[Marie Stein]

HI Diane

Sorry it has taken me a few days to reply to your query. Unfortunately I’m not entirely sure what your query is and I’ve sat down a couple of times to reply and now realised I can’t based on the information you’ve given!

You say “Understand that new build is VAT free if you are going to live in the property yourself, but not if it will be let either as a holiday let or to a long term tenant”. Actually that’s not necessarily true so I need more details about your situation.

First of all, are you talking about a single property? Is it being built or does it already exist? Does the owner have any other business activities and is he/she (or the company or partnership etc) registered for VAT?

If you can give me a bit more information I’ll do my best to help you find the information you need.

Kind regards
Marie

[Marie Stein]

Hi cris2409

Well it’s a bit of a big topic to cover in a forum reply. The best thing is to tell you where to look for the HMRC published guidance so that you can read up on it yourself to begin with. Then you can come back if you need help on any specific points.

The first place is the HMRC VAT Notice 718: Margin Schemes which is the main source of information about the margin schemes. This is on the HMRC website http://www.hmrc.gov.uk. Type notice 718 into the search box and it will take you there. Sections 17 and 18 of the notice deal with imports and exports and contain some detailed worked examples.

They are quite well explained so I hope you’ll find what you’re looking for in there.

Also you can find a bit more information in the HMRC internal guidance here http://www.hmrc.gov.uk/manuals/vatmargmanual/VATMARG07000.htm.

Kind regards
Marie

[Marie Stein]

Hi Chris

It’s not a simple yes or no answer, so I’ve summarised the main rules below to help you decide whether or not to charge UK VAT.

The general rule is that if you are supplying legal services or any other services that are “supplied where the customer belongs” to a non-business customer in another EC country, then you charge UK VAT.

This is explained in section 12 of VAT Notice 741: Place of Supply of Services which can be downloaded from the HMRC website. Paragraph 12.4.1 explains that the supply of such services to non-business customers in other EC countries is “supplied in the UK” which means that the supply is liable to UK VAT.

You also need to read sections 13.5.6 and 13.5.7 of the notice which explain which legal services are covered by this rule – and therefore liable to UK VAT – and those that are excluded.

The main exception is if the legal services are related to land or buildings in another EC country – for example in France. In that case, the place of supply of the services is where the land or buildings are situated and the solicitor may be liable to register for VAT in that country, regardless of where the customer belongs. This is explained in more detail at section 6 of the notice.

The rules sound somewhat complex but once you’ve got your head round these principles, you should be able to work out the correct liability.

Kind regards

Marie

[Marie Stein]

Hi Geoffrey

Actually I don’t think that your query is a VAT query as such. I’ve had a look at the HMRC guidance and can’t find anything that says whether or not you are required to specifiy different prices of the same item that apply to different classes of retail customer.

I think that the issue is more to do with consumer legislation and that in the UK you are required to show the full selling price at the point of sale for the benefit of the customer. And you’re not alone in having a 2 price structure – if you go to McDonalds or other similar retail food outlets, you’ll see different prices for certain items according to whether you eat in or take them away. Some food outlets charge the same price regardless, but just calculate the VAT on the basis that a certain proportion of sales are standard rated.

Having said all of this, it’s possible that there is a special arrangement between HMRC and the university community relating to this issue. I’ve had a dig round the HMRC website to see if I can find any such information and I can’t find anything. But it is certainly worth finding out what other universities do in this situation.

Sorry I can’t be more help on this one, but I’ll let you know if I come across anything in the future.

Kind regards

Marie

[Marie Stein]

Hi Chris

It normally takes several weeks to get a registration number – see here http://www.hmrc.gov.uk/vat/start/register/waiting.htm on HMRC’s website where they state that it normally takes around a month. Obviously you can avoid delays by making sure that your application is correct, so take care when completing it.

The “person” who is registered for VAT is the “legal person” who will be making supplies. So if you have set up a limited company for your business, the registration would be in the name of the company and the company will be liable for VAT payments and other liabilities. If you have separate activities as a sole proprietor or as a partner in a partnership, those “persons” would have their own registations as required.

