[Marie Stein]

Well that’s a lot of questions which would take me about a week to answer! Thankfully HMRC have written a useful leaflet called “Should I be registered for VAT” which is on their website here http://tinyurl.com/396kxa which deals with all of these practical issues, including when to register for VAT and when to start charging VAT.
I’d recommend sitting down with a cup of coffee when you have half an hour to spare to read through the leaflet – it’s not particularly long and is written with the layman, rather than the VAT expert or accountnat, in mind.

One point I would make though is that you mustn’t ever charge VAT unless you’re registered for VAT – to do so is an offence and you have to pay it to HMRC even if your customer doesn’t pay! Section 4 of the leaflet explains in detail how and when to start charging VAT.

This should give you the information you need but let us know if you’re still confused about anything in particular.

Marie

[Marie Stein]

I know that the leaflet doesn’t help very much but you have to start somewhere! The purpose of the forums isn’t to give you specific advice about whether or not to charge VAT on your sales – the forums are for general guidance only and to help you find the answer yourself. At the end of the day, it’s your business and you have to decide whether or not your supplies are liable to VAT. But I know that VAT on takeaway food sales has always been a very difficult subject as the legislation is somewhat confusing. Every single take away/catering food business I have advised over the years has slightly different issues and I wouldn’t be doing you any favours if I oversimplified things.

Unfortunately the VAT leaflets don’t always help and to make things more difficult, there have been several VAT Tribunal cases about the VAT liability of food over the years with what often seem to be contradictory rulings. There is some more detailed information in the HMRC internal manuals here http://www.hmrc.gov.uk/manuals/vfoodmanual/VFOOD4000.htm which you should find to be more useful than the leaflet.

You’ve asked a very specific point about what constitutes a verbal contract and when you should charge VAT when a customer rings up to make a specific order. There isn’t any specific guidance in the leaflet about what constitutues a contract or agreement if a customer rings up and asks for a particular sandwich to be prepared for collection or delivery, so we have to look at other factors.

As you know, you have to charge VAT on the sale of cold food in certain circumstances, including if it is supplied in the course of catering. “Catering” has been defined as the provision of food at a particular set of premises and/or with some element of service, eg the provision of waiters etc. The sale of cold take away food that is zero rated in its own right – (for example sandwiches, where as confectionary is always standard rated) is zero rated as long as it is for consumption elsewhere where there is no element of catering. If I ring my local sandwich shop and ask them to prepare a specific type of sandwich or sandwiches which I collect and consume elsewhere, then they shouldn’t charge VAT.

As you say, though, the leaflet is less helpful where you deliver to a customer at their premises. The leaflet isn’t particularly helpful, it says: “If you take sandwiches, or other items of food and drink, to buildings in order to sell them, but have no contract or agreement to do so, this is not a supply in the course of catering and you can zero-rate any item that is eligible ” (VAT Notice 709/1 paragraph 2.2.2). But it doesn’t explain what is meant by “contract or agreement” – does that mean a written contract or a simple verbal agreement?

This is exactly the sort of issue that has been considered in the VAT Tribunals – see the HMRC internal guidance here http://www.hmrc.gov.uk/manuals/vfoodmanual/VFOOD4600.htm which explains the rulings given in Zeldadine Limited and E & G Catering Services Ltd.

You’ll see at the end of the page in the HMRC guidance there is the following advice to VAT Officers to help them decide whether or not there is a supply in the course of catering:

“Where a trader’s business is similar to the above situation (selling to individuals from baskets, a mobile van or mobile trolley), and sales are made on what might be called a casual and roving basis, you should apply the following criteria:

* does the trader have any verbal or written agreement with any of the occupiers, over and above the permission of reception staff, to enter the premises, and
* is the trader bound by any contractual agreement to supply the occupants?

If the answer is no to both of these questions, it is likely that the situation is similar to the Zeldaline case and it is not one of catering.”

In other words, if your agreement to deliver to your customers falls within either of the above criteria, then HMRC would expect you to charge VAT. I suspect that in your circumstances, HMRC would take the view that your verbal agreement to deliver specific items would put you into the first category, in which case you should charge VAT.

