[Marie Stein]

Hi KarenandWills

I almost missed your question as you’d added it to an existing discussion rather than starting a new one. But hopefully this information will still be relevant and help a bit.

First of all, this whole area of VAT – ie importation of yachts, international movement of goods etc, is very complicated and a lot depends on where the item concerned will be used. And there are different rules depending on whether you’re invoicing for the sale or lease of the yacht.

In principle, the importation of any goods into any EC country is liable to VAT. Imports have to be declared at the port of entry and any duty and/or VAT will be charged and collected by the local customs/tax authority.

However, if the importer is registered for VAT, then they may be able to claim the VAT as input tax on their VAT return, subject to the normal rules as applied in that country. This means that you’d have to register for VAT in France and charge French VAT to the American customer for the sale or lease of the boat.

Alternatively there are reliefs for temporary importations of goods, including means of transport from non-EC countries. See HMRC Notice 308: Temporary Importation – temporarily importating non-EU means of transport http://tinyurl.com/4y3vzxl which explains how the scheme works. These should allow the yacht to be moved in and out of EC waters as long as you follow the proper rules for the country concerned.

In either case, you would have to look into how the French apply these rules and normally this means checking with the French tax authorities. Alternatively, you could have a chat with one of the local import agents in the Antibes about your situation – I’m sure that they will know how the local procedures work.

But it is a difficult area – I’ve dealt with various yacht issues over the years while working for the major accountancy firms. In pretty well every case, we’ve had to take specific advice from colleagues in the EC country concerned about local practice and rules relating to the importation of yachts. But it is worth getting it right up front even if you have to pay for proper advice on local rules as I’ve often heard of yachts being seized by the local customs officer because it hasn’t been declared properly.

Hope this helps!
Marie

[Marie Stein]

Hi Sunnypea

The accountant is correct in principle in that HMRC won’t repay any overpaid VAT relating to assessments where the company didn’t appeal against the assessment or submit the return within 4 years. That’s the law and every business in the UK is subject to the same rules. But as I’ve explained below, there are some options that you should consider.

What really strikes me about your situation is the timescale involved. You mentioned that the company’s previous accountant had caused all sorts of problems, then there was a fire in 2009 which destroyed various records. However HMRC are looking for returns for 2005/2006. It begs the question – what was going on in the meantime? The company’s directors must have had some idea of the problems caused by the accountant so why has it taken so long to get the returns up to date?

I’m not saying that to criticise as I don’t know all of the facts – it’s simply to underline the reasons for HMRC’s position. This has obviously been a long and difficult time for the company and the poor compliance history explains why HMRC are so intrangigent about demanding outstanding VAT returns

Having said all that, if there are extreme reasons for the delays in submitting returns prior to 2009, then you have to ensure that HMRC are fully aware of the circumstances. I assume that they are already aware of the main events, but it’s important that they know all of the facts as something that seems relatively unimportant to you might actually help to change their viewpoint. And it does seem to me that this is one of those situations where HMRC and the company need to find some sort of closure on this long running saga. Nobody is benefitting from the situation.

There are 2 things that immediately spring to mind.

• First has the company lodged formal appeals against the assessments? I suspect this hasn’t been done because of the 30 day time limit. But HMRC will accept late appeals if there is a reasonable excuse – see here http://www.hmrc.gov.uk/complaints-appeals/how-to-appeal/indirect-tax.htm#2
• Second, about the outstanding returns. What I would suggest is this. I assume that the company has some sort of annual accounts for the years concerned? Even if these have been prepared from re-constructed records I would assume that they have been audited and at least based on bank records from the time. I would prepare the returns as an estimate based on the accounts and explain to HMRC that this is how the returns have been prepared. I assume that they would show a much lower liability than the assessment already paid and in the circumstances HMRC may be willing to accept these figures. If I were representing the company, that’s the approach I would take.

So much of this situation depends on the actual events and it’s difficult to know how to suggest you proceed with such limited knowledge. Where you see a long running situation, the law treats each return and late payment as separate events that have to be dealt with individually, so it’s not enough to say “the company has had financial and personnel problems” over recent years caused by a bad accountant. However I wonder if it might help to request a formal review of the company’s situation which might involve a meeting with a senior member of staff from the Debt Management Unit to see if you can agree on resolving the situation long term.

