A supply made after 4 January 2011 will carry VAT at 20%. Or will it?

It has been well publicised that the standard rate of VAT will increase to 20% on 4 January 2011. This means that all supplies made on or after this date will be subject to the 20% rate of VAT. Or will it?

It is still possible to secure the 17.5% rate of VAT for supplies made on or after 4 January 2011, as long as the provisions of the anti-forestalling legislation are not breached.

HMRC consider that anti-forestalling occurs when arrangements are put in place for a VAT invoice to be issued by a supplier or payment received by a supplier before the rate increase where goods are not due to be delivered or services to be delivered until after the rate increase.

However, the current rate of 17.5% can still apply where an advance payment is made or an invoice is issued in advance of 4 January 2011 (to be paid within a maximum period of 6 months), given the following circumstances: -

· the supply must be valued at £100,000 or less

· the supplier and customer must not be connected parties, and

· the supplier (or someone connected with the supplier) must not provide any finance.

The anti-forestalling legislation does not apply where the supply is being made to a business which is able to fully recover the VAT charged through its own VAT return.

There is scope to mitigate the impact of the rate increase – but businesses need to tread carefully to ensure that they do not fall foul of the anti-forestalling provisions.

If you are in any doubt, do contact us here at The VAT Consultancy and ask to speak to a consultant.

Good News for Business Travel Agents!

We have recently received agreement from HMRC, that Revenue & Customs Brief 21/10 on “bill-back” arrangements, works for overseas clients.

So, if you are a UK agent arranging UK business travel, for clients anywhere in the world, the service provider’s invoice can be issued “c/o” you!

Your statement or payment request to the client, can then be used by the client as evidence for 8th or 13th Directive refund claims.

All much easier for the foreign customer – keeping time and paperwork to a minimum for them.

You can find out more about our VAT services for the travel industry by clicking here.

Time to Pay Agreements - HMRC getting tougher?

As a quick reminder, a 'Time to Pay' Agreement is an agreed payment plan with HMRC to pay VAT debts (as well as other taxes).

An initial call to HMRC’s Payment Support Service on Tel 0845 302 1435 is required (before a demand for payment is received). They will ask initial questions regarding how much the debt is, how long you wish to pay this over etc. It is likely they will request some further documentary evidence to support any proposals put forward.

We have recently renegotiated some TTP agreements where uncontrollable factors have meant client's are unable to stick with the original agreement. Be warned though that HMRC's patience will run out if this occurs regularly and they will resort to legal action!

Recent press has suggested that HMRC are getting tougher on agreeing TTP agreements - we would be interested to know what everyone is experiencing out there.......

Flat Rate Ready Reckoner

I have just responded to a query in Taxation magazine regarding someone who is using the Flat Rate Scheme.

The person in question is undertaking personal tax returns for UK and US individuals and has registered under accounting and bookkeeping services. Interestingly, they raise the question as to whether they should really be under 'other business services' which is a lower rate.

To help them decide what HMRC deem to be included within each of these headings they called the ever helpful VAT Helpline - only to be told it is a self-assessed tax!

Our answer to the query? It is simple when the under-used Flat Rate Ready Reckoner on HMRC's website is referred to. This helpful tool provides examples of which trades HMRC believe fit within these sector headings. Under 'Accountancy and Bookkeeping' they include 'income tax preparation services'. The case for a lower rate in this example is closed!

Do bear in mind however that accounting services to US individuals will be outside the scope and therefore not form part of the flat rate income....

Link to ready reckoner:
http://vatreadyreckoner.hmrc.gov.uk/HMC?cmd=sector&action=list&?rnd=76917384

The new VAT issues facing the Public Sector

There are changing times ahead in the Public Sector, so I have taken the opportunity to sit down with Steve McIntyre our Public Sector Director to get his thoughts. Here's what he had to say:

Many of the public spending decisions and initiatives being announced by the Coalition Government are bound to have VAT implications. History shows us that VAT can have a major impact on Government plans, and strategies to deal with this had to be put in place.

For example; a concession was introduced to deal with problems on the zero-rating of wave 1 Acadamies, then further waves have been built using Local Authority peppercorn arrangements. Children's Centres also posed VAT recovery problems when the budget for them was first passed to Local Authorities.

I think that the following initiatives are likely to cause VAT headaches in the coming months;

State funded independent schools - like academies, these are likely to be charities or trusts and therefore will come within the restrictive charity VAT rules - zero-rating of capital projects only available to a new build or annexe. VAT registration may also be required if business activities are undertaken.

Cancellation of BSF - The Governments capital plans to replace BSF have yet to be announced, but there are indications that existing empty commercial/retail premises may be used to create "education space". Again, there could be VAT problems for the new independent schools and trust schools.

Further Out-Sourcing - I think that there could be a new phase of out-sourcing projects as severe cuts to Local Authority budgets materialise over the coming years. VAT savings can be made on certain services, such as Sport and Leisure moving into a trust, but other areas may incur additional VAT costs which need to be taken into account. Also, there can be some complex land and property transactions involved where VAT, again, becomes an issue.

As always with VAT I would always recommend the earlier these issues are discussed and addressed the better - VAT is a transaction tax and therefore it can often be too late to remedy things once a supply takes place.

Don't forget to file and pay your VAT online!

With first quarterly returns due to be filed online on 7 August 2010, HMRC are reminding businesses of the mandatory requirement to file and pay their VAT online.

Click here for more

Were you suprised at today's VAT rate increase?

When we looked into our crystal ball a couple of months ago we predicted that the rate of VAT would rise to 20%. What we didn't expect was that it wouldn't come into effect for another 6 months. So, today's news from the Chancellor that the rate of VAT will not go up until 4 January 2011 has come as quite a surprise to us all.

The majority of people who took part in our Budget Survey agreed that the rate would be rising to 20% within 3 months of the announcement, only 6% thought it would be the New Year. And, with this increase in VAT set to raise £13 billion in revenue, we all believe this will go someway to reducing the national deficit.

So, there we have it, we now know that the rate won't be increasing for some 6 months, some temporary relief for the consumer, however, we must remain mindful that an increase is just around the corner and there is still the potential for further rises to the rate of VAT.

In response to today's news, John Crawford, our Managing Director comments: "Such a rise will mitigate the bitter medicine of spending cuts and deferring the rise until next year in the hope of stimulating consumer demand will give time for businesses to prepare – important since many are still fighting for their lives.

Whether registered for VAT or not, businesses will pay more for their goods and materials. Either they subsume those costs and reduce their margins, or they raise their prices.
As ever, consumers will pick up the tab in any increase passed on in the supply chain when they buy the affected goods and services.
If you are going to have to spend 2.5% more on your big ticket VAT items, it makes sense to buy them before the end of the year."

Look out later for full details of the changes to VAT in our budget newsletter.