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I think that you may be confusing taxes?
The VAT on leased cars is recoverable by VAT registered businesses on their VAT return, in the same way that they recover the VAT incurred on their other business expenditure. The only difference is that recovery is restricted to 50% of the VAT charged, this is because of the possibility that the car may also be put to private use. Any business that is not VAT registered is unable to recover any of the VAT incurred on their business expenditure. More detail regarding the VAT treatment of cars is here: https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064
You haven’t provided a link to this “Claim Tax Relief Expenses Wizard”, but that type of wording normally applies to income or corporation tax, on salaries or business’ profits – not VAT. For example, if this is the page that you’re looking at https://www.gov.uk/tax-relief-for-employees, it calculates what income tax relief an employee might be entitled to if they incur certain types of expenses as part of their employment, which aren’t reimbursed by their employer.
Thanks – it’s not clear is it! I would still be tempted to leave q3 completely blank, as a “no” would send you straight on to q5 – but the “sale” details (date and value) really relate to q4. But however you do it, worth including a covering letter when you return it.
Generally if a business still owns any goods at the point of deregistration, they need to account for VAT on them as part of the deregistration. Land/buildings owned are treated as goods, so (as you had opted to tax them) if you still owned them at the time of deregistration, you would have had to account for some VAT. This would be why HMRC sent out the form – to establish whether you still owned them and, if not, what had happened to them.
I haven’t seen this form before, and can’t find it online. But I’m wondering whether there’s a confusion with terminology – maybe you’re applying more of an everyday meaning to the word “sale” than HMRC are? Maybe you’re only meant to complete either question 3 or 4, not both?
TOGC is actually short for Transfer of a Business as a Going Concern. In other words, your transaction was only a TOGC because the property together with the agreements with the management company was a complete business in its own right. You need to complete question 4, but probably not question 3.
Others may own buildings which aren’t businesses in their own right. For example a company might operate out of two offices. If they decide that they no longer need one of them and sell it as empty office space, they aren’t transferring any form of “business” to the new owner, they are just selling property and would need to charge VAT on the sale. If they then deregistered for VAT, they would need to complete question 3 on the form rather than question 4.
Thanks for the confirmation. The fact that you are only involved with the other company and that they’re UK based does avoid some potential complications!
The VAT treatment of payments by the app store to the other company isn’t relevant in determining the treatment of the payments to you – they are separate transactions under separate agreements. Bear in mind though that it’s the supplier who is responsible for determining VAT liability, not the customer – so even if the app store doesn’t show VAT on documents it issues, the other company might still by liable to declare VAT. But a lot will depend on the contractual arrangements between the app store and the other company – so it’s best not to speculate on that aspect without sight of the documentation.
Back to the payments you receive… Whenever any business receives income, they need to determine whether it is “consideration” (payment) for any supply they’ve made. If it is, the VAT treatment of the payment is based on the nature of the supply – usually subject to VAT unless it’s covered by a specific exemption or zero rating. Even though you’re not raising invoices to the other company for the work you’ve done, I suspect HMRC would deem that the payments you’re receiving from the other company are still consideration for the work done on the app. The amount of income you get may not be fixed (as presumably it depends on the popularity of the app) and you may continue to receive income for some time after you stop working on the app. But (I assume) you wouldn’t have freely given the time to jointly develop it without some entitlement to a share of the income, the other company wouldn’t be paying you had you not been involved in the development, and any future involvement in further development may benefit you if improvements increase sales of the app. Essentially the services provided and income received are sufficiently connected.
HMRC’s guidance in Notice 700 (extract below) anticipates such situations, and deems that VAT would be due on the receipt of each payment:
Quote:15.8 Royalties and similar payments
If at the time when you supply services, you cannot work out the royalties that you will subsequently receive, and which are in addition to any amount already payable for the supply – then there will be a further tax point:each time you receive a payment or issue a VAT invoice, whichever happens first.VAT is linked to the supplies of services, so you do need to be certain who is supplying what to whom. The fact that the app store is only paying the other company implies to me that the only supply of services that you’re making is assisting the other company with the development. It doesn’t sound like you have any direct contractual link to the app store or app users?
If I’m right about the structure, where is the other company based?
