Slide 1 - the Outdoor North Wales Forum

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					  SHOULD YOU PAY VAT?




Glen Hickerton
                                    Warning!
•   Whilst all due care and attention has been taken in the preparation of these notes,
    no liability can be accepted for any omission or item contained therein.

•   VAT is an enormous subject. It affects every kind of business.

•   No one person can be familiar with every aspect!

•   VAT is always changing.

•   On average, VAT law changes twice per month. (49 times in one year!).

•   Always check the law.

•   Carefully check the facts of your case.

•   If in doubt and the sum is a large one, take specialist advice.


          PLEASE DON’T SHOOT THE MESSENGER!!!
                     Back Ground to VAT
•   VAT originated in the EU.

•   It is considered to be relatively cheap and easy to administer.

•   VAT is supposed to simplify trade and reduce distortions between businesses
    in the different member states.

•   Rates of VAT are supposed to be converging throughout the EU,
    (but this is a very slow process).

•   UK and Ireland have far more zero rated items than any other member state.

•   VAT is charged by the supplier (Output tax for the supplier)
    and recovered by the customer at each stage of the commercial chain (input tax
    for the customer)

    until the final customer is reached (usually a private individual, or possibly a company
    or business which cannot recover VAT).

    Note that not all input tax is recoverable, the main example being VAT paid on the
    purchase of a car – except in very restricted circumstances.
                   Types of supply

There are six different types of supply:


                               Current Rate

•   Non Business Activity

•   Outside the scope

•   Exempt

•   Zero rate                  0% (but still taxable supplies)

•   Reduced rate               5%

•   Standard rate:             20%
                           Non Business Activity


For most businesses, it is unusual for it to receive monies for a non business activity,
(Except say as private individuals) however the following would do so:


1.          Local authority - business rates – which are really a local tax.

2.          Employees receive wages

3.          Charities, when they carry out their charitable activities and for e.g. receive donations.
                     (If charges are made, these could be subject to VAT).
                           Outside the scope
1.         Sales (mostly of services) for which the place of supply is treated
           as being outside the UK. VAT may or may not be recoverable.
           The rules are complex.

2.              Certain transactions such as:

           a)      A Government grant and SOME subsidies (not if paid in effect
                   to procure goods or services). This generally applies if nothing
                   needs to be done in return for the grant. However, if a service is
                   provided in return then the monies may be taxable.
           b)      Transactions between companies within the same VAT group.
           c)      Goods located outside the UK at the time of supply.
           d)      Transfer of a business as a “going concern”.
           e)      Compensation e.g. paid by insurance company in respect of
                    damage of a property.
           f)       Disbursements (exact sum paid out on behalf of client)

•    For most businesses, the outside the scope costs are wages and local authority rates,
     and there are no outside the scope supplies.
                                Exempt
No VAT is due on supplies which are in the exempt category, but then no input VAT is
reclaimable.

This is the list of groups which are exempt from VAT:

1.          Land
2.          Insurance
3.          Postal services
4.          Betting gaming and lotteries
5.          Finance
6.          Education
7.          Health
8.          Burial and cremation
9.          Trade unions, professionals and other interest bodies
10.        Sports, sports competitions and physical education
11.        Works of art
12.        Fund-raising events by charities and other qualifying bodies
13.        Cultural services etc.
14.        Goods on which input tax recovery is blocked (e.g. sale of second hand car).
15.        Investment gold
                                      Land
Exemption covers the grant of any interest in (i.e. can be a sale or a lease)

right over (e.g. right of way, mineral right) or

any licence (a licence does not have to be in writing)

to occupy (no specific period – could be a couple of hours)

land (area of any size),

other than….

And then there is a long list of exceptions, for which the standard rate applies.

“Occupy” is the exclusive occupation of a specific area as distinct from the mere right
 to use a place for a particular purpose.
                        Land continued

If the rent is exempt and the landlord can therefore not recover the VAT incurred
on work on the property but the tenant can, the landlord should consider negotiating
a tenant repairing lease, rather than a landlord repairing one.