Hope that helps. There is a lot of informtion about the practical issues relating to registration on teh pages attached to the link above so do take time to have a read through to get your application right first time.

Regards
Marie

[Marie Stein]

Hi David

This is one of those queries that is potentially quite difficult. The route of the payment really is not the relevant factor here, the VAT treatment really depends on the contractual arrangements and the place of supply of the service.

As with many such queries, there is no simple answer but I’ve tried to summarise the main issues that could apply based on the information given. If you look at the guidance issued by HMRC which I’ve mentioned below, you may be able to decide the correct position yourself.

Place of Supply rules

I don’t know how familiar you are with the VAT rules relating to the place of supply or international services. It’s a complex area of VAT and a bit of a steep learning curve if you’ve not dealt with it before. There is a very short introduction in my article here http://tinyurl.com/lwqm and detailed guidance in HMRC VAT Notice 741: Place of Supply of Services, which is on the HMRC website.

The rules are complicated because there are different rules to determine the VAT liability of different types of services that are supplied to or received from international businesses. The important factor is where teh supply is deemed to take place – or the “place of supply”

Supplied where performed

In principle, the VAT liability for training services is determined by where the training is physically carried out – if the training is physically performed in the UK, the supply is liable to UK VAT regardless of the payment arrangements. See VAT Notice 741: section 7 which deals with services “supplied where performed” and includes training.

Therefore, regardless of the payment arrangements, the supply of training is liable to UK VAT.

Contractual arrangements – who is supplying the service to whom?

In order to establish who is liable to charge the VAT, you need to establish the “chain of supply” – ie who is supplying services and who is receiving them.

I’ve come across similar situations in the past where an overseas holding company holds contracts with international clients for services that are supplied by subsidiary companies in different countries. The client contracts with the holding company which in turn contracts with the subsidiaries to carry out the work, so the subsidiary is actually supplying the holding company, not the client.

As I explained above, regardless of whether or not the UK or US company is supplying the Italian client, then the services are liable to UK VAT. And this is why the contracts are important. If the chain of supply is from the UK company to the US company to the Italian company, then the UK company would have to charge VAT to the US company. It may be necessary for the US company to register for VAT in the UK, recover the VAT charged by the UK company and then raise its own VAT invoice charging UK VAT to the Italian client – see below for further comments on this.

VAT registration?

Because the supply is in principle liable to UK VAT, whichever company supplies the services to the Italian company would have to be registered for VAT in the UK and charge UK VAT to the Italian client. Therefore if the US company is supplying the client, it may be liable to register for VAT itself in the UK if it isn’t already registered for VAT here – see section 7.8 of VAT Notice 741 for further information on this issue.

And what about the Italians?

There are a number of reasons why the Italians think that they shouldn’t pay UK VAT if their contract is with the US company. They are probably not familiar with the UK VAT rules and don’t appreciate that the US may be liable to register here and charge UK if it is supplying the services.

But there is a further factor that could explain why the Italians believe that they shouldn’t pay UK VAT. The VAT rules throughout the EC are based on certain EC Directives which are supposed to ensure that the rules are applied the same in each country. However the UK currently applies certain “place of supply” rules differently to other EC countries. In many EC countries, which I believe includes Italy, the VAT liability of certain “supplied where performed” services is where the business customer belongs. In this case, the supply is deemed to be “supplied where received”.

For example if the training service was being supplied by a French company for an Italian business client, the French company would not charge French VAT, but the Italian company would account for Italian VAT on its Italian VAT return under the “reverse charge” mechanism – see VAT Notice 741, Section 16 for information on this.

The UK is to implement similar provisions in 2010, but at present under UK law, the supply is “supplied where performed” and thus liable to UK VAT. However the Italian customer may well assume that it should not have to pay UK VAT but instead account for Italian VAT using the “reverse charge” procedure. And of course the Italian client would probably have to reclaim any UK VAT by submitting an EC Eighth Directive claim direct to HMRC unless it is able to register for VAT in the UK.

Contracts and HMRC guidance

As you can see, your query does raise a number of issues and none of them straightforward! I’ve dealt with many such queries in the past concerning international supplies of services and inevitably each situation is unique.

