain exempt supplies to non-EU customers also give the right to recover VAT, but there are special rules. In principle, you cannot recover VAT that relates to any exempt supplies, although you may be able to if the VAT is below certain limits.

There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could prove distortive. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC.

The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.

Source: HM Revenue & Customs Wed, 09 Sep 2020 00:00:00 +0100
c69916e6 5b5c 4819 9199 00f99aaa19f5 800x380 - Changes to VAT partial exemption

Changes to VAT partial exemption

HMRC has updated its guidance on the VAT partial exemption treatment relevant to businesses who supply goods by way of hire purchase agreements. A policy paper entitled Revenue and Customs Brief 8 (2020): change to partial exemption VAT treatment was first published on 10 June 2020 and updated on 20 August 2020.

The policy paper was released following the Court of Justice of the European Union (CJEU) judgment C-153/17 Volkswagen Financial Services (UK) Ltd.

HMRC’s view is that a business supplying goods on hire purchase should be allowed input tax recovery on its overheads where the recovery is fair and reasonable. It does not follow that the recovery will simply be fifty-fifty.

In the policy paper, HMRC provides details of its recommended method for an output values-based method of apportionment of VAT incurred on overheads. The method set out is HMRC’s preferred industry method but is not compulsory and businesses can continue to apply any fair and reasonable partial exemption method already agreed with HMRC.

Source: HM Revenue & Customs Wed, 02 Sep 2020 05:00:00 +0100
f618c010 34c7 439c 8c22 9ce4022c0c11 800x380 - Why use the VAT Cash Accounting Scheme

Why use the VAT Cash Accounting Scheme

Under standard VAT accounting, you pay VAT on your sales regardless of whether your customer has paid you. Under the Cash Accounting Scheme, VAT does not need to be paid over until your customer has paid your invoice.

Your business can enter this scheme provided your estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. You can continue to use the scheme until the VAT taxable turnover exceeds £1.6 million.

Using cash accounting may help your cash flow, especially if your customers are slow payers. If a customer never pays you, you do not have to pay VAT on that bad debt as long as you continue to use the Cash Accounting Scheme.

However, there are downsides to the use of this scheme. For example, you cannot reclaim VAT on your purchases until you have paid your suppliers. This can be a disadvantage if you buy most of your goods and services on credit. The scheme is also not advised if you regularly reclaim more VAT than you pay. You will usually receive your repayment later under cash accounting than under standard VAT accounting unless you pay for everything at the time of purchase.

If you are interested in using the scheme we can help you crunch the numbers to see if this is a viable option for your company.

Source: HM Revenue & Customs Tue, 11 Aug 2020 05:00:00 +0100
d7f7863a a9b1 41d6 ab13 4b33333dbe6c 800x380 - VAT option-to-tax changes extended

VAT option-to-tax changes extended

To accommodate coronavirus disruption HMRC temporarily changed the time limit from 30 to 90 days for notifying a VAT option-to-tax for land and buildings. This extension was set to expire on 30 June 2020 but has been extended to 31 October 2020.

The option to tax rules allows businesses to make an election to standard rate the supply of most non-residential and commercial land and buildings. This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

However, any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost.

Once an option to tax has been made it can only be revoked under limited circumstances. This includes within a specified 'cooling off' period in the first 6 months. An automatic revocation applies where no interest has been held for more than 6 years and after 20 years has elapsed.

Source: HM Revenue & Customs Tue, 28 Jul 2020 05:00:00 +0100
5395ad7f c055 4029 95e0 475075ad66a0 800x380 - Temporary 5% VAT rate and the Flat Rate Scheme

Temporary 5% VAT rate and the Flat Rate Scheme

HMRC has published new guidance for VAT registered businesses in the hospitality, holiday accommodation and attractions sectors. This new guidance follows the Chancellor’s announcement in the Summer Statement of a temporary reduction in the VAT rate from 20% to 5% from 15th July 2020 until 12th January 2021.

This means that until the 12th of January 2021, VAT charged on food, accommodation and certain attractions (such as eat-in or takeaway food in restaurants, cafes and pubs, cinemas, theme parks and zoos) will be reduced to 5%.

In respect of the VAT Flat Rate Scheme, the guidance states ‘If you are a small business and use the Flat Rate Scheme to simplify your VAT calculations you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT’.

The relevant link that displays the Flat Rate Scheme percentages do not appear to have changed as yet but are expected to be updated shortly. The change in flat rates should be made to affected clients' accounts software.

 

Source: HM Revenue & Customs Wed, 15 Jul 2020 05:00:00 +0100
6719055b 6887 47a5 a255 dced730b2fda 800x380 - UK VAT claims by non EU businesses

UK VAT claims by non EU businesses

There are special rules for businesses established outside the EU submitting a claim for VAT incurred on goods or services bought in the UK. The exact rules that determine what VAT is refundable can be complex. There are also a number of conditions which must be met in order for a claim to qualify.

The deadline for the submission of a refund request for expenses incurred in the UK by non-EU businesses during the period 1 July 2018 – 30 June 2019 was 31 December 2019. HMRC has reported that due to the impact of Coronavirus there are some delays in making repayments. HMRC generally aims to process and refund overseas VAT claims within 6 months of the submission deadline of 31 December 2019 i.e. by 30 June 2020. HMRC now expects to pay valid 2018-2019 claims by 30 September 2020. HMRC will contact claimants whose VAT claims will not be paid by 30 September 2020 either because further information is needed or for any other reason.

HMRC is also reminding those concerned that claims for 2019-20 need to be submitted by 31 December 2020. One of the conditions for making a claim is for the claimant to obtain the required certificate of status from their official issuing authorities. This may not be possible due to measures taken by jurisdictions in response to Coronavirus. Claimants who submitted their VAT refund claim without a certificate of status will not have their claim rejected, but it will be put on hold until 31 December 2020. HMRC should be contacted for further case specific advice if obtaining a certificate of status before 31 December 2020 is likely to be problematic.

Source: HM Revenue & Customs Wed, 08 Jul 2020 05:00:00 +0100
e02ca455 c305 46d7 984f 3107355c15b2 800x380 - Reclaiming VAT after deregistration

Reclaiming VAT after deregistration

Businesses can close a VAT registration for two main reasons. For example, the business has stopped making taxable supplies or a voluntary deregistration can be made by businesses that does not expect its taxable turnover to exceed the deregistration limit. The current deregistration limit is £83,000.

A business that deregisters will be required to submit a final VAT Return for the period up to and including the VAT deregistration date.

Regardless of the reason for deregistration, businesses remain eligible to reclaim input tax relating to the time when the business was VAT registered after the final VAT return has been submitted. Such a claim is made using form VAT 427.

The form can be used to:

  • reclaim VAT paid (input tax) on purchases when you were VAT registered
  • reclaim VAT paid (input tax) on certain services you bought after you cancelled your VAT registration
  • get relief on the VAT you paid to HMRC (output tax) on bad debts that you identified after you cancelled your VAT registration.
Source: HM Revenue & Customs Wed, 08 Jul 2020 05:00:00 +0100