(Note that the landlord cannot specify the work to be done, otherwise the value of the
exempt rent will be increased).

(The same would apply to a rent free period at the start of the lease).

If a tenant sublets a property without the landlord’s permission, HMRC
regard this as a standard rated supply, because there is no right of
occupation held by the third party.
              Land: Exceptions to exemption
1.   Sale of freehold commercial and or industrial buildings, if still under construction
                or
     within three years of completion

2.    Sale of sporting rights (unless included in freehold). A lease which includes sporting
     rights must be apportioned.

3.    Hotel, B&B, Inn, furnished houses or flats for use by visitors or travellers,
     together with
     any room provided in conjunction with the sleeping accommodation or for the purposes
     of a supply of catering – even if these are priced separately. (e.g. a wedding reception).

     Note that the definition even included a hostel for the homeless.

     HMRC have accepted that the use of a room for a conference or a function is exempt
     (even if those attending have a meal and/or sleeping accommodation).

     28 day rule for long-stay accommodation

     Once a stay exceeds 28 days, the value subject to VAT reduces to that of the facilities
     provided (e.g. cleaning and linen – the minimum value of this is 20%). VAT must also be
     attributed to any meals provided. The balance of the charges is outside the scope of VAT,
     not exempt.
            Land: Exceptions to exemption

4. Holiday accommodation – includes and house, flat, chalet, hut caravan, or tent.

     The sale/lease premium of a holiday property is standard rated until the property
     is over three years old, and then it is exempt – unless it is opted to tax.

5. Seasonal pitches for caravans and associated facilities at caravan parks.

6. Pitches for tents and camping facilities.

7.   Parking facilities:

     If a lock-up garage is to be used for storage, the tenancy agreement must expressly
     forbid the parking of a vehicle!
             Land: Exceptions to exemption

8.    The right to fell and remove trees

9.    Housing/storage/mooring of aircraft, ships or boats

10.   Boxes, seats, etc at sports grounds, theatres, concert halls etc.

11.   Facilities for playing sport or participating in physical recreation. However, note
         that a grant of sports facilities for more than 24 hours, or for a series of ten or
         more periods (no matter what the total time is) will, put the hire of the facilities
          back into exemption provided that:

               I.     They are for the same activity at the same place.
               II.    At intervals of at least a day but not more than 14 days.
               III.   Under a written agreement for a single price.
               IV.    For exclusive use of the facilities.
               V.     The customer is a school, club or association or organisation representing
                      affiliated clubs or constituent associations.
                         Insurance premiums
The exemption includes a block insurance policy which allows the policyholder acting in his
name to buy insurance for third parties on terms with the insurer and the third parties under
which he then recharges the insurance to those parties. The policy may include cover for the
policyholder’s own liability to its customers or members. Examples include a sports organisation
which provides its members with cover against the risk of injury or liability to another
person whilst taking part in an event.

However, if insurance is sold in connection with a standard-rated supply of goods or
services, by the supplier thereof (or a person connected with him who deals directly with the
customer) the insurance related services are standard rated unless the amount of the
premium and the amount of commission paid are disclosed to the customer. (To prevent
artificial pricing e.g. on exempt warranties).

A payment made by an insurance company or a broker to a third party is not necessarily
exempt, just because it concerns insurance, it could for example be regarded as advertising,
promotion (this is based on a British Horse Society case - it can qualify for exemption, but the recipient
has to do more than just include advertising material with its own mail-outs.) or consultancy (e.g.
valuation or loss adjusting services).
                              Education
Exemptions to an eligible body of education, research (if supplied to another
eligible body) and vocational training.

Eligible bodies:

Schools, colleges, universities, government departments, local authorities,
bodies such as charities (which must then plough back any profit made from
education).

Note that a trading subsidiary is not an eligible body.

Education is drafted very widely,
It includes holiday sporting and recreational courses, etc. (even courses
teaching subjects such as ballroom dancing, embroidery and motorcycle
training!) and vocational courses.

