VAT represents a key factor in a business’s cash flow and potentially a real bottom line cost. Constantly evolving legislation and HMRC guidance makes compliance a continuous challenge. Less than superb record keeping can result in penalties, damaged reputation and/or missed opportunities. In today’s economy where competition is fierce and cash flow management is of paramount importance, effectively managing both the risks and opportunities surrounding indirect tax is key. Whether you are looking to reduce costs or use VAT to achieve competitive advantage, Pierce can provide the technical insights and skills you need to realise your business ambitions.
VAT and Property
Commercial property transactions and the VAT regulations are particularly complex and costly mistakes are easily made. Specifically regarding property, the VAT treatment will depend upon the nature of the transaction. Generally, the sale of commercial land and buildings will be VAT exempt, except where the commercial premises being sold are new (that is, less than three years old ) or where the seller takes the decision to waive the VAT exemption otherwise known as the Option to Tax. The granting or assignment of a lease is treated in the same manner and will be exempt subject to the landlord’s decision to ‘opt to tax’.
Prior to the introduction of the option to tax on August 1st 1989, companies engaging contractors to construct or redevelop commercial buildings would have to pay VAT on the costs of acquisition and construction, without the ability to offset that cost. This problem has largely been overcome by the option to tax facility. By opting to tax, the commercial owner is able to convert what would otherwise be an onward VAT-exempt supply into a standard rated supply so that they can recover the tax incurred on the acquisition and development costs. Issues can – and do – arise around the Option not least where the property will be used to make VAT-exempt supplies, additionally once made the Option is, generally speaking, irrevocable so caution is required before deciding whether or not to Opt.
We work with our clients to review and, where necessary, improve their compliance systems. For example, we can undertake a review of sales ledger transactions to establish whether the correct VAT liability is applied to all income streams or we can undertake a working capital review to ensure that you only ever pay the right amount of tax at the right time. A review can identify potential risks and/or potential training needs and may identify VAT savings. We can also help you ahead of any notified VAT inspection visit so that you are fully prepared on the day, including supervising the visit on your behalf if you prefer one of our VAT experts to deal with HMRC for you. HMRC has wide powers of inspection, including the right of access to business computers, so it is essential that you understand the limits of their powers and ensure that they keep within them.
VAT Returns and EC Sales List
If you’re a VAT-registered business in the UK that supplies goods and certain services to a VAT-registered customer in another European Union (EU) country, you’ll have to tell HM Revenue & Customs (HMRC) about the supplies. You need to complete an EC Sales List (ESL) showing details of each of your customers in the EU and the value (in sterling) of the supplies you’ve made to them in the period. If you haven’t made any supplies (or issued any credit notes) you should not submit an ESL and the ESL Online service (ECSL) will not allow you to submit a nil declaration. The VAT specialists at Pierce can help you ensure you keep within this and other HMRC reporting requirements.
VAT planning before a transaction will not only avoid pitfalls and penalties, but can often identify VAT opportunities. We provide proactive advice on proposed transactions as well as on every day problems such as liability of supply etc. We will also provide strong reactive support as necessary. The ever widening scope of VAT, the constant stream of detailed changes to the regulations, and the ever growing demands of Customs and Excise call for a trained professional eye to ensure that you do not fall foul of the regulations and incur a liability to a penalty.
HMRC VAT Fuel Scale Charges
Businesses which pay the cost of all fuel for cars where the director or employee is permitted to use the car for private journeys and do not make good the cost of fuel for the private journeys must decide whether to claim any input tax on the fuel purchased for the business. If you do decide to claim you must account for the VAT due on the private fuel by reference to the VAT Fuel Scale charge, payable per VAT return period.
There is however a concession which avoids the requirement to pay scale charges. If fuel is supplied for private journeys either free or for less than the amount paid for it, then the only way to avoid paying the scale charge is by not reclaiming input tax on any fuel purchased (for any mileage, whether business or private, in cars or commercial vehicles). Should you decide to take advantage of this concession you must inform HMRC before the start of the period in which it is to take effect and they will then treat the decision as remaining in force until told otherwise.
Partly Exempt Traders
Where a partly exempt business uses a vehicle for both private and business purposes and accounts for the VAT on the private use via the scale charge, the input tax incurred on the petrol for private use is fully recoverable and on business motoring is recoverable to the extent the vehicle is used for a business purpose. To do this, business and private fuel costs must be separated. Where a partly exempt business is unable to separate business and private motoring, all input tax on fuel (including that for private motoring) must be apportioned in the partial exemption calculations. To compensate for this, the scale charge for private motoring may be reduced to equal the percentage of input tax recovered under the partial exemption method. For example, if only 80 per cent of the input tax is recovered, only 80 per cent of the appropriate scale charge is to be paid. Where an annual adjustment is carried out, the scale charge must also be adjusted.
Accounting for the Scale Charge
The VAT due per the table of scale charges should be included in the total output tax figure at box 1 and box 3 of the VAT return. The net amount (ie the scale charge for the fuel less the VAT due) should be included in the value of net total outputs at Box 6.
|CO2 Emissions Figure||Scale charge||VAT due per vehicle|
|120 or below||133||22.17|
|225 or above||468||78.00|
April 2013 – 14
Standard Rate 20%
Reduced Rate 5%
Zero Rate 0%
VAT registration and deregistration thresholds
From April 2014
VAT registration threshold £81,000
VAT deregistration threshold £79,000