You refer to the DMU “bullying” you to submit returns and threatening to send the bailiffs around – I really think that you need to try to take some heat out of the situation by trying to reach a solution that both sides can live with and puts a stop to this on-going poor relationship and repeated “bullying”. Bear in mind that HMRC has the power to issue penalties for non-compliance, never mind wind up the company so this is a situation that has to be handled carefully. But they will normally listen to reasonable proposals so it’s worth asking for a proper review of teh case. So make sure you go along with some sensible proposals for dealing with outstanding returns and payments.

Alternatively, if you believe that HMRC have treated the company badly then you can make a formal complaint to HMRC asking for a review of teh case, or complain to the adjudicator or the company’s local MP. I’ve put the link here http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm if you want to consider this option. Don’t dismiss this option out of hand as I know from experience asking for reviews of long term cases can help resolve such situations. And getting a third party involved in these situations can really help to resolve long-running situations.

I hope this helps get things resolved. Do consider the options I’ve mentioned above to get this situation under control. If you want any more help, I’d be pleased to advise through my formal consulting service.

Marie

[Marie Stein]

The VAT treatment of hotel costs and any intercompany recharge is a real pain in the proverbial backsides. For the purposes of this reply, I assume that the invoice for the hotel was issued to your company and not teh overseas company.

But to begin with, I must explain that the VAT treatment of intercompany recharges can be very messy and ultimately depends on the arrangements between teh parties concerned. It may well be that the costs you are recharging form part of an intercompany service where the cost is calculated by reference to the costs incurred. In that case, my comments here might not help as I can’t give advice relating to any specific recharge here on the forum. There are some articles on the website about intercompany recharges that give more detailed information – just type “intercompany recharges” into the search box and it will take you to the relevant pages.

But if that’s not the case and it is simply that you’ve paid a bill for an employee of an overseas company and wish to recoup the cost, I’ve explained the main principles about recharges of hotel bills here and hopefully this will help you to work out what you need to do in respect of the costs you are dealing with.

The normal rule is that such transactions fall within a scheme called the “Tour Operators Margin Scheme” (or “TOMS” for short) whereby holiday companies don’t recover VAT on the costs of their hotel, travel, food and drink etc supplied to holiday makers, but only charge VAT on their profit. It’s a very complicated subject and is covered in VAT Notice 709: Tour Operators Margin scheme which is here XXX on the HMRC website.
In the past, businesses who paid for such costs and recharged the costs to other businesses for their own consumption, ie for their employees use and not for resale as part of a holiday package, were allowed to treat the costs under normal VAT accounting rules. This means that they would recover the VAT on the hotel invoice as input tax and charge output tax on the recharge.

From 1 Jan 2010, this has changed and businesses are now required to treat all such transactions under the TOMS. See section 3.3 of notice 709. This means that you can’t recover VAT on the hotel’s invoice, but you only have to charge VAT if you make a profit on the recharge. So if the hotel bill is for £100 plus VAT of £20, the total is £120 and you can’t recover the VAT as input tax. If you only recharge £120, then you don’t charge any additional VAT. If you decide to add a mark up, say £30, then you’d account for VAT on the markup, treating it as VAT inclusive, so you’d include 30 x 1/6, ie £5, as output tax on your tax return.
But YOU MUST NEVER ISSUE A VAT INVOICE TO YOUR CUSTOMERS FOR SUCH SUPPLIES, i.e. AN INVOICE WHICH SHOWS VAT AS A SEPARATE AMOUNT. This is because the customer is not entitled to recover any of the VAT – ie on the original hotel bill or on your mark up – as input tax.

If, howver, the invoice from teh hotel was issued to the overseas company, but your company paid the bill and you are merely recharging the VAT inclusive cost, then you wouldn’t add VAT to your “invoice” as it wouldn’t be for a supply made by your company, merely for a disbursement paid for by you on their behalf. This would be more useful as it would enable the overseas company to claim the VAT on the hotel bill under the overseas business refund scheme, if they are eligible to use the scheme.

Hope this helps, but I know it’s not an easy subject!

Marie

[Marie Stein]

Hi Ifau4704

Unfortunately there is no definitive list of what is and what isn’t zero-rated. It’s up to the taxpayer (ie the VAT registered business) to work it out for themselves.