It must be led and directed, not merely be a supervised leisure activity (e.g. a visit
to the zoo, a swimming pool or a stately home). For example, there must be instruction in the use
of equipment and in warming-up techniques. However the mere presence of staff on health and
safety or insurance grounds is not enough.

It does not include plays, concerts, sports meetings or exhibitions.
                            Education
English as a foreign language course

Is exempt, whoever provides the services.

Includes all elements integral to the course, including sports, recreational or
social activities.

Private tuition

Is exempt, if it is in a subject ordinarily taught in a school or university by an
individual teacher acting independently of an employer. i.e by the principal of a
business, not an employee.

Standard rated if supplied by an employee.

This can be apportioned so that some income exempt and some standard rated
depending on the amount of teaching by each.

Note re the wide drafting of the word education as already discussed! Covers
teaching of virtually any sport or outdoor activity!
                                    Education
   Closely related goods or services

    Are exempt when supplied closely related to education, research or vocational
   training.

   The supply must be for the direct use of the student and supplied by an eligible body.

    Education, vocational training and, provided by the same person, any goods or services
   there are also exempt if ultimately funded by:

   1     The Learning and Skills Council
   2.    The National Council for Education and Training for Wales
   3.    A Local Enterprise Company
   4     European Social Fund

Note there are strict rules which would need consideration
Sports, sports competitions and physical
                education
 The following are exempt:

 1. Entry fees for competitions in sport or physical recreation where all the
    fees go towards prizes.

 2. Entry fees in such competitions charged by non-profit-making bodies

 3. Fees for playing sport or for physical education charged by non-profit-
    making bodies to individuals.

    This only applies to services essential to sport or physical education,

    Sales in the bar are standard rated!

    (If there is a membership scheme, charges to non-members are
    standard-rated).

    The third ones is very useful for genuine sports clubs etc. but beware
    anti avoidance rules which affect e.g. bodies which try and profit in a
    different way, such as via charging rents.
Fund raising events by charities and other
            qualifying bodies
  Supply of goods and services (including advertising to Sponsors) at a
  fund raising event of a charity or a qualifying body, whose primary
  purpose is fundraising and which is promoted as such is exempt.

  The exemption covers an individual event, as opposed to e.g. the
  regular opening of a charity shop.

   Again, there are complicated rules which would need to be looked at
  in detail,

   Two exclusions being:

   1. Fund raising holidays or day trips covered by the Tour Operators’
      Margin Scheme.

   2. Any event including more than two nights’ accommodation.
                               Zero Rate
No VAT chargeable on supplies, but VAT can be recovered on inputs.

The Terminal Markets Order zero rates transaction on a large number of terminal markets such
as those for metals, rubber, oil, bullion and foods. A highly complex and technical subject!

There are 17 groups of zero rated items


Includes:   food,

            books,

            construction of buildings,

            transport,

            caravans and houseboats,

            drugs and medicines,

            clothing and footwear

            and a variety of supplies either by a charity or to a charity.
                             Food
Zero rating for food is set out in the legislation in four parts:

1. General items – food is generally zero rated.

2. Some exceptions – standard rated (e.g. catering and beverages
   (includes items such as ice cream, frozen yoghurt and chocolate
   biscuits – but not cake with a chocolate layer! (Jaffa Cakes).

   Cases on sports energy bars, and on sports drinks (sports drink vs
   dietary integrator) have gone both ways some being accepted as
   zero rated, some standard!)

3. Exceptions to the exceptions – zero rated (e.g. drinks such as milk,
   tea and coffee, - but not orange juice or bottled water - cakes and
   biscuits!)

4. Notes – often important to fully understand what is zero and what is
   not!
                      NUTS!!!!!


OR WHAT?