It’s only every possible to summarise the main issues when dealing with such queries as there are so many factors that could affect the VAT position. I would suggest that the first thing you need to verify is the contractual arrangement to establish which company is making the supply to the Italian client. Then look at the guidance in the HMRC Notice 741 as this should help with the principles involved and may enable you to reach your own conclusions.

These international queries can be very complicated and if the amounts of money involved are large, or if this is one of several similar contracts, I would suggest that you take formal advice or seek a ruling from HMRC to be certain of the position. Let me know if you need any further help – I would of course be pleased to provide more detailed advice subject to my normal fee arrangements. Alternatively you could refer the issue to HMRCs’ VAT Advice Centre for a formal ruling.

Good luck with your research!

Marie

[Marie Stein]

Hi Backno

Thanks for your query – as you say there is loads to read up on this subject but you’ve made a really good start.

I do have a few points which I’ve noted after your queries below. These rules apply to the VAT reporting for the supply or receipt of services such as consultancy which are deemed to take place where the customer belongs. So as long as your business involves the supply and receipt of this type of service and your business is “fully taxable” (ie you don’t make any exempt supplies which affect your entitlement to recover input tax) then this should pretty well cover your VAT reporting requirements.

I’m not an accountant and not familiar with accounts software, so you’ll need to confirm how to post the transactions for accounts purposes with your accountant.

1) Services supplied to EC Member Countries
Charge 0% VAT and make sure their VAT registration number is on the invoice and check that it is a valid VAT number. (http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN)
These Sales are reported on the VAT return in Box 1 (as currently Box 8 is for EC supplied goods only) I therefore use my 0% VAT code for these sales in my accounts software.

This is the main error – Box 1 on the VAT return is for the value of tax, not the value of the sale itself. So if your services are all supplied to overseas businesses and you have not charged any VAT, you enter “NIL” in box 1. The value of the sale goes into Box 6 of the return, “Value of Outputs”. You are correct that Box 8 is only for despatches of goods to EC businesses, but the value of all taxable supplies of goods and services (whether made in the UK or overseas) goes into box 6.

2) Services supplied to non-EC Member Countries
Charge 0% VAT. Use 0% VAT code and report the Sales number in Box 1 on VAT return.

As for point 1 above.

3) Receipt of services from EC Memeber Countries
Give supplier my VAT number and invoice should have 0% VAT on it.
These purchases are reported in Box 7 and I use the VAT code 0% purchase from EC Suppliers

This is correct as far as you go, but you also have to account for “reverse charge” VAT on imported services from EC or non-EC suppliers. It won’t affect the amount of VAT that end up paying to or claiming from HMRC on the VAT return, as long as your business is fully taxable. But it is an accounting entry that businesses are required to make when they purchase certain services (including consulting) from overseas suppliers.

I’ve summarised the mechanics of the reverse charge in the appendix of my article here: http://tinyurl.com/nw8ofr. And you can find more detailed information in VAT Notice 741, Section 16, Reverse Charge.

Although this probably won’t affect the tax that you pay to HMRC, it’s a good idea to get into the habit of making these entries on your return. Strictly speaking your VAT return is in error if such information is not included and although I have never known HMRC to take any action in these cases, things could change!

4) Receipt of services from Non-EC Member Countries
I should be getting charged 0% VAT and report this purchase in Box 7

As point 3 above.

The Reverse Charge Sales list which is being introduced next year will be relatively easy to complete. If you can get used to the terminology involved for the VAT return accounting, you shouldn’t have any problems with that.

Hope this clarifies things, let me know if you need any further help.

Marie

[Marie Stein]

Hi SEVAT

Well the issue of paying the invoice is separate to the issue of claiming the VAT back on the invoice.

I don’t know the specifics of your situation (eg what the legal work relates to, the formal terms and conditions etc) but the fundamental rule is as follows:

A business can only claim VAT as input tax on supplies that have been made to them

So even if you pay a bill for services supplied to someone else, the VAT on the invoice isn’t your input tax and you can’t reclaim it. This would even apply if the invoice is issued to you instead of the recipient of the service (ie in your case teh other company).