If it’s in the UK, then the income is likely to be subject to VAT (assuming you’re over the £85k threshold). If the other company is VAT registered, it shouldn’t be a problem to them, as they’re likely to be able to recover the VAT from HMRC on their VAT return, based on a VAT invoice that you issue them. If it’s only them that knows the amount due, you could even enter into a self-billing arrangement which would allow them to draw up the VAT invoice on your behalf – see HMRC’s notice 700/62 https://www.gov.uk/guidance/self-billing-notice-70062
But if the other company is based overseas, you need to determine what the place of supply is for VAT purposes. This can depend on exactly what is being supplied, and you should refer to the guidance in HMRC’s Notice 741A https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a. If the place of supply is the UK, it will be liable to UK VAT, as above. However if the place of supply is deemed to be overseas, the other company may be liable to account for a similar tax there.
Hi, thanks for clarifying. By the fact that they’ve paid you the original price, I’m assuming that (perhaps due to the rarity) the car hasn’t lost any value in the 18 months since you bought it. If anything may actually now be worth more, assuming that they’ll be looking to make a profit when they re-sell.
The VAT charged by any company supplying goods or services can only be recovered by a VAT registered business receiving that supply. Each transaction must be considered separately. So the dealer can’t reclaim the VAT which they originally charged you, because they’ve now bought the car back from you as a separate transaction.
This does mean that the dealer is currently out of pocket by the VAT amount. However, if they now sell it on “second hand” to someone else, they will probably be able to use the margin scheme. The margin scheme means that they’ll only now need to account for VAT on the difference between what they paid you and what the new buyer pays them. So once they’ve sold it to the new buyer, the amount of VAT accounted for by them in total will be the same as if they’d sold it from new directly to the new buyer.
As an example, using some round figures to simplify the maths:
- Original sale by dealer to you: £60k (£50k + £10k VAT). Dealer pays £10k to HMRC.
- Later sale by you back to dealer: £60k, no VAT.
- Dealer sells using margin scheme to new buyer, say £66k. Dealer must pay to HMRC 20/120ths of the £6k difference, which is £1k.
- Total paid by dealer to HMRC is £11k, which is the same as if they’d originally sold the car directly to the new buyer for £66k (£55k + £11k VAT).
There would only potentially be an issue if the new buyer was a VAT registered business who would have been entitled to reclaim some or all of the VAT on their purchase of a new car.
Hi. I don’t understand “I purchased a new car privately from a franchised dealer, and when I sell that car back to them for the full ‘original’ cost.. “. It seems odd to be selling a new car straight back to a dealer who had just sold it to you – so is there any more to the transaction than this? Was the sale back to the dealer anticipated at the time of the sale to you – was it even part of the same contract? Where does ownership of the car legally lie at each stage – was it ever actually yours? Could the transaction be seen as a “business activity” of yours – i.e might it count towards you needing to VAT register? I’m only asking all this because if there is more to the arrangement than it first appears, that could impact on the VAT treatment. And in any event, HMRC may well query transactions where they can’t immediately see the commercial purpose.
Considering a more typical scenario – dealer A sells car to an individual B. Some time (potentially years) later B sells the car second-hand to a dealer C, who then sells it on to another individual D. Assuming that A and C are VAT registered, the VAT treatment would be:
- VAT would be declared on the original sale to B.
- There would be no VAT on the sale by B to C, as B is not a VAT registered business.
- VAT would be due on the sale by C to D. However C may use a “margin scheme” which would allow them to only account for VAT on the difference between the sale and purchase values (more on margin schemes in HMRC’s notice – formerly 718, now 718/1).
One point about the margin scheme is that the supplier (C in the example above) cannot show the VAT separately on the invoice that they issue to their customer. So if the customer is a business, they would be unable to reclaim any VAT, as they wouldn’t have a valid VAT invoice. The margin scheme is optional, and there are some circumstances where dealers aren’t entitled to use it anyway. So I suspect that the phrases you’re referring to in your last paragraph are to indicate to business customers whether the dealer will be able to issue an invoice showing VAT, as this could impact on the actual cost to them.
Finally, it’s worth noting that the ability for businesses to recover VAT on cars can be quite restricted anyway, see HMRC notice 700/64.
I’m assuming that there is a lease between your company and a tenant who occupies the apartment, a separate contract between your company and the letting agent and that the letting agent has no rights over the property.
If so, the letting agent is making a supply of services to you. The VAT exemption covering the rent is one on the “grant of any interest in or right over land or of any licence to occupy land” – Group 1, Schedule 9 of the VAT Act 1994https://www.legislation.gov.uk/ukpga/1994/23/schedule/9/part/II/chapter/1. There is no reference in this legislation to it also including an agent’s services in arranging that “grant”. So the agent’s services should be subject to VAT, assuming that they exceed the registration threshold.