1. Peanuts in shell - zero rated
2. Out of shell - standard rated
3. Add salt – zero rated
4. Cover in chocolate or yoghurt – standard rated
5. Roast them – standard rated – unless, of course, they are still in their
   shell!
  Catering - Standard rated

1. Food sold for consumption on the premises on which it is
   supplied.

2. Hot takeaway food (i.e. Not cold!), however….

   New case: Deliverance Limited has successfully argued that
   the reason the food was heated was:

    a) to prove to the customer that it was freshly prepared (not
       for the purpose of the customer eating it hot)

    b) To comply with food safety regulations and to avoid the
       expense of treating the items differently from other items
       which had been heated.

   It was therefore agreed to be zero rated!

So …. Watch this space, but for now ……
                         Animal Feed


Food for animals is in general zero-rated,

however, one of the exceptions is pet food which is standard-rated.

Note that HMRC accept zero rating for food specifically packaged for working
dogs, providing that it isn’t sold as equally suitable for all breeds and sizes of
dog!
Books, booklets, brochures, pamphlets,
       leaflets and newspapers:

  Again not always easy to define, but generally, if it is held in the
  hand and is reading matter, it will be zero rated.

  Letter headings, calendars and greeting cards are standard rated.

  (A book in electronic form is standard rated – except talking
  books for the blind).
                             Transport
Connected with ships and aircraft and the transport of people and goods.

Generally covers:
         larger aircraft and ships,
         transport of ten or more passengers, and
         transport of people to and from a place outside the UK.
         It also applies to charities providing rescue services at sea etc,
                   e.g. lifeboats and associated equipment.

Beware, zero rating may cover only specific services in limited circumstances.

“Fun transport” supplied by tourist attractions are standard rated.

Pleasure boats and private aircraft are standard rated, as are ships designed or
adapted for recreation or pleasure.

Again there are several cases concerning whether transport/chartering of
transport is zero or standard rated. There are also cases concerning whether
there is one supply at one rate, or two supplies at differing rates (e.g. the supply
of meals (i.e. catering) during transportation).
            Caravans and Houseboats

Caravans over the legal towing size (i.e. residential) and houseboats without a
means of propulsion are zero rated

but not the supply of the contents such as fixtures and furnishings (unless they
qualify as building materials when fitted to a house). A single zero rated supply
was rejected by the European Court of Justice in Talacre Beach Caravan Sales
Limited, the supply has to be apportioned.

The leasing of accommodation in residential caravans or houseboats is zero
rated. short-term accommodation is not.
Drugs, medicines, and aids for the
        handicapped etc.
 Numerous items which includes:

 zero-rate aids for the disabled (work to facilitate the use of a building,
 or specialised equipment), whether supplied to the handicapped person
 direct or to a charity.

 Note that the zero rating is worded very carefully to cover very limited
 circumstances only:

 The aids must be specifically designed for use by handicapped
 people. (“Handicapped” means chronically sick or disabled).

 Note also who the customer is –

 Itdoes not apply to the landlord of a disabled        person,   nor to a
 club providing facilities for disabled persons.

             only applies to the handicapped person’s
 The zero rating
 home or to a charity in its home or day centre for
 handicapped persons.
                         Charities

Zero rated supplies include:

          1. Donation of goods to a charity or its trading subsidiary

          2. Sale of goods by a charity of goods donated to it (bought in goods
             are standard rated).

          3. Export of goods by a charity.

          4. Supply of relevant goods (mainly medical equipment,
             handicapped persons aids, etc) to a relevant body (i.e. hospitals,
             NHS bodies of various kinds, etc).

   Again, there are complicated rules which would need to be looked at in
   detail. Note that the supplier must obtain evidence that the supply is to a
   charity to be eligible for zero rating. Thus the charity should supply a
   certificate to the supplier, using specific wording.
                  Clothing and footwear

Children’s clothing, including protective boots and helmets (including cycle helmets)

The law requires it to be designed   for young children and not suitable for
older persons.

i.e. Size alone does not determine whether the clothing is zero rated.

