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Navigating VAT Complexities: Tips for Avoiding Costly Mistakes
25 July 2024
Accounting & Compliance, Building & Construction, Cloud Accounting, Reducing Tax, Structuring a Business
VAT rules are notoriously complex, leaving many businesses wondering about the correct rates to charge and what they can reclaim.
Getting these details right is crucial, as mistakes can lead to owing money to HMRC in the event of an inspection.
In this article, we delve into the top VAT complexities and what needs to be considered when looking at the VAT treatment.
Have you charged the correct amount of VAT on your sales?
It isn’t always 20%!
The VAT rate you need to charge can vary depending on the type of business, type of sale or type of work carried out.
In the construction industry we regularly see projects that can be charged at 20%, 5% or 0%.
It’s important that the correct rates are charged based on what work is carried out and that the correct evidence is obtained.
As always, these rules do not apply in every situation.
There are certain cases where the VAT rate will always be 20% even if everyone else on the project can charge 5% or 0%.
Caution
Remember that with VAT charged on sales, generally it is your responsibility to get this right not the customers and any own goals here could result in large liabilities due to HMRC.
VAT recovery
We need to be careful that the VAT we recover is allowable and at the correct VAT rate.
Have you been charged 20% by a builder on a conversion that should be 5%?
HMRC won’t allow the full 20% to be recovered.
Have you recovered VAT on white goods for a new build?
Again HMRC won’t allow this.
Paid for some tickets to take a client to an event?
The VAT cannot be recovered.
Taken over another business as a going concern?
This transaction is exempt from VAT, you should not be charged VAT for this.
General rules don’t always apply.
It is easy for people to assume that every cost has VAT on and it is allowable.
However the VAT rules can be specific in many cases and a general rule will not apply.
Place of supply
Do you know where in the world your services are deemed to have taken place?
Depending on if this is for private individuals or businesses and the type of work you doing, can change the rules on where you supply is deemed to have taken place and therefore what your UK VAT liability would be (this could be Nil!).
However, you will also potentially have to consider what your VAT liability is in the country you are dealing with, depending on their rules, this can sometimes also be Nil!
Imports/Exports
Do you have all the relevant information in place for your imports & exports?
Do you have an EORI number?
This is needed and can be applied for with HMRC.
Do you know who the named importer is?
From a UK perspective this can determine
a) who has to pay the import VAT and
b) where you have sold the goods from and therefore what your UK VAT liability is.
For exports, if you are the named importer into the non-UK country, you could have issues with taxes in that country depending on the rules & regulations.
Do you know about the VAT postponed accounting?
This can enable you to declare import vat on your VAT return on boxes 1 & 4 rather than paying the VAT up front and recovering when you receive a C79 form.
This can have huge savings on cashflow!
Option to tax
When buying a commercial property, you need to be aware of the current situation.
For example – is the property opted? And what are you required to do before purchasing?
I say before purchasing above because it can become a lot more complex if you decide to act retrospectively.
HMRC can reject any applications that are belated if they do not believe that the facts are correct.
You may need to opt to tax the property before purchasing so that you can recover the VAT on the cost.
Will this be a transfer of going concern?
This could save on the cashflow of not paying the VAT upfront.
Could you apply to disapply the option to tax on the building?
In some cases this can be favourable to the buyer as there would no longer be VAT charged on the sale of the building.
If you cannot recover the VAT, we want to try to remove the charge when we can.
Domestic reverse charge
The rules for DRC have been around for a while now, however we still see people getting this wrong.
It is your responsibility as the customer to ensure that any invoices provided to you by a subcontractor are accounted for correctly.
It is you who would be liable to repay any VAT recovered in error in the event of an inspection.
You need to make sure that you are comfortable with the supply chain and where you fall.
Are you the end user? Are you a contractor?
The VAT rules will differ in both cases and it falls on you not the supplier to make sure that this is correct.
HMRC are looking for people who have underpaid or overclaimed VAT, they aren’t going to be chasing people that have overpaid or underclaimed!
Have you missed an opportunity to VAT register?
Going back to the first section, there are many cases where your sales are not 20%.
This can be used to your advantage to recover VAT on costs and potentially results in quarterly refunds from HMRC.
If a company were to sell all of the goods to a country outside the UK, this would not count towards taxable turnover.
However in the UK, this would be taxable, this allows the company to VAT register as they are providing taxable supplies.
This would mean that the company could recover VAT on all taxable expenses without having any liability on sales.
Similarly, in the property world, there are many VAT opportunities with reduced and zero rated sales that would allow for VAT recovery.
This can be crucial for cash flow as well with additional cash injections from VAT refunds.
Contact us
If you have any concerns or have a complex VAT issue which needs addressing please get in touch.
Our Services
We offer both bookkeeping services and VAT review services to help ensure that your VAT returns are compliant.
To read more about our services please see our related pages below:
Blogs related to VAT
Take a look at our other blogs on the topic of small business VAT:
Unlocking the VAT Advantage in the Property Construction & Development World
The content in this blog is correct as of 25th July 2024. See terms and conditions.