Whar HMRC do in VAT Notice 708 is to explain what the legislation says (ie “materials ordinarily installed”) and give a list of the main items that that they believe this covers. Bear in mind that this is only their interpretation of the legislation and it can be challenged by VAT registered businesses. Often tax consultants such as myself or other advisors can find precedents in caselaw (ie when the business has appealed against an HMRC decision to the Tribunal) that HMRC has to accept.

However, if you want to be certain whether or not HMRC would agree that you can treat specific items as zero-rated, you’d have to write to HMRC for a ruling on the subject.

You don’t actually say in your query what items you are confused about, so I can’t help in any detailed respect. You might find some helpful information in the HMRC staff manual (which is on the HMRC website) on the subject which is here http://tinyurl.com/yjar98u. (You have to download the document). The manuals are more detailed than VAT Notice 708 and section 14 deals with the issue of “builders materials” in much more detail, so hopefully you’ll find the answer there.

If you’re still stuck, I’d be happy to help through my formal consultancy service – drop me an email using teh contact form.

Marie

[Marie Stein]

Hi Alison
To begin with, I assume for the purposes of this query that the UK group registration is “fully taxable”, ie it is entitled to recover all of the input tax in incurs in the UK because it’s supplies are taxable, not exempt? This means that all of the companies in the group are regarded as “taxable persons” for VAT purposes.

I agree that HMRC is pretty vague on the subject of group registrations and EC and it’s because it doesn’t really make any difference when applying for EC VAT refunds. Group registrations are allowed under the EC VAT Directive but not all countries use them. Based on what you’ve said, it sounds to me as though the UK subsidiary should be entitled to make a claim based on the normal rules. It will have to apply for a “certificate of VAT status” to submit with its claim (Form VAT 66) and this will be in the name of the representative member of the group, not the individual company. You might want to include a copy of the list of group members with the VAT 66 form when you submit the claim to the Hungarian tax authorities to confirm that the company for whom the claim is being made is part of the registration covered by the VAT 66 certificate.

I’m not aware of any problems when making claims for companies who are registered as part of a VAT group, although I’ve never sent a claim to Hungary before. Hope you don’t have any problems with it, good luck with the new electronic refund system!

As always, if you need specific advice I’d be happy to help through my formal consultancy services, – just drop me an email using teh contact form.
Marie

[Marie Stein]

Hi Kevin

Just to confirm here’s the link to the HMRC website section which deals with the VAT liability of payments that don’t represent consideration for supplies http://tinyurl.com/68x7gbs. It does work, I’ve just tried it so hopefully you’ve got the information that you need.

Marie

[Marie Stein]

Hi John

About 20 years since I left London, good to hear from you. But don’t you have a whole department of VAT experts at your disposal inhouse????

Unfortunately I have to plead the fifth on your query as it’s not one of those queries that can be answered by referring to a couple of paragraphs in a VAT notice. In situations such as the one you outlined, the VAT position could change significantly depending on a variety of factors, particularly the final use of the properties, i.e. will the owner sell the converted building or lease/ sell the individual units?

I know that you appreciate how complex these rules can be but in the circumstances that you describe, it could mean the difference between repaying some input tax or paying VAT on a deemed supply at 20% on £4m, i.e. £800k, so giving the wrong information could cause problems. And if the converted properties satisfy certain conditions, the sale or long lease (over 21 years) of the units may qualify for zero-rating in which case there would probably be no VAT cost.

Trying to summarise the rules that could apply here would just take too long.

There could also be a further complication caused by the fact that the property was acquired as a TOGC which could increase the VAT charge and also require the property owner to repay input tax that was paid by the previous owner.

Although I can’t give you a quick reply here, I’d be happy to have an initial chat with you about this as I can talk much more quickly than I can type! If you then want any more detailed advice, I can provide that through my consultancy service. Send me an email through the contact form and I’ll give you my contact details so you can call me.

Marie
13 March 2011

[Marie Stein]

The VAT liability of education and training is a difficult subject and I find the VAT Notice difficult to follow. The other thing is that you provide a number of different services and it’s possible that some of your services might be exempt while others may be standard rated. Obviously I can’t give you advice about the VAT liability of any of your specific services here on the forum but I hope that this reply will at least help you to work out the liability of each of your services as and when you come to finalising contracts and/or issuing bills to your clients.

