Making Tax Digital for VAT guidance issued

HMRC have now issued their detailed guidance on the digital record keeping and return requirements for Making Tax Digital (MTD) for VAT.

VAT Notice 700/22 clarifies that spreadsheets may still be used to keep business records provided that there is bridging software that links to the Government gateway.

There will however be a one year “grace” period during the first year of MTD when businesses will not be required to have digital links between software programs, referred to in the VAT Notice as a “soft landing”.

The VAT notice includes a number of helpful examples illustrating different accounting systems and the digital links required to comply with MTD for VAT.

The VAT notice is essential reading for all VAT registered businesses.

WHEN DOES MTD FOR VAT START?

The Making Tax Digital rules apply from your first VAT period starting on or after 1 April 2019. A ‘VAT period’ is the inclusive dates covered by your VAT Return.

For example, where a business submits quarterly returns covering the periods to 28 February, 31 May, 31 August and 30 November, the business will need to comply with Making Tax Digital rules for the VAT quarter starting 1 June 2019 and ending on 31 August.

“SOFT LANDING” FOR MTD FOR VAT FOR THE FIRST YEAR

For the first year of MTD for VAT (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. The one exception to this is where data is transferred, following preparation of the information required for the VAT Return, to another product (for example, a bridging product) that is Application Programme Interface (API) – enabled solely for the purpose of submitting the 9 Box VAT Return data to HMRC. The transfer of data to this product must be digital.

For the first year of MTD for VAT (VAT periods commencing between 1 April 2019 and 31 March 2020), where a digital link has not been established between software programs, HMRC will accept the use of cut and paste as being a digital link for these VAT periods.

However, for VAT periods starting on or after 1 April 2020, there must be a digital link for any transfer or exchange of data between software programs, products or applications used as functional compatible software.

USE OF SPREADSHEETS IN PREPARING VAT RETURNS

Example 3 in the VAT Notice describes a business that uses a spreadsheet and bridging software from April 2019, which allows the information to be transferred to HMRC via an API.  It uses a spreadsheet to record all sales, purchases, and expenses in a digital format. The VAT Return is then prepared within the spreadsheet, using formulae already written into the spreadsheet.

The VAT Return information is then sent via a mandatory digital link to bridging software, which digitally submits the information directly to HMRC.  Example 6 shows how a spreadsheet would be acceptable in order to consolidate VAT information prior to submit a Group VAT return.

If you haven’t already done so, please contact us to help you get ready for this significant change in VAT accounting and reporting.

No shortcut in accounting for online bookings!

When I started working with serviced accommodation providers some 20 years ago, guests generally looked at places to stay in the brochure produced by the local tourism body (in our case Cumbria Tourism, Keswick Tourism Association etc).  They selected what suited their needs and budget, picked up the phone and if there was availability, made a booking.

How things have changed now that millions of people in the UK have smart phones, tablets/ipads, laptops and PC’s!  Online booking agents or Online Travel Agents (OTAs) acting as disclosed agents for commission, are now the web “platforms” that millions of people use to book their accommodation.  They provide many hotels and guest houses with a substantial portion of their bookings.

The problem is these agents are not all structured in the same way and many are based outside the UK.  To account for the resultant transactions the hotel/guest house proprietor needs to look at the documentation provided, where the head office is established and whether they are paying gross or net of their fees and commission charges.

I’m not going to produce a list of the multitude of on-line agents I see clients using but outline the basics below:-
identify VAT outputs from VAT inputs
If you adopt the Flat Rate VAT scheme then there is no need to pay the Flat Rate VAT on the value of the reverse-charged service or include it on your VAT return.

Regrettably, this is just another thing for a hotelier to think about when preparing the periodic VAT Return.  However, HMRC have confirmed that a VAT Return is not properly completed if agent’s commissions are not accounted for correctly.  The best approach is to identify the booking agencies you deal with, establish where they are based and set up an accounting system to deal with the VAT in the appropriate manner.

Call our Tourism & Leisure Specialist, Cyndy Potter, on 01228 534371 for more information.

Cyndy Potter

Cyndy Potter,  Tourism & Leisure Manager

 

 

VAT rules for business owned cars

Most businesses we deal with consider a motor car to be an essential asset of their business.  Without a car they just would not be able to carry on their trade.  For VAT purposes a car is not treated like any other asset.  Special provisions apply to cars which apply to no other items.