Normally the person who has received teh supply is the person who has engaged the supplier, ie the solicitor. In this case you have stated that this is the other company. The rules are clearly explained in VAT Notice 700, Section 10, which is here http://tinyurl.com/kus4c8 on the HMRC website.

Now there are certain limited situations where HMRC might accept that more than one party has benefitted from the services of a supplier and allow teh person who pays the bill to treat some or all of the VAT as input tax. But these would be exceptional circumstances that have been tested in the courts and are very rare.

I would suggest that you refer the solicitor to the guidance given in the VAT Notice and see if he can give an explanation of why he thinks your company would be entitled to recover the VAT on a supply made to the other company. He may have a valid reason and I’d be interested to hear if he does! But simply paying the invoice doesn’t allow you to claim the VAT.

However there may be another way of dealing with this. In your case, as the supply in question was made to the other company, they should be able to treat the VAT on the solicitors’ invoice as input tax. This would mean that if you pay the net amount of the invoice, they could pay teh VAT amount and claim it on their VAT return – assuming that they are entitled to under the normal rules (eg they are not partly exempt and thus can only recover a proportion of their input tax).

So this would work as follows:

• If the invoice is for £1000 net plus VAT of £150, you would pay £1000 to the solicitors and they pay £150. So the solicitor receives full payment.

• The other company claims the VAT of £150 on its VAT return, so isn’t out of pocket.

Obviously I don’t know the exact details of your situation but you could propose this to the other company and their solicitor and see if they agree. This way your company would only pay the net amount of the bill but the VAT is claimed by the recipient of the supply.

I’ve used this way of dealing with similar situations in the past and it normally keeps everybody happy, so I hope it helps you sort things out. Let me know how you get on.

Kind regards
Marie

[Marie Stein]

Hi bradwray

I’m sorry to hear that you got stung by not understanding the VAT registration rules – believe me you aren’t the first and won’t be the last.

Unfortunately I can’t provide a simple set of guidelines for your situation as the technical issues involved are actually complicated and there are a number of factors other than the main ones about whether or not you can issue VAT invoices or whether you have to pay the VAT even if the customers don’t pay you.

This is one of those situations where I would really recommend that you take professional advice – not just on the historic VAT issues but on your overall VAT affairs. I’d be happy to advise you subject to my usual fee arrangements, but it would probably make more sense for you to ask your accountant as he will be able to deal with all of your business issues, not just the VAT ones. You could also go along to your local VAT office and ask them for more practical advice, they will help but they simply may not have time to take you through all of the technical issues.

I’ve set out some general comments on the subject below, including the 2 main points though that you raised in your query.

Can you issue invoices for the VAT?

This is really an issue of contract law rather than VAT law so you might want to ask your solicitor for advice on this. In fact if your customers are VAT registered businesses then you are obliged to issue invoices so that they can claim the VAT back on their VAT returns.

The VAT issue really is whether the original contract/terms and conditions states whether or not the original fee was VAT inclusive or VAT exclusive. Normally if it says that the charge is exclusive of VAT, you would be able to charge VAT in addition to the original fee. If not you’d have to treat the original fee as VAT inclusive, unless your customers agree to pay additional VAT on top of the fee. So first of all you need to know what it says in the contract/terms and conditions.

Do you have to pay VAT even if the customer won’t pay you?

The answer to this is yes in principle, but the amount depends on how much the customer actually pays you.

The VAT law says that you, the supplier, have to pay VAT on the “consideration” that you receive, ie the amount received from your customer. So that means that you have to pay VAT based on whatever payment you’ve received OR if you’ve issued a VAT invoice to the customer for a higher amount.

The issue here is whether the amount you’ve already received is inclusive of VAT because the customer won’t pay any additional VAT on top of the original fee.

The effect of this is as follows:

Assume the fee is £100.

If the fee is VAT exclusive, the VAT at 15% would be £15, at 17.5% would be £17.50.

If the fee is VAT inclusive, the VAT at 15% (ie £100 x 3/23) would be £13.04, at 17.5% (ie £100 x 7/47) would be £14.89.