The reason that the VAT notice is difficult to follow is because the liability depends not only on the nature of the service that you’re providing, but also whether the recipient or in some cases the supplier is an “eligible body” as defined in the legislation, and also how the training is funded. That’s why the notice is so long and detailed and also why it’s taken me a while to post this reply, as I wanted to take the time to explain why it’s so complicated and hopefully help you work out the liability of your services.

Because the liability depends on a number of factors, the VAT notice is actually quite difficult to read because it has to include a lot of detailed information on different aspects of the same issue. You have to find a way of navigating through it all and I think that the key is to go back to the legislation, which set out at section 17 of the VAT notice, here http://tinyurl.com/5vg55b7. I don’t normally advise reading the legislation unless you’re an accountant or otherwise have some working knowledge of VAT, but in this case I think it’s the easiest way of working out the answer.

What does the legislation say?

The liability depends on three main criteria, which are as follows:
• Education of a type normally provided by schools, colleges, universities.
• The supplier has to be an “eligible body”, which is normally a publically funded educational establishment or non-profit making organisation.
• Exemption for certain types of training if funded by certain government sponsored training schemes.

So to qualify for exemption, your services have to fulfill one or more of these criteria, depending on the part of the legislation concerned. And to begin with, I’d have to say that based on the information that you’ve provided, it seems to me that none of the specific services you supply will qualify for exemption, unless they qualify as government funded vocational training. You don’t seem to be providing education, which is normally subject matter taught in schools or university, nor do I think that you are an “eligible body”, which is normally an eduational establishment or a non-profit making body. I am paraphrasing here but it seems to me that you are providing a mix of vocational training and consultancy services as a business activity which is liable to VAT at the standard rate.

The way I read it, the legislation says that the following can be exempt from VAT:

• Item 1: Education, research to an eligible body, vocation training if provided by an eligible body.

An eligible body covers a variety of publically funded organisations which provide eduation or training, eg a school or a college, or non-profit making organisations as explained in section 4 of the notice. I don’t think that this would cover you. Some of your work might qualify as research, but the exemption only applies if the research provided TO an eligible body can only be exempt if the supplier is also an eligible body, which I assume that you aren’t.

• Item 2: Private tuition of a subject normally taught in schools etc.

I don’t think that you’re providing private tuition.

• Item 3: Certain examination services

Again I don’t think this would cover your situation.

• Item 4: Certain goods or services linked to the provision of education, vocational training etc
This normally covers goods and services that are closely related to the provision of education, training etc that are for the direct use of the pupil, such as accommodation, learning materials, OR certain supplies made to the school, college etc by other eligible bodies. As you aren’t an eligible body your services probably wouldn’t qualify for exemption under this section.

• Item 5: Certain government funded vocational training

This applies to certain training that is paid for through the specific government training schemes as set out in the legislation and explained in the notice at section 13. You say that you are providing training and therefore this aspect of your services may apply for exemption, but you’d have to establish how your services are being funded.

Practical issues

The key in these sorts of situations is to look at each supply that you make and see whether or not it is covered by any of these exemptions. I assume that you enter into a different contract with each client, so you’d need to establish whether or not each of these falls within the exemption. The important thing is to ensure that your contract states that the agreed fee is VAT exclusive and that VAT will be added if your service is liable to VAT. That way, you’re not out of pocket if you have to charge VAT. Some of your clients will be able to recover the VAT that you charge, depending on their VAT status, but this doesn’t affect the VAT liability of your services.

If you are struggling to work out the liability of any specific service, you can write to HMRC and ask them for a ruling about that particular supply. They won’t answer hypothetical or general questions, but if you send them a copy of a contract and explain the nature of the service you’re providing, they will give a ruling. Alternatively, I’d be pleased to help through my formal consultancy service – just drop me a line using the contact form.

Marie
8 February 2010

[Marie Stein]

Hi Marty

Well HMRC never answer hypothetical questions, they simply don’t have time. They do provide a lot of information on their website and it’s really just a case of knowing where to look for the information. Here are a few pointers that should help you.

First of all, exports from any EC country to non-EC countries are generally VAT-free, or zero-rated. To obtain zero-rating, you have to purchase the goods from a VAT registered business, such as motor dealers or manufacturers. The information is in VAT notice 703: Exports, which is on the HMRC website. Section 4.13 here http://tinyurl.com/5rhn7wy explains how the rules apply to car exports. As long as the export is done through the proper procedure, then the vendor won’t have to charge VAT. You should find all the information that you need in the leaflet.