VAT law has always treated cars in rather a special way primarily due to a high degree of private use.  Much to everyone’s dismay for most businesses, apart from the likes of a driving school, taxi firm or self drive hire business, VAT is not recoverable as input tax on the purchase of the car.  There are, however, provisions which mean that VAT can be claimed back on the purchase of a car if there is NO intention whatsoever that it should be made available for any form of private use.  In practice this is very difficult to fulfil.  It is not a case of not doing any private mileage in a business car, it is rather whether the car is available for private use.  If there is any chance of claiming input VAT back on a car which is to be used for business use only then steps must be taken to prevent private use, such as the vehicle insurance being for business use only, and/or prohibition on private use being included in contracts of employment.

So if you are unable to claim the input VAT back on the purchase of a car, what about the running costs?  The goods news here is that input tax is recoverable on all the running costs of a car such at repairs, service, new tyres etc without the need to make any restriction for private use.

Running costs do not however include road fuel whether petrol or diesel.  Input tax can be recovered in full on all purchases of road fuel for cars used by a business, even if there is some private mileage, as long as the VAT registered makes a standard adjustment on their VAT Return.  This is called the fuel scale charge and is based on the carbon dioxide emissions of the vehicle in question.   The higher the emissions the higher the scale charge:-

Quarterly Fuel Scale Charges and VAT thereon

The scale charge applies regardless of how little or how much private use the car has.

A business can opt not to adopt the fuel scale charge and in turn not recover input VAT.  However, care needs to be taken before going down this route as the decision would apply to ALL road fuel bought by the business for any vehicle.  It is not possible to elect to claim on specific vehicles.  It’s all or nothing!  So the likes of a haulage contractor who drives a Ford Mustang with carbon dioxide emissions of 299 g/km would be wise to pay the fuel scale charge of £82 a quarter, as if he doesn’t adopt the fuel scale charge he will be unable to claim the input VAT on the road fuel for his fleet of wagons – definitely not a good move!

There is a final option other than adopting the fuel scale charge but I rarely see people using this in practice.  This is to keep detailed mileage logs recording each business and private journey and only claiming input tax back on the business proportion of the road fuel expenditure.

Those are the VAT rules for business owned cars now but expect all this to change as more electric cars take to the roads in the years to come, along with all the changes re BREXIT!!

Cyndy Potter

 

 

Cyndy Potter,

Tourism & Leisure Manager

cyndy@saint.co.uk

 

Does your accounts system comply with Making Tax Digital (MTD) for VAT?

making tax digital

Making Tax Digital (MTD) for VAT is scheduled to start in April 2019 which means that your VAT information needs to be submitted to HMRC digitally.

On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. The legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data.

What are Digital records?

“Functional compatible software” must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC, and to receive information back from HMRC.

VAT related data for each sale and purchase made by the business includes the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed.

There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received. As long as the data is recorded electronically by the earlier of the date that the VAT return must be submitted, or is actually submitted.

Digital Links in the Trail
The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice.

One example is a business which uses one piece of accounting software to record all sales and purchases, this software then calculates the return and submits it to HMRC. As well as the records in the accounting software the business uses a spreadsheet to keep track of a fleet of cars and work out its road fuel scale charges. The draft guidance suggests that the business can type the adjustment into its accounting software.

We can of course work with you to make sure that your accounting systems will comply with the new VAT rules before they start in 2019.  Note that MTD for VAT will not be mandatory where turnover is below the VAT registration limit, currently £85,000 per annum.

Contact us if you need any help with any of the above.

Brabners v HMRC raises questions on the VAT of disbursements in the legal sector

A court case last year “Brabners v The Commissioners for HMRC” has raised a few concerns within the conveyancing industry of law firms.  Not unexpected when the firm in question was faced with a £68,000 VAT bill.

The main issue of the case was whether electronic searches should be classed as a disbursement or not when charging clients in conveyancing matters.  HM Revenue & Customs (HMRC) won the case as they said the firm was not just acting as agents in this regards as they may provide advice based on the results of the search.  The firm involved followed the guidance from the Law Society’s practice note on VAT on disbursements and no doubt other firms have done the same.  The Law Society is looking at amending its practice note on VAT on disbursements in light of this case and will issue updated guidance, as yet this is still outstanding.  The website does state though that the advice in the practice note has not been discussed or agreed with HMRC and is not binding upon HMRC, therefore it can be challenged by HMRC.

There is very much a feel of “wait and see” regarding how this may affect the legal profession as a whole, in the meantime, it may be the safest option to treat searches as a vatable recharge rather than a disbursement, to avoid any repercussions following the decision in this case.