So the difference between the fees being VAT inclusive and VAT exclusive is as follows:

• If the VAT rate is 15%, the difference is £15 – £13.04, ie £1.96.
• If the VAT rate is 17.5%, the difference is £17.50 – £14.89, ie £2.61.

So if you issue an invoice for VAT at 15%, ie £15, you’d have to pay HMRC the VAT of £15 to begin with. The total consideration for the supply in question would be deemed to be £115 as you’ve issued a VAT invoice to your customer, so your VAT liability is £115, ie the VAT is £115 x 3/23, ie £15.

However after 6 months, you should be entitled to claim VAT bad debt relief as the customer hasn’t paid the additional £15. So you’re entitled to claim the VAT difference between VAT on £115 and £100,which as shown above is £1.96. The rules on VAT Bad Debt Relief are here on the HMRC website: http://tinyurl.com/lpzzmu

So as you can see, it gets quite complicated and messy, which is why I think that you would be advised to take advice on the subject to help you sort it out properly. You don’t want to end up paying too much VAT or too little VAT now and ending up having to sort it all out again in a couple of years if the VAT office sends out an officer to do an inspection.

Other issues

And before you do anything in terms of issuing invoices, there are some other important factors that you should consider that could help you minimise the costs.

First, there are various schemes for smaller businesses which may help you to reduce your VAT liability and/or help with cashflow regardless of whether you issue invoices for additional VAT – these include the Flat Rate Schemes – see here on the HMRC website for further details http://tinyurl.com/2lgp37. Also the Cash Accounting Scheme which gives you de facto Bad Debt Relief as you only pay (and claim) VAT on the basis of when payment is made, not when the invoices are issued. See here on the HMRC website for further details: http://tinyurl.com/qj4u63. One or other of these schemes could be very helpful to you.

Second, bear in mind that you can also claim back VAT on costs incurred since the new date of registration.

These are the main ones but there may be others and I’ll add an additional post on here if I think of anything else important.

I hope that you manage to get this sorted out without too much hassle and that you can keep any additional VAT liability down to a minimum. In particular have a look at the Flat Rate Scheme as that could save you a lot of time and may reduce your overall VAT liability regardless of whether or not you issue additional invoices and/or the customers pay.

Kind regards
Marie

[Marie Stein]

Hi bradwray, just to confirm that I’ve seen your query and hope to have time to reply tomorrow.
Marie

[Marie Stein]

Hi Marlon

How are you doing? Good to hear from you!

Triangulation is a very specific term used to describe the following situations involving the transfer of goods WITHIN THE EU.

Suppose you have 3 companies eeach in different EU countries, say France, Germany and Spain. The French company sells goods to the German company which then sells them to teh Spanish company. So you have 3 parties involved hence the term “triangulation”.

But the goods are sent directly from France to Spain, avoiding their transfer to and from Germany. In principle the German company would have to register for VAT in either France or Spain to avoid being charged VAT by the French supplier. But the special “triangulation” rules allow the French company to zero-rate the supply of the goods to the German company so that it doesn’t have to register in France or Spain. See VAT Notice 725, The Single Market, Section 13 for information on this special rule.

NB a bit of terminology – supplies of goods from one EU country to another are called “despatches” for VAT purposes, not exports. The term “export” refers to goods sent from an EU country to a non-EU country.

Now Digi’s situation is different. Because the goods are being sent directly from the EU to the non-EU customer, this is an “export” of goods. Even if Digi doesn’t register for VAT in the UK, the EU supplier should be able to zero-rate the sale to the UK company. The general rules for this are explained in VAT Notice 703 which deals with exports from the UK. These same rules should apply to exports from any EU country – ask the EU supplier to confirm that they will zero-rate the exports in these circumstances.

Hope this clarifies things for you!

Kind regards
Marie

[Marie Stein]

Hi Pelmaks

A few points here. As you probably know VAT and property stuff is complex so I have to explain the general rules.

This information is on the HMRC website VAT Notice 708: Buildings and Construction. It’s a long notice and only parts of it are relevant to you, but here is the link http://tinyurl.com/lvluo3.