I hope this helps you decide whether or not to charge VAT. If you’re still unsure then you might prefer to play it safe and charge VAT on any delivered orders. The downside to that is that adding VAT might put you at a competitive disadvantage to other local suppliers if they don’t charge VAT, but at least you wouldn’t be worrying about whether or not HMRC could come along and assess you for underdeclared VAT at a later date. Alternatively, if you think that the supplies should be zero rated but you want certainty, you could always write to the VAT office for a formal ruling explaining why you think that zero rating should apply to the supplies in question.

I wouldn’t normally go into this level of detail on the forum but the subject of take away food is difficult and I know that a lot of small food businesses struggle with VAT issues all the time because the legislation is difficult and it’s easy to fall foul of the rules.

I hope this helps you to decide whether or not to charge VAT, but if you need any further help, I would of course be happy to provide tailored consultancy advice through my consultancy business, VAT Exchange Limited.

Marie

[Marie Stein]

You need to have a look at VAT Notice 709/1: Catering and Take-Away Food here: http://tinyurl.com/yfglxdb on the HMRC website. It’s not a very long notice and quite easy to read and you should find the information you need to sort your pricing out. The notice covers most situations about the VAT liability of take away food and catering issues, eg paragraph 2.2.2 deals with delivered sandwiches.

Marie

[Marie Stein]

Hi Sean

The basic rule is that you only charge UK VAT if the supply takes place in the UK, so you have to establish where the “place of supply” is deemed to take place.

If the event falls within certain categories as defined in the legislation and is held outside the EC, then the service is not liable to UK VAT even if the attendees are from the UK and the invoice is issued to a UK company. So you have to establish whether the event itself falls within the categories concerned to decide whether or not the place of supply is in the UK or not.

You don’t say what sort of event is involved but I assume that you’re talking about something that falls within the categories of “cultural, artistic, sporting, scientific, educational, entertainment or similar activities (including fairs and exhibitions)”. These are the categories that are listed in the legislation so you need to establish whether the event falls within these headings.

Detailed guidance about this subject is included in the VAT Notice 741 “Place of Supply of Services” on the HMRC website. In particular Section 8 deals with the place of supply of events and explains in more detail the types of events that are included and will help you to decide the place of supply of the event concerned. Here’s the link: http://tinyurl.com/ygqwatj.

One thing though is whetehr or not there is a Abu Dhabi VAT system and you should be charging local VAT because the event is held there? I’m not sure about this so I’d suggest that you discuss this with your contacts in Abu Dhabi.

Hope this helps
Marie

[Marie Stein]

Hi Frank

I assume that the reason you want to register the export part of the business is to enable you to purchase the mechanisms free from German VAT?

There are a lot of issues involved here and I’d suggest that you discuss this in detail with your accountant before deciding how to proceed as I can only explain the main principles here.

First of all, where VAT is concerned it is the “person” who is registered for VAT, not the activity. You mention that you’ve set up the export part of the business as a “separate business” – do you mean that you’ve set this up as a limited company or separate partnership?

If all of your business activities are currently carried out by yourself as a sole proprietor (or any other legal entity), then registering for VAT will cover all of your activities, not just the export activities. This means you’d have to charge UK VAT on UK sales, although of course you’d be able to offset this against the VAT that you pay on your other purchases and expenses.

Second, there are rules against splitting up business activities to avoid VAT registration or paying VAT on certain business activities. These normally apply where the owners collectively – such as yourself as a sole proprietor and your limited company/partnership – would be registered or liable to register for VAT because your turnover exceeds the VAT registration limit (currently £68,000).

So if your total turnover from all of your sales – UK, EC and non-EC sales – is £50,000 per annum, then you should be able to hive off the non-EC business into a separate company/partnership and register that entity for VAT without affecting the rest of your business. However if and when the total turnover of all your business activities exceeds the registration limit and you don’t pay VAT on your UK sales because these are carried out by a separate entity, then HMRC can require you to pay VAT on all of your income.

HMRC do regard this type of arrangement as avoidance and strongly recommend that you take some proper advice about how to proceed. Their VAT Leaflet “Should I be Registered for VAT” explains the rules in further detail and you should look at section 13 which contains their statement of practice about the subject, here’s the link to the leaflet: http://tinyurl.com/yzqxqq4.