HMRC also implemented changes to the way Local Authorities should be charging VAT, these had an implementation date of no later than 31 March 2017. Therefore you should already be seeing Local Authorities charging VAT on searches

Even if the local authority is not charging VAT on disbursements, HMRC’s approach based on the Brabners case is that the firm cannot treat the searches as disbursements and therefore VAT should be charged by the firm.

Contact us if you have any queries regarding the above or need any assistance.

One business or two for VAT?

One business or two for VAT

A recent VAT Tribunal had to decide whether two hairdressing businesses should be treated as a single business for the purposes of VAT registration.

The distinction was critical as the two separate businesses were operating below the registration limit (currently £85,000) and the combined operation would have exceeded the limit meaning that VAT would need to be charged.

Note that HMRC have been successful in a number of cases aggregating the turnover of two businesses carried on by the same person(s).

However in this recent case it was established that the couple had never intended to run a single business in partnership. There was also physical separation of the premises, separate clientele, different stylists worked for each salon and separate books were kept.

Note that where the same person carries on several businesses, the combined turnover of all of those businesses need to be considered in deciding whether or not the VAT registration threshold is exceeded.

How a recent decision in the court of appeal affects VAT on holiday park’s electricity supply

How a recent decision in the court of appeal affects VAT on holiday park's electricity supply

HMRC have recently won the case of HMRC vs Colaingrove in the Court of Appeal. Colaingrove operates various holiday parks across the UK including Haven. It offers cut-price holidays in static caravans or chalets to the readers of The Sun newspaper. One of the features of the offer is that the customers must pay a separate charge for the electricity that will be supplied to the caravan or chalet. As it was not practical to engage in meter reading for each holidaymaker, a set charge of £12 per day is payable at least 56 days in advance of the commencement of the holiday.

Fuel for domestic use is charged to VAT at the reduced rate of 5%. Hence it is accepted that metered electricity supplied at pitch-sites to those who own their own caravans was liable to VAT at the reduced rate.

Colaingrove argued that the supply of the accommodation in The Sun holiday offer was separate to that of the electricity and that the later was, therefore, subject to VAT at 5% and not the standard rate of 20% which applied to the caravan/chalet accommodation. HMRC accepted that if the supply of electricity was done on a metered basis it would constitute a separate element of the supply and would also be liable at the reduced rate. However, because a flat-fee was payable which did not relate to the amount of power consumed by any particular customer the supply was a composite supply liable to VAT at the standard rate applicable to the supply of the holiday accommodation.

The Court decided in favour of HMRC saying that The Sun holidaymaker purchased a package of goods and services and paid a standard rate where fuel was not optional. The charge made for electricity provided in Colaingrove’s holiday accommodation could not be split out from the provision of that holiday accommodation and was therefore liable to VAT at the standard rate. The supply of holiday accommodation is a different transaction from the supply of fuel to the owner of a caravan parked on a pitch owned by the appellant.

As is always the case with VAT, it is very important to look carefully at what you are actually supplying and in particular are you making a composite supply or separate single supplies. The VAT issues with regard to caravans are complex and ever shifting.

Please contact Saints Tourism & Leisure on 01228 534371 if you need further advice.

Does the new 16.5% VAT flat rate percentage apply to your business?

DOES THE NEW 16.5% VAT FLAT RATE PERCENTAGE APPLY TO YOUR BUSINESS

The new VAT flat rate of 16.5% started to apply from 1 April 2017 for “limited cost traders”.

A “limited cost trader” is one using the VAT flat rate scheme but where the VAT inclusive cost of goods for a year is less than 2% of VAT inclusive turnover, excluding certain specified items.

Those specified items include capital expenditure, food, fuel, and vehicle costs.

If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.

VAT on mixed supplies

Care needs be taken when invoicing if your business makes supplies, some of which are standard rates and others which are potentially zero rated or exempt for VAT.  A recent VAT Tribunal case has reinforced the rule established in the Card Protection Plan case that if the supply comprises a single service from an economic point of view it should not be artificially split. In the recent case a company provided marketing and promotional services including brochures and other publications.

It was held that the supply of printed matter (potentially zero rated) was merely ancillary to the principal supply of marketing and promotional services so the entire services should follow the principal supply and be standard rated, even if separately invoiced.

Please get in touch with us if these rules potentially affect your business and you need advice on your invoicing.

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