2011 Jan London
- 1. LONGBOAT VAT ADVISERS LLP LONGBOAT VAT ADVISERS LLP UK & International VAT Consultants UK & International VAT Consultants VAT Newsletter January 2011 Welcome to our first newsletter for 2011. The New Year has seen a number a VAT changes some well publicised such as the VAT rate rise, others that might have been missed in the festivities we take a brief look at these. Businesses that have been exempting payment collection services need to look how they treat these charges, as following an earlier ECJ decision, from 12 January HMRC says these services are standard rated. Also, the harder line approach now being taken by HMRC is evident. We look at a couple of examples of this and the need for businesses and their advisers to make sure they do not fall foul of over zealous VAT inspectors. Changes Standard rate rise 17.5% can still be invoiced in some cases No one can have missed the fact that the standard rate went up to 20% on 4 January. Whilst that date is past, it does not mean that all standard rate invoices must now be at 20%. For example, if goods were paid for, delivered to or collected by a customer before the rate rise the old 17.5% rate will apply. If services were completed before the 4 January, or straddled that date, the business can choose to charge the old rate on the services supplied before the rate rise. Where a business was entitled to charge either the old or the new rate but invoiced at 20%, it has 45 days from 4 January (i.e. by 18 February) to issue a credit note for the 2.5% difference. The above is only a brief summary of complex rules more details are available on the HMRC website, or you can call Barry Stocks on 07747 118751. The UK is not alone in raising VAT rates some of the other countries increasing their rates (or planning to) include Portugal, Poland, Slovakia and Switzerland; so if you make supplies in other countries make sure that you are up to date with the VAT rate. As a result of the standard rate rise other thresholds and rates have changes: VAT fraction to calculate VAT element in a VAT inclusive sum is now 1/6 Flat rate scheme new % rates have been issued by HMRC Payment on account thresholds increase from 贈1.6m to 贈1.8m (entry) and 贈1.8m to 贈2m (exit). Place of supply From 1 January 2011 the rules for supplies to business customers of cultural, artistic, sporting, scientific, entertainment or similar services have changed. Most services will now be taxed where the customer is established (instead of where the service is performed). However, there are exclusions supplies of admission and services ancillary thererto (e.g. cloakroom services) will remain taxable where the event takes place. Additions to the Capital Goods scheme boats and aircraft As announced in the Budget, from 1 January 2011 the Capital Goods scheme has been extended to include boats and aircraft costing more than 贈50,000. Land and property, boats and aircraft Lennartz accounting From 1 January 2011 full up front input tax recovery with subsequent payments for non-business use is no longer permitted on land and property, boats and aircraft used partly for business and partly for non-business (known as Lennartz accounting). Instead, VAT recovery is restricted to the business use of the asset, excluding private use by the taxpayer or the taxpayers staff.
- 2. Taxpayers operating a Lennartz arrangement need to look at how the new rules affects them this type of accounting is now only allowed in very limited circumstances. HMRC has promised further guidelines early in the New Year. Payment collection services HMRC has issued a Brief advising that from 12 January standard rated VAT must be accounted for on payment collection services. This applies even if a business has previously has had a ruling exempting the charges. Services where the payment collection is only a minor or ancillary part of another exempt service (for example the movement and settlement of payments between bank accounts) are not affected. Businesses that have been exempting these charges should urgently review their position. Small Businesses Accounting targeted by HMRC HMRC has issued a consultation saying it will target 50,000 small businesses that it believes has poor record keeping. This is in respect of all taxes, not just VAT. They say the aim is to improve book- keeping, but the exercise is expected to raise 贈600 million revenue through hefty fines. So, make sure you keep accurate and up to date records, or risk falling foul of the clampdown. Can you trust HMRC guidance? The answer is, not necessarily. A Tribunal decision illustrates this at a VAT inspection the inspector assessed for VAT and penalties (the issue was whether a supply of company registration services included a zero rated service of printed matter in addition to the standard rated service). The business had taken advice from its accountant who had correctly said that HMRC guidelines supported zero rating. However, no-one wrote to HMRC for confirmation. The Tribunal upheld the assessment and the penalty because the HMRC guidelines carried a health warning and it had relied on its accountant rather than the HMRC guidelines directly. Not surprisingly, the decision is being appealed by the taxpayer. The lesson is, take advice and get it confirmed in writing from HMRC if it is an area of doubt. However, this is not as easy as it seems. So often these days the HMRC advice centre will simply send out a VAT Notice, which, more often than not, has been looked at by the enquirer before they made the enquiry. Your VAT consultant should be able to write in a way to get a ruling you can rely on which you will need if you want peace of mind. Disclaimer: the information contained in these articles is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the relevant legislation or taking professional advice. Therefore no responsibility for loss can be occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or firm. Barry Stocks Irit Herzenshtein Phone: 07747 118751 Phone: 07515 973217 Email: barry..stocks@longboat-VAT.com Email: irit.herzenshtein@longboat-vat.com 20 Berkeley Street, Mayfair, London W1J 8EE Telephone: 0207 399 9502