Marie

[Marie Stein]

Hi Argumental

There are probably no easy ways of dealing with this and it’s one of those situations where the longer he leaves it, the worse it could get.

HMRC have lots of ways of identifying businesses that should be registered for VAT – his tax return will probably prompt queries and of course there are various penalties that can be levied for failing to register at the right time and these increase the longer the delay. But the penalties can be reduced if the taxpayer volunteers the information and co-operates with their queries or if there are good reasons for failing to register at the right time.

First he has to establish exactly how much VAT he owes. He might want to get a good accountant to help out with this as at the minute he’s probably doing back of the envelope calculations and maybe overestimating his liability.

I don’t know what sort of business he is in but if his business is taxable rather than exempt from VAT then he should be able to offset the VAT that he owes on his income by the VAT on his purchases and expenses (ie input tax), so he might not owe as much as he thinks. Also if his customers are VAT registered businesses, they might be able to claim back their own input tax, which means that he may be able to issue VAT invoices to collect the VAT from them rather than pay the VAT from his income.

As far as payment is concerned, HMRC may be willing to allow him some time to pay the arrears. It’s a long time since I had to negotiate a time to pay arrangement with HMRC on behalf of a client but I don’t think that they are in the business of making people bankrupt unnecessarily so they may well be amenable to some sort of payment arrangement. If he goes to them voluntarily then they are more likely to agree to this.

There isn’t any easy way of dealing with this but the longer he leaves it, the worse it could get. If he was my friend, I’d tell him to go to the VAT office with his records and get the ball rolling to sort it all out.

Marie

[Marie Stein]

Hi James

Yes, it is necessary to amend any errors on VAT returns, which includes the box 6 value. I know that the HMRC notice about correcting errors 700/45 http://tinyurl.com/yly6sea doesn’t address this specific issue in any detail, but mistakes in boxes 6, 7, 8 and 9 are “errors” and should be amended.

If you are adjusting an output tax or input tax error from an earlier return on a current return, then you can adjust the corresponding box 6 – 9 value at the same time.

Marie

[Marie Stein]

Hi Neil

Well actually in this case your client is probably right. Even though his company is a UK limited company, in this case the deciding factor is what happens with the goods.

You mention that the client wants to engage your “services” but in fact it sounds as though you will be making a supply of goods – albeit that you might carry out work on some of the goods to alter them to your clients’ specifications. So I assume that your contract would be for the sale of the goods and not for services. I’ve set out below the main rules for the export of goods and where to find further information on specific situations in the HMRC guidance.

In principle the supply of goods to a customer outside the EC is an export of goods and can be zero-rated if certain criteria are fulfilled, which are normally that the goods are exported from the UK and you receive proof of export within 3 months of the date of your supply.

Information on exports is in the VAT Notice 703, which is here http://tinyurl.com/y8klfds on the hmrc website. The notice is a bit of a minefield if you don’t know what you’re looking for, but if the customer organises delivery, then the transaction is regarded as an “indirect export” and the main rules for dealing with indirect exports are in sections 3.4 and 3.5 of the notice. In this case the supplier needs proof of export as explained in section 6.6, which deals with the evidence required when the good are supplied ex-works and the customer arranges the export. They include a list of information that can be used to substantiate that the goods have been delivered to a customer outside the EC.

The downside is that as the supplier it would still be your liability to pay the VAT if the goods don’t leave the UK or you don’t have proof of export within the 3 month time limit. HMRC suggest that you ask the customer to pay a deposit equal to the value of the VAT and refund this once you’ve received proof that the goods have left the UK. Sometimes this sort of thing is written into sales contracts to make sure that the customer provides the relevant proof of export.

I hope this helps you find the answer to your query but it’s probably worth confirming the exact details of the transaction with your accountant if it’s a large value contract or if you’re in any doubt.

Marie

[Marie Stein]

Hi Anna

Sorry I can’t help very much as your query is about Danish VAT and I don’t know the Danish rules. But I assume that you can have a look on the Danish Revenue’s website for further information?