You’ll see that the notice refers to “direct export” and “indirect export” – the difference is that a direct export is exported directly by the exporter, while an indirect export is where the purchaser takes delivery of the car in the UK/EC and then makes their own arrangements for its export. The procedure to obtain zero-rating is slightly different in each case, as explained in the leaflet.

Marie
31 January 2011

[Marie Stein]

Hi Lucy

Certain services supplied to overseas customers are “outside the scope” of UK VAT, which means that you don’t charge VAT. These normally include professional type services, such as legal services, so it’s possible that you didn’t need to charge VAT.

Obviously it depends on the specific circumstances of your situation and the “Place of Supply of Services” (“POSS”) rules to see if your services would be covered. The POSS rules define how VAT is applied to international services. They are complicated, but you could have a look at my very brief introduction to the subject here https://vatexchange.co.uk/node/325 which explains how the general rule works in principle.

The detailed rules are explained in the HMRC VAT Notice 741: Place of Supply of Services. Section 15 of the notice lists the types of services that are covered by the general rule. Section 15.5 here http://tinyurl.com/4avgjxw lists various professional services which include legal services and this may cover your situation.

Marie
31 January 2011

[Marie Stein]

Yes this definately sounds like a bit of a mess and I’m sorry that you’ve found yourselves in this situation. There are a few technical points that are relevant which I’ve summarised below.

First, HMRC are correct in that the VAT registration belongs to the person, not the business. In the same way that you have to submit tax returns as a limited company or partnership or individual, it is the legal entity that applies for VAT purposes. The legislation clearly states that it is the “taxable person” who is liable for VAT, not the business.

The disaggregation rules only apply if separate legal entities (eg a partnership and a sole proprietor) carry on business activities and the total of their joint income exceeds the VAT registration limit. But in your case, it sounds as though both businesses are run by the same “partnership”, ie your mother and her partner, in which case HMRC are correct in requiring them to account for VAT on all of their business activities. The disaggregation rules would only apply would be if there were 2 separate partnerships – perhaps one consisting of your mother and her partner, one consisting of your mother and yourself, or even one consisting of your mother and her partner and yourself (or other legal entities, eg a limited company etc). One way of confirming this is whether or not the VAT registered partnership has included income from both activities in its accounts and tax return. If the income from the 2 activities has been treated as income of different entities – eg 2 different partnerships, then the VAT assessment may be wrong.

But assuming that only one legal entity – ie the partnership of your mother and her partner – was involved, the important factor is that the partnership was registered for VAT and was therefore liable to pay VAT on all of their business income. Unfortunately I don’t see any way of getting around this, but there are a few things that might help to reduce the size of the VAT assessment:

• Assessments can normally only go back for 4 years, so check the dates that the assessment covers.
• Make sure that the assessment takes account of any input tax relating to the “unregistered” business activity over the relevant period.
• It might be worth asking HMRC if they would consider allowing the partnership to use the VAT Flat Rate Scheme (“FRS”) retrospectively. The FRS allows small businesses to calculate their liability using a single (usually reduced) VAT flat rate rather than calculating the difference between output tax and input tax. See VAT Notice 733 for further details about the scheme – it’s on the HMRC website. They don’t normally allow the scheme to be used retrospectively but in your case, it seems that there has been a genuine misunderstanding and it’s always worth asking.

As with all replies that I give here on the forum, the comments are only for general information and shouldn’t be relied upon as formal advice about your situation. I have real sympathy with small businesses as I know that they are normally working on tiny margins and often can’t afford to take formal advice or employ an accountant. But in cases such as yours, I strongly recommend that you invest in some help from a good local accountant to be sure that the VAT assessment is correct and to help ensure that future problems like this are avoided.

Marie
25 January 2011

[Marie Stein]

Status of student accommodation

I’ll answer your last question first as it’s actually fundamental to your query.

Under current VAT legislation, student accommodation isn’t treated as a dwelling, but as a type of relevant residential property (“RRP”). RRP is a separate category to dwellings within the VAT legislation but is entitled to many of the VAT reliefs as dwellings. There are some differences so for the purposes of this post, I’ve only referred to the RRP category of properties.

The current treatment has been in place since 1981, when VAT was introduced on most commercial property costs and the option to tax was introduced in the UK. Prior to 1981, the only distinction was between dwellings and non-dwellings so you’d be right in thinking that student accommodation was probably treated as commercial property prior to that date.