Moccasins were held to be standard rated because there was no evident feature for
young children. The hearing concluded that 60% of UK women could wear shoes of
size 5 or less despite the notice stating that zero-rating was acceptable up to size
5½!
                  The 5% Rate

Applies to 11 groups including the following:

1. Domestic fuel and power (includes use by a charity for non
   business purposes.

2. Residential conversions

3. Smoking cessation products

4. Contraceptive products

5. Children’s car seats

6. Mobility aids and their installation in domestic properties. for the
   elderly

7. Welfare advice or information (this doesn’t affect the exempt supply
   given by an eligible body) and various others
                          Standard Rates
                 supplies are standard-rated, unless legislation
As a rule of thumb, all
specifically exempts, zero rates or reduced rates them.

                              expenses and postage form a part of the
Costs recharged, such as travel
main supply and are therefore usually standard rated when charged on
to a client,

Likewise if one business loans employees to another and just recharges the wages,
this would generally be a standard rated supply (not if one business merely runs the
payroll for another, or there is a secondment of staff at no profit).

Restaurant owners are liable for VAT on service charges                 unless they
are voluntary and given to the staff.
            One supply or two?
It is possible to make two or more supplies at different rates of VAT
 within a single price. Is this:

      1. A multiple supply at different rates of VAT or

      2. A composite supply consisting of two or more elements
         which is really a single supply with the dominant element
         deciding the rate of tax, (the other elements being
         considered as merely ancillary




      A tricky decision????
              Multiple or single supply?
Some decided cases:
•Manchester United included a match day programme in its hospitality
package. Programmes were also being sold separately inside the venue. The
club treated the supply of the hospitality package as two separate supplies.
(The sales of programmes being zero rated, the hospitality pack standard
rated). The case was taken to a tribunal which agreed with HMRC. The full
price of the package was a consideration for a single supply of standard-
rated hospitality.
•Providing a meal on an air flight is considered to be incidental to the air
transport and a single supply of zero rated transport.

•Catering on a luxury train was considered a separate standard rated
supply.
•A river boat providing entertainment and catering was deemed to be a
separate supply of transport (zero rated) and separate supplies of
catering and entertainment!
        Multiple or single supply?
•   Providing grazing, water and general care for a horse is a single standard-
    rated supply of the care and supervision of it (not partly zero rated for the
    animal feed element. In this case, the horse was there to be served by a
    stallion.


•   Exactly the same services were provided in a livery yard. These were
    held to be a single supply which was an exempt licence to occupy the
    stable.

    (HMRC had agreed that the DIY stabling was exempt, but challenged the
    full livery ones).
    Tour Operator’s Margin Scheme (TOMS)
FOR VAT REGISTRATION PURPOSES IT IS ONLY THE MARGIN WHICH IS
COUNTED TOWARDS THE THRESHOLD
TOMS is supposed to be a simplification measure which helps tour operators account for VAT only
in their home country.

It was instigated by an EC directive.

It applies to anyone who

buys in and resells travel facilities

for the direct benefit of a traveller, regardless of whether the facilities are used for holiday or
business purposes. (e.g. Many schools can come within TOMS when organising school trips)

It does not apply to:

       1.   A disclosed agent (i.e. when the customer knows that his contract is with someone else,
            e.g. a hotel directly, and he knows that he is not buying the hotel booking from the agent.

       2.   Supplies not packaged with a margin scheme supply.

       3.   Supplies to business customers for subsequent resale.

       4.   Supplies incidental to other supplies.
                     TOMS continued
A margin scheme package includes one or more of the following margin
   scheme supplies:

•   Accommodation (including tents, caravans and even a space/pitch on
    a site)
•   Passenger transport
•   Hire of transport
•   Trips
•   Tour Guides
•   Use of special lounges at airports.

TOMS applies if one of the above is bought in

and re-supplied without material alteration,

by a tour operator

for the direct benefit of the traveller.
                   TOMS continued
TOMS applies wherever the tour takes place, UK and EC tours are standard rated.
Outside the EC is zero rated.