I’ve listed below a few issues that would apply if the sale were being made in the UK and I assume that similar principles may in Denmark.

• First, you don’t say whether you are registered for VAT or carrying on any business activity. This might be relevant because if the sale is a “private” sale rather than a business transaction then it might not be liable to VAT.
• Second, if the sale is a business transaction then it might qualify under the “Margin scheme” whereby you only pay VAT on the profit margin, but you don’t issue a VAT invoice to the purchaser.
• Third you say that the purchaser might be European but not Danish. If the purchaser is a business and will be exporting the aircraft from Denmark then the sale might qualify for zero-rating (ie VAT free) as an EC despatch. If the aircraft is being exported outside the EC, then it might qualify for zero-rating as an export whether or not the purchaser is a business or a private individual.

I’d suggest that you start by having a look at the information issued by the Danish Revenue service about these issues to see if you can find the answer. Otherwise as the value of the sale will be significant, it is probably worth investing in some formal advice from a Danish tax consultant or accountant to ensure that you get it right.

Marie

[Marie Stein]

Hi Mike

You can only recover the VAT on the original invoice if the VAT on it is your input tax. In your case, I suspect that it isn’t your input tax and I’ve explained why below.

I assume that the original bill was issued to the subcontractor and was for materials or expenses that he incurred in the course of providing his services to you. In this case, the VAT wouldn’t be your input tax so you can’t claim it. However it’s possible that the subcontractor has overcharged you by including the gross value of the original bill on the final invoice instead of the net amount in error.

It’s normal for contracts to state that if the subcontractor is registered for VAT (as is yours) then he can only charge you the VAT exclusive value of any such expenditure that he incurs. This is because he can claim the VAT on his purchases or expenses as input tax on his VAT return.

What sometimes happens is that subcontractors charge the gross amount of their bills in error even if they’ve already claimed the VAT on their VAT returns. In this situation, the VAT on the original bill is still not your input tax and you can’t claim it on your VAT return. But under the terms of the contract, you could ask the subcontractor to reduce the net amount of his invoice by the VAT on the bill as he has claimed this as input tax on his VAT return.

Suppose the subcontractor’s final invoice is for £1,000 plus VAT of £150 (based on the current VAT rate of 15%). The £1,000 includes £770 for the subcontractor’s labour plus materials/goods that cost £230. The £230 is VAT inclusive and includes £200 for the goods and £30 VAT.

Under normal contractual arrangements, this means that he should charge you the net amount of £200 for the goods as he’s been able to claim the £30 VAT as input tax. So his final invoice to you would include £770 for labour plus £200 for materials, ie £970 plus VAT of £145.50.

So you need to check out the terms of your contract to see whether the subcontractor is entitled to charge you the net or gross amount of his invoices. You might need to ask your solicitor for advice if the situation is still unclear.

Finally, I mentioned that you could only claim VAT on the original bill if the VAT was your input tax. This would only apply if you purchased the goods/materials and the invoice is issued to you and not the subcontactor. For example, you may have asked the subcontractor to purchase goods on your behalf on condition that you would re-imburse him the cost when he issues his final bill. If that is the case here and the £230 original bill was issued to you, then the £30 is your input tax and you can claim it back under the normal rules.

Not a simple yes or no answer but I hope it clarifies the VAT position and helps you sort it out.

Marie

[Marie Stein]

You will find the information that you need on the HMRC website (www.hmrc.gov.uk) in the following publications:

VAT Notice 741:Place of Supply of Services – see section 16 which explains which services which are liable to the reverse charge.

VAT Notice 725: The Single Market: This deals with the movements of goods within the European Community and the application of “acquisition VAT” on goods imported by EC businesses from other EC countries.

The best place to get up to date VAT rates for different countries is on the EC Commission website. Here is a link to a page listing the rates country by country:

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

There is a lot of information in those publications so I hope you find what you are looking for!
Marie

[Marie Stein]

Hi Shotokan

I think you’re absolutely right. See my comments about the subject in my article here https://vatexchange.co.uk/forum_separating_businesses_to_avoid_VAT for further information about the subject.