The 1981 changes brought the UK VAT and property rules into line with the EC Directive, which in principle means that commercial property is liable to VAT, whilst dwellings and properties which fulfill certain social functions are entitled to certain reliefs from VAT. This latter category is defined within the UK legislation as 2 specific types of property; first RRPs and second, properties that are used for “relevant charitable purposes”.

See section 14.6.1(d) of HMRC VAT Notice 708, Buildings and Construction http://tinyurl.com/66v7yb2 which lists the types of property covered by the RRP category, which includes student accommodation.

In your case, it’s important to establish that the property falls within the RRP category as it’s this treatment that would allow you, the purchaser, to tell the vendor that the option to tax can be disapplied.

Disapplying the option to tax

You are correct that the VAT 1614D form can be used to request the vendor to “disapply” the option to tax if you purchase a building that is to be used or converted for use as relevant residential purposes. The information is contained in VAT Notice 742a: Opting to tax land and buildings which is here http://tinyurl.com/3g32uz.

Information about disapplying the option is at section 3 of the notice, section 3.3 refers to RRPs and specifically includes “student halls of residence”.

Section 3.4 of the notice explains about the certificates and specifically that the certificate must be given to teh vendor “before the price for the grant to the recipient by the seller is legally fixed, for example by exchange of contracts, letters or missives, or the signing of heads of agreement.” So make sure that you get any such certificate sorted out well in advance of reaching any agreement on price.

Effect of disapplying the option for the vendor

It’s worth remembering that one effect of issuing a certificate is that the vendor may end up having to repay to HMRC some or all of the VAT that he has paid relating to the property – perhaps on the original purchase or build cost. In practice, this often means that vendors look to pass on by increasing the overall cost of the property so that instead of perhaps charging the property cost of £1m plus VAT of £200,000, the cost of £1m may increase to cover his own VAT cost. This would almost certainly be less than the 20% VAT he’d have to charge if the option weren’t disapplied, but I’ve seen situations where vendors might end up increasing the cost by anything from say 1 – 10% to cover their own VAT costs.

I hope that makes sense – it isn’t that you’d be paying VAT of 1 – 10%, its simply to illustrate that the vendor may try to increase the property cost by sufficient to cover his own VAT costs.

VAT liability of construction work

The other issue that you might want to read up on is the VAT liability of the conversion work as it would obviously affect the cost of the whole project. That’s contained in VAT Notice 708: Buildings and Construction. Section 7 of the notice explains when conversion work can be liable to VAT at the reduced rate of 5%, which is a big saving especially now that the standard rate is 20%. I believe you need to issue a certificate to the builder to get the reduced rate, the information is in the notice. But again this is something you need to sort out in advance.

As with any post on the forum, this should not be regarded as definitive advice relating to any specific transaction, but as a summary of the VAT issues that normally apply in such cases. I’d be happy to give tailored advice through my formal consultancy service.

Marie
13 January 2011

[Marie Stein]

Not sure who I’m talking to here as there seem to be questions about 2 different sides to the same issue……but as both seem to be about the fact that the VIES system and what to do if you’re waiting for the registration to show up in VIES, here’s some information that might help.

In VAT Notice 725: The Single Market (which deals mainly in matters relating to supplies of goods, but some of the information also applies to services, such as the VIES), HMRC says the following:

If you are uncertain whether the number you have been given is valid you should make sure it follows the format at paragraph 16.17. As a preliminary check the validity of a customer’s number can be confirmed via the Europa website.
All Member States share these arrangements and businesses in other Member States can verify a UK VAT registration number in the same way.
From 1 January 2010 Europa will also provide name and address details for valid UK VAT registration numbers. Additionally, if when making an enquiry you identify yourself by entering your own VAT registration number, you will be able to print out a validation record of the date and time that the enquiry was made and confirmed. If it later turns out that the customer’s number was invalid, e.g. the tax authorities database was not up to date, you will be able to rely on the validation record as one element to demonstrate your good faith as a compliant business and, in the UK, to justify why you should not be held jointly and severally liable for any VAT fraud and revenue losses which occur.
We further recommend that you consider regularly checking your EC customer’s VAT registration number to ensure that the details are still valid and the number has not been deregistered.
Alternatively you can contact the VAT Helpline on 0845 010 9000 (see paragraph 1.2). to validate your customer’s VAT registration number and verify that the name and address is correct.