      1.   VAT cannot be reclaimed on margin scheme supplies bought in for resale.

      2.   VAT is accounted for on the difference between the VAT inclusive purchase
           price and the selling price.

      3.   There are special rules for determining the place, liability and time of margin
           scheme supplies.

      4.   VAT invoices cannot be issued for margin scheme supplies and these must
           have wording stating, in effect, that TOMS has been applied.

      5.   There are special rules for calculating the VAT due on the margin. The
           calculations are a legal requirement and involve an annual calculation, rather
           than calculations on each individual holiday.

      6.   As already commented, the value of turnover for VAT registration purposes is
           the margin.


The place of supply for a TOMS supply is where your business is based for us: UK
                             TOMS continued
In-house costs

•   All the costs used to calculate the VAT inclusive margin in the TOMS scheme must
    have been bought in.

•   If the tour operators own facilities are used, for example his own hotel, as part of the
    package, the package price has to be split between bought-in and in-house supplies.
    The tour operator will then account for this supply in the normal way for VAT
    purposes and can recover input VAT in the normal way.

•   If the tour operator owns a coach and runs trips into Europe or it owns a
    hotel in another EU country, for example, it may have to register in that EU
    country for VAT.

•   Note that the registration thresholds are generally much lower than ours – and that
    they generally have fewer or no items subject to zero VAT.
           TOMS continued
The end result is:

1. The EU country retains the VAT where the services are enjoyed
   (VAT on hotels, meals, excursions, entertainment etc).

2. UK gets the tax on the gross profit margin.

3. The tour operator can recover VAT on UK overheads and other
   non direct expenses.

4. The end result for the tour operator is similar to what
   would have been the case if VAT had been charged on the
   supply in full, and all input VAT recovered.

Note that the annual accounting scheme can be used for TOMS, but
   it is specifically excluded from the flat rate scheme.

Note also that cancellation fees are outside the scope
  of VAT because no supply is made to the customer.
   Changes in place from 1st January 2010
Again these changes have been brought in to comply with EU law:

1. Business to Business Sales -

              When a travel service is sold to another business for onward sale, it must be
              done under normal VAT rules not TOMS. (HMRC used to allow tour
              operators to opt in to TOMS to ease administration).

2. Supplies to Businesses for their own consumption -

              Tour operators were allowed to opt out of TOMS for these supplies. It
              allowed businesses (e.g providing holidays for their best salesmen) and
              LEAs (providing school trips) to reclaim the VAT. These sales must now be
              within TOMS and no VAT can be recovered.

3. It is a legal requirement to use the market value for in-house supplies. A cost plus basis
   cannot be used except where this accurately reflected the structure of the package
   (package needs to be marked up on a fixed basis for this to apply), or if it is not
   possible to obtain a market value.


   The place of supply for a TOMS supply is where your business is based for us: UK
Package travel, package holidays and
  package tours regulations (1992)
Anyone who offers for sale (other than occasionally) package holidays must
comply with the Package Travel Regulations 1992.

      Legislated under a European Directive with the intention of protecting
         customers.

      A “package” is:

      A pre-arranged combination of at least two of the following:

           1. Transport.
           2. Accommodation.
           3. Tourist services which are not “ancillary to” transport or
              accommodation and account for a significant portion of the package,
              (e.g. day trips).

 A package must be sold at an all-inclusive price when it covers a period of more
than 24 hours or includes overnight accommodation.
      Package travel, package holidays and
        package tours regulations (1992)
•   The package travel regulations set out what information needs to be provided at the
    beginning of the contract.

•   Separate invoicing of the different components does not change the fact that it is a
    package, nor does the fact that the consumer has given specific instructions as to what
    elements to include in the package.

•   There is much controversy over whether a package put together by an individual over the
    internet is subject to these rules.

•   If a package falls under the regulations, the tour operator must make suitable alternative
    arrangements at no extra cost to the customer should a significant proportion of the
    services contracted for not be available. Where he is unable to do so, he must
    compensate the customer.

•   The organiser is liable for the failures of hoteliers, suppliers and services
    within the contract.