In the situation you describe, there is no doubt in my mind that HMRC would regard the situation as VAT avoidance and treat the businesses as a single entity which should have been registered for VAT from the date on which the original registration is cancelled. They regard such situations as avoidance and disagreggation is included in the VAT Notice 700/8: Disclosure of VAT Avoidance Schemes, see section 4.3.2 which specifically deals with disaggregation as avoidance.

From a practical point of view, your friend is correct that HMRC would have to be aware of the situation before issuing a direction or backdating a new registration. But they are good at identifying such businesses so you can’t assume that the business would get away with it indefinately. And bear in mind that they already have details of the existing business and it wouldn’t be too difficult for HMRC to identify the fact that the business is disaggregating when it cancels its existing registration.

I can understand that small labour intensive businesses feel that they are at a disadvantage as far as VAT is concerned, having to pay 15% or 17.5% VAT from their relatively low income is a large cost for them. I’m also aware that many small businesses “get away with it” when it comes to avoiding VAT registration and I can understand why your friends want to try for themselves.

Make sure that they are taking advantage of any schemes to minimise their current VAT liability, in particular the Flat Rate Scheme, if they aren’t already using it.

Also bear in mind that while they might benefit from the cashflow benefit of not paying VAT in the meantime, the total cost and hassle of sorting it out as and when HMRC do become aware of their situation could be significantly more expensive.

Marie

[Marie Stein]

Hi Bill

No, it doesn’t make any difference whether Google invoices you from the US or Ireland, if you are importing the services for business purposes you have the follow the reverse charge rules regardless of whether the supplier belongs in the EC or outside the EC.

Incidentally the reason that some overseas suppliers charge VAT – and the reason that Google is registered for VAT – is because of the agreement whereby non-EC suppliers of certain electronic services register for VAT in an EC country of their choosing and charge VAT to non-business customers. Otherwise EC suppliers would be at a disadvantage by having to charge VAT to non-business customers whereas non-EC suppliers would be able to sell their services VAT free. Many of them assume that if you are not registered for VAT, then you are receiving the services for non-business use and charge VAT, which is probably why Clickbank adds VAT to your bills.

Have a look at VAT Info Sheet 07/03 on the HMRC website for further information on the scheme.

Kind regards
Marie

[Marie Stein]

Hi Bill

I’m glad that you found the article helpful.

You’ve actually raised a very interesting point about reverse charge services. As you rightly pointed out, if you are not registered for VAT then there is no mechanism for you to account for reverse charge VAT. So in practice, businesses such as yours acquire these services “free” of VAT.

However there is one further important principle. As you know, the effect of the POSS rules is that the place of supply of the imported services is the country of the recipient and the recipient is treated as both making and receiving the supplies concerned. This means, among other things, that the recipient of the supply must treat the value of supplies received as his own supplies for the purposes of VAT registration.

So, if the value of your own taxable supplies is £55k per annum and you pay Google £15k per annum for advertising services, then the total value of your supplies would be £70k per annum, which is over the VAT registration limit. You would be required to register for VAT, charge VAT on taxable supplies made in the UK and include the reverse charge VAT on the imported services on your VAT return. This is explained in VAT Notice 741, section 16.10.3: “What if I am not already UK VAT registered and receive these services?”.

But if you are not registered for VAT or required to register for VAT, then you don’t have to account for VAT on the imported services. Just keep an eye on the value in case it takes you over the VAT registration limit.

Kind regards
Marie

[Marie Stein]

Hi Cris

Just seen your query and I won’t have time to reply properly today. But the rules about VAT and motor vehicles or any other goods are different to those relating to services. If you want to start reading up on the subject, you can look at VAT Notice 725: The Single Market, which deals with the sale and purchase of goods between businesses in different EU counties. You can download the notice from the HMRC website: http://www.hmrc.gov.uk.

Read the section about “Despatches” and “Acquisitions” of goods to/from other EU countries as this explains how the EU VAT system works for intra-EU sales of goods.

I need to know a few things before I can help with your specific queries – is your client registered for VAT in the UK or in any other countries? Also, you say that the client sold cars to purchasers in other EU countries – was this to a business customer or a non-business customer? This is important as the EU arrangements differ according to whether the customer is business or non-business (eg a private individual).

Kind regards
Marie

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