Further and more detailed information is in VAT Notice 742A: Place of Supply of Services which is here http://tinyurl.com/6eplhfu, see sections 19.2 – 19.4.

Basically both notices explain that you while the first place to check is VIES, you can also rely on normal commercial evidence to support the fact that your customer is registered for VAT and HMRC will not normally penalise you for failing to charge VAT; section 19.4 mentioned above says:

Where verification has been undertaken and the details provided were believed to be
correct at that time, but subsequently the customer is found to have made a false
declaration, HMRC will not seek to recover VAT from you, the supplier, where it was not
charged to the customer. This does not apply if there was reasonable information at the
time of the sale to indicate that the customer’s information was incorrect. HMRC’s
treatment of such cases will be subject to periodic review.

In practice, by the time HMRC carries out any review, you’d normally find that the number is on the VIES system so there isn’t an ongoing issue. However if you’re in doubt, you can always charge VAT to the customer and then refund it once you can verify the number on VIES.

Marie
13 January 2011

[Marie Stein]

Hi Harold

The normal rule is 4 years, so you should be in time to make a claim. I assume that you’ll be looking at no more than maybe £100 – £200, so you should be able to claim it on your current return.

If it’s more than £10k, you might need to make a separate claim to HMRC if it relates to previous VAT return periods. Here’s a link to the VAT Notice that explains about adjusting errors on previous VAT returns: http://tinyurl.com/6ebb33g in case you need further information about this.

One point is that if you submit a repayment return or claim and don’t have any output tax (ie VAT on sales), HMRC might query the claim and want to come and inspect your records. Probably not if it’s a small amount of money, but I have known them to inspect claims of around £100 in the past! Just make sure that you’ve got the relevant invoices etc to back up your claim.

Marie
13 January 2011

[Marie Stein]

Hi Jooles

First of all, I apologise for the delay in replying to your query – things became busy during the run up to Christmas and I’ve only just caught up. However, I think it may be to your benefit. Since your initial query, I had a query from an accountant about a client of his who was in a similar situation. I did some further digging into the subject and found some information that should help both of you.

As a VAT consultant, my clients are almost always businesses and over the years, I’ve only ever given very general advice to clients claiming VAT through the DIY Housebuilders scheme. Most of these situations – and there haven’t been very many – have been very straightforward, so I’ve never really had to look beyond the basic practical stuff of helping clients to prepare the claim etc.

But with 2 similar situations in a short space of time, it seemed to me that there must be other people who’ve been stuck because of not being able to sell their existing homes, or other changes in circumstances, who have had to reconsider their plans for the new property. I had a dig round and found some very interesting information in the HMRC internal guidance (or manuals, to give them their proper name) which applies to these sorts of situations. Their internal guidance used to be available only to their staff, but can now be accessed by the public through http://www.hmrc.gov.uk. I normally don’t recommend that people refer to this guidance as it assumes a working knowledge of VAT, but the section about DIY Housebuilders is quite readable and not too long, so you should be able to follow it quite easily.

I have written an article which is here on the website https://vatexchange.co.uk/DIY-Housebuilders-claims-jan-2011XXXX which summarises the main issues and I think you will see that it deals with your circumstances pretty well. I’ve explained what to do when submitting your claim and set out the relevant links to the guidance for you to quote. Don’t be put off by someone telling you that the claim won’t be considered because it was linked to a possible business – that’s not correct and you have to insist that they consider your claim in the light of the information contained in their internal guidance.

The important point is that the guidance explains how the scheme can be used by DIY Housebuilders whose circumstances change and have to consider other options about how to use the property once it is completed, even though their ultimate intention and preference is to live in it. So read the article and have a look at the guidance and I think you’ll find what you need to deal with your claim.

I wouldn’t normally go into this level of detail or spend this much time on a forum query but I do believe that you’ve been given misleading advice from HMRC and I get really frustrated when this sort of thing happens. As I’d not dealt with this situation before, I’ve never had to dig deeper for information about the subject so didn’t know what the HMRC guidance contained, but we all learn something every day! And the information I’ve found will help anyone else who is in a similar situation in future.

Let me know how you get on with it all and good luck with your claim.

Marie
13 January 2011

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