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As a transaction tax, VAT impacts almost all business activities. Ahead of its 1973 introduction (no I can’t remember, I was too pre-occupied by Hector’s House and The Clangers) then Chancellor Anthony Barber described VAT as ‘a simple tax’, a phrase I’m often reminded of by clients and colleagues who have been bamboozled by its sometimes-illogical outcomes. This in turn reminds me of the other famous VAT-related quote (from Justice Sedley) who took the view that VAT was “a kind of fiscal theme park in which factual and legal realities are suspended or inverted.”
On the whole, however, I do think that VAT does normally follow a logical path and still, waters can usually be found when navigating through a VAT query.
Some transactions are not as straightforward as they appear, and this is where we come in.
The beauty of Tax Partner Pro is that a quick call can establish whether the matter is simple (as it often is) or is a more complex issue that perhaps needs further exploration before being resolved.
Quite often a call to our TPP line enables us to confirm what the caller already knew, and our TPP members do find that the opportunity to get a ‘second opinion’ is invaluable. If the matter is more complex, we can discuss what further information we might need to resolve the query and take it from there. We’re flexible about how advice is delivered/structured and will typically adopt the approach favoured by the TPP member/client.
One interesting query we received was from an accountant whose client had registered for VAT and before they submitted their first VAT return wanted to double check that they were getting the VAT right. Their client provided travel services in the UK, the EU and elsewhere. The VAT treatment of travel services can be complex and after a short conversation and a brief review of the client’s activities, it appeared that, contrary to the client’s initial thoughts, because of some anomalous rules half-caused by Brexit and half-caused by the EU dragging its heels on VAT reform, only a small proportion of the client’s income would be subject to VAT. We were engaged to advise further on the matter and were able to confirm the position for the client.
The area that causes most problems for accountants is how VAT applies to property transactions and we probably receive more VAT queries from accountants and other professionals on property VAT than any other subject.
An example of this was a transaction where a commercial property was being acquired by a client of an accountant. The seller had opted to tax the property so intended to charge VAT on the full selling price. The buyer had informed their accountant that they would also opt to tax the sit, which would enable them to recover the VAT paid on the purchase. We were asked to confirm that this was the correct treatment to apply.
Normally, if a buyer intends to carry on using a commercial property for commercial purposes, an option to tax would enable VAT recovery because the future income from the property would be subject to VAT.
However, it transpired that the client intended to demolish the property and build a wholly residential property (apartments) on the site. This made an option to tax irrelevant and also gave the transaction a whole new complexion. Because the client wanted to retain the newly constructed residential property as an investment, its income stream would be VAT exempt rental income (which would not support recovery of the VAT on related costs, including the VAT paid on the acquisition of the site and build costs).
Having been engaged by the client, we were able to advise them on a simple structure that achieved what they wanted whilst securing full VAT recovery. We also enabled an SDLT refund because we identified that the client had overpaid VAT (and thus SDLT) on the purchase of the property, because it had been used partially for residential purposes prior to sale (it was a pub with living accommodation) so the option to tax that the seller had made should only have been applied to the non-residential part of the building. This is a common issue when pubs are bought and sold.
Another popular area in which we get lots of questions is online trading, whether goods or services.
Brexit has brought significant changes for businesses that sell goods from the UK to EU consumers. Prior to Brexit, UK suppliers simply charged UK VAT to EU customers unless the sales turnover in a particular EU country exceeded the ‘distance selling’ threshold (typically €100,000 per calendar year) at which point you would have to register for VAT in that country.
Post-Brexit, these thresholds have disappeared, and UK online sellers are faced with the prospect of either passing the tax burden onto customers (so the customer has to settle any VAT and duty payable to ‘clear’ the goods) or register for EU VAT and charge EU VAT at the point of sale (no threshold).
It’s arguably worse for UK providers of online electronic services because there is no threshold, so any sales to EU consumers will potentially bring them within scope of EU VAT registration.
To soften the blow, there are ‘one stop shop’ EU VAT registrations available, where a single EU VAT number can be used to account for supplies across all EU countries.
It’s not all bad news though because although there are heightened risks of having to register for VAT in the EU, there are many UK businesses that don’t have to register for VAT in the UK because their supplies now fall outside the scope of UK VAT. For example, we have recently had two clients referred to us after initial TPP discussions, where we were able to demonstrate that although there was a risk of having to register for VAT in the EU, there was no liability to register for VAT in the UK.
Other recent VAT queries we’ve had include:
These are just a snippet of the questions we get asked about, so please don’t hesitate to get in touch. There’s no such thing as a stupid question when it comes to VAT.
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