As you already know you can zero rate most services and some goods that are supplied in the course of construction of certain new buildings. These are new dwellings, and certain “relevant residential properties” and “relevant charitable properties”. There is a full explanation of the properties concerned at section 3 of the Notice. It does not include commercial property so if you are supplying and fitting any sort of flooring in a commercial property, the whole lot is liable to VAT at the standard rate.

But in the case of dwellings and the other properties listed at section 3 of the Notice, supplies of services “in the course of construction” of a new building are zero-rated along with items, ie building materials, that are incorporated into the building.

The building materials that qualify are listed at section 13 of the Notice and paragraph 13.7 reads as follows:
“Carpets, carpet tiles and underlay are not building materials for VAT purposes.
Other forms of flooring or floor covering, such as linoleum, ceramic tiles, parquet and wooden floor systems are building materials.”

So the normal rule is that the supply and fitting of vinyl tiles is zero-rated, but the supply and fitting of carpets is standard rated.

Hope this helps, but do have a look at the Notice to be sure and let me know if you have any further queries.

Kind regards

Marie

[Marie Stein]

In principle, it is possible to recover VAT on certain pre-registration expenses including services in the 6 months prior to registration. However this only applies if the supplies you make after being registered are taxable, ie liable to VAT at the standard rate of 15%, the reduced rate of 5% or the zero rate.

If the supplies are exempt, then you can’t recover any pre-registration VAT at all and in fact the company should not be registered for VAT. If some of your supplies are exempt and some taxable, then you will be able to recover the VAT on supplies received that are attributable to your taxable supplies, ie you would be “partly exempt”.

And this is where it gets difficult!

You are probably aware that insurance is exempt from VAT. The exemption also applies to certain insurance related services when supplied by someone acting in an intermediary capacity. This generally includes claims handling.

It sounds as though the services supplied by the company may come under this category, in which case they will be exempt from VAT. This would probably include the initial application fee. You might also have other forms of income in addition to the application fee and you will have to establish the correct VAT liability of each of them. You will have to take into account your trading arrangements, contracts etc to decide the liability.

You need to look at a couple of the HMRC publications which should help you in further detail.

The first is the VAT Leaflet 701/36: Insurance which is here http://tinyurl.com/nmqnp5 on the HMRC website. Section 8 of the leaflet deals with insurance related services and paragraph 8.5 deals with claims management. This should help you decide whether or not the supplies are exempt or taxable.
If you think that the supplies are taxable or partly taxable/exempt, then you can find out more about recovering VAT on pre-registration costs here http://tinyurl.com/lucznk on the HMRC website.

If the supplies are exempt, then the company will not be able to recover any VAT on expenses. If it makes a mixture of taxable and exempt supplies then it may be able to recover a proportion of its VAT.

This is a very difficult area of VAT and it sounds as though you may not have considered all of the VAT issues before starting trading. If you are preparing budgets, financial forecasts or a business plan, you need to ensure that you are taking the correct VAT factors into account – for example, if the supplies are exempt or partly exempt, then the company has to budget for an additional 15% on VAT bearing costs. Your accountant would normally consider these issues to begin with.

To begin with, please have a look at the HMRC publications I have mentioned and let me know if you have any further queries. If you require any formal advice on the VAT position, this would be subject to our normal fee arrangements.

In the meantime, I hope that this information helps you get things sorted out and I wish you good luck with your new venture!

Marie

[Marie Stein]

Hi

The point is – what do people get in return for their subscription?

In principle membership subscriptions are liable to VAT but there all sorts of exceptions to this – for example a magazine subscription is zero-rated and certain sporting subscriptions are exempt. Also if the subscribers get a mix of benefits in return for their payment, then you might have to apportion the subscription between the different liabilities.

There is a lot of info about this subject on the HMRC website but you have to know what you are looking for as it comes under a variety of subject headings!

If the main benefit of your subscription is access to the website then it would almost certainly be standard rated at 15%, but let me know what the members get in return for their subscription and I can point you in the direction of more specific information on the HMRC website.

Kind regards
Marie

[Marie Stein]

Hi Connect49

I’ve seen your query and the answer is not straightforward so can’t give you a quick reply! I don’t have time to respond today but should be able to reply by Monday at the latest.

Marie

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