    The latter being a good reason for any tour operator to become a member of one of the
    protection agencies such as ABTA and trading as a limited company!!
                    VAT Registration
A business must register if it makes:

1. Taxable supplies (20%, 5% or 0%, but not exempt or outside the scope)

2. As a taxable person (i.e one who is registered or should be registered)

3. In the course of furtherance of any business. (A catch all phrase, but excludes
   e.g. sale of private household furniture by a business man)

A business may be:

sole trader,
partnership,
LLP,
limited company ,
club,
society,
charity,
or even a committee set up to organise one event could be caught.

There is no requirement to be intending to make a profit. VAT is
a tax upon transactions, not on profits.
      VAT Registration continued
A business must register for VAT if:

1.   Its taxable outputs (not exempt, non-business or outside the scope)
     supplies have exceeded the registration limit in the previous
     12 calendar months (Unless HMRC can be satisfied that the following
     12 months will not exceed a figure £2,000 under the registration limit (which
     is currently £70,000).

2.   There are reasonable grounds for thinking that the taxable outputs in the
     next 30 days will exceed the limit. (Designed to catch large “one-
     off” transactions e.g. a builder selling a standard rated property).

3.   It takes over a business under the “transfer of a going      concern”
     rules. (The turnover of the vendor is taken into account).


If a business makes only or mostly zero rated supplies it can apply for
exemption from registration – but then will not, of course, be able to
recover any VAT on its purchases.
         VAT Registration continued
•   Note that the sale of a capital asset such as office equipment, or a van etc, does
    not count towards the limit, but the sale or lease of a building on which the
    option to tax has been exercised does.

•   A business must inform HMRC within 30 days of exceeding the threshold and will
    be registered from the first of the following month.

•   A “rolling” 12 months total of turnover must be maintained.

•   i.e. If turnover goes over the threshold in January, HMRC must be informed by
    the end of February, and the business registered from 1 March.

•   If registered re the next 30 day period rules, registered from the 1st of the month
    in which the threshold is expected to be exceeded.

•   Note that it is gross turnover which is measured, not net income, e.g. holiday
    lets, which are received net of an agent’s commission, need to be “grossed up”

•   Under the second-hand goods scheme, it is the value of the supply, i.e the
    turnover which is taken into account (even though VAT is only accounted for on
    the margin!)
        VAT Registration continued
Note that if a business registers too early, it cannot retrospectively deregister and
request repayment of the VAT paid.

Late registration can incur a penalty of up to 15% of the net tax due from the date a
business should have registered to the date it was actually registered.

If the sales of a business are below the limit, it can apply to register voluntarily, thus
enabling it to reclaim any input tax incurred. (A business cannot register if all its
outputs are exempt).

This is only likely for businesses selling primarily to other VAT registered
businesses.

Alternatively, if a business is likely to become registered and is currently incurring
large bills e.g. on set up, it may be advantageous. Registration may also add
“credibility” to a business!

On registration a business can recover VAT which was paid on:

       1. Assets used in the business and goods for resale held at the date of
          registration and which were bought with the last four years.

       2.   Services received for the purpose of the ongoing business within the
            previous six months (e.g. repair of machine still used in the business).
       VAT Registration continued
                            two businesses separate, so that at
It is sometimes possible to keep
least one of them is out of VAT.
This must be done properly with written agreements, separate records etc. They
must be sufficiently at arms length from each other and have normal commercial
relationships with each other.

Otherwise HMRC could show that they were never, in fact, separate, and VAT
would be due on all turnover from the time that this was above the VAT threshold.
If the business can be shown to be separate, but HMRC are “satisfied” that the
activities in question are all part of the same business, they can issue a
“directive” that the two businesses be combined for VAT purposes. This is not
retrospective.

A business can deregister if:

 1.   Outputs in last 12 months have been below the registration threshold.

 2.   HMRC can be persuaded that turnover in the next 12 months will be £2,000
      below the registration limit.

 3.   The business will be in a VAT reclaim position

Do this promptly.   HMRC will not backdate the deregistration.

				
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