If they are VAT registered, they are obliged by law to issue a VAT invoice under regulation 13 of the Value Added Tax Regulations 1995 https://www.legislation.gov.uk/uksi/1995/2518/regulation/13/made for any supplies made to a taxable person. I suspect this last bit may be the issue? A “taxable person” is defined in s3(1) of the VAT Act as “a person [who] is, or is required to be, registered under this Act”. Anyone whose only line of business was as landlord for VAT-exempt properties wouldn’t be required to register for VAT. You may find that the vast majority of the agents clients are in this position. In which case, they may well be declaring the VAT to HMRC correctly – and just failing to issue VAT invoices to you because they’re not recognising that they’re required to because of your other business activities. There’s no harm in going back to them, quoting the pieces of legislation that I have, and explaining why the position for you may differ to that for their other clients. It’s quite possible that those working for the agent will have just been told that there is no need to issue VAT invoices to landlords of VAT-exempt properties, without the reasoning ever having been explained.
Why wouldn’t the agent just issue VAT invoices to all landlords, whether they were obliged to or not? I suspect this is due to the tax point. If they issue a VAT invoice, they’re likely to be required to pay the VAT over to HMRC based on the date that the invoice is raised. Whereas if they don’t issue a VAT invoice, they don’t need to account for VAT until they’ve been paid. A potential cashflow benefit.
Even if you had a VAT invoice, you are not entitled to reclaim the VAT charged by the agent, as it relates to your exempt supply of the property (see your last post from a couple of months ago). So the amount that you’re currently paying them is correct, and the current cost to you is correct. The agent’s accounting of VAT to HMRC is a matter between the agent and HMRC. While anyone can tip-off HMRC if they believe that someone is failing to account for tax properly, you really don’t have evidence of that at the moment. The agent’s actions could simply be a misunderstanding of their invoicing obligations.
Of course, as it’s likely that the agent should be VAT registered – there is no harm in asking them for their VAT registration number so (if you haven’t already done so) and checking it on the government website https://www.gov.uk/check-uk-vat-number.
The only possibility I can think of is that whoever completed the customs documentation selected the “Postponed Import VAT Accounting” (PIVA) option – either without checking with you first, or at least without explaining the implications clearly. Otherwise (without having “duty deferment” arrangements in place with HMRC) either import VAT would have been paid by someone, or your wine wouldn’t have been released!
HMRC’s PIVA guidance is here:
https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return. Essentially it allows goods to pass through customs without import VAT being charged, although duties are still charged at the border, which ties in with the paperwork you’ve received.Monthly PIVA statements can then be downloaded from HMRC via the Government Gateway showing how much VAT should be paid (by including it in box 1 of the VAT return) and reclaimed (by including it in box 4). Assuming that you’re not already set up to be able to download these statements, you’ll need to follow these instructions: https://www.gov.uk/guidance/get-your-postponed-import-vat-statement
Ultimately (assuming that the wine is for taxable business use) you don’t actually owe HMRC anything, because you would be able to reclaim the VAT on the same return that you pay it on. But the figures from the PIVA statement should still be included in boxes 1 and 4.
If you’ve bought goods or services from a VAT registered supplier then (unless the nature of those goods or services mean that they fall within an exemption or zero rating), the supplier will be required to charge you VAT. I can’t think of any circumstances where a customer not being registered for VAT would mean that a supplier didn’t have to charge it.
The supplier is required to pay the VAT amount charged over to HMRC, normally based on when the date that they issue their invoice, even if they’ve yet to receive payment from the customer. So if you haven’t paid the VAT element of an amount that you’ve been charged, that is a cost to the supplier, and they’ll take the same action as they would to pursue any unpaid debt.
But if I’ve misunderstood the contractual arrangements between you and this company, please provide a bit more detail.
Once registered for VAT, businesses must now follow the Making Tax Digital (MTD) rules, as detailed in HMRC’s notice 700/22 https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat. Essentially there are three key requirements:
- All records specified must be held digitally.
- The VAT returns must be submitted digitally using HMRC’s API.
- Any transfers of data required to produce the return must be done using digital links.
In theory it’s not impossible to meet the first criteria with a spreadsheet, but there may be considerable work to do to ensure it complies. Unless you’re a computer programmer, you’re unlikely to be able to meet the API submission criteria yourself, but there are off-the-shelf “bridging software” packages available which will take figures from spreadsheets and upload them to HMRC. For the final criteria, consider how data currently gets into your spreadsheet. If you’re just running reports from the various websites and copying/pasting or typing totals in, that’s unlikely to comply. However if (for example) you’re exporting transaction level data in CSV files, which is then being imported to the spreadsheet by an automated macro process, it may comply.
However, I would suggest that it may be better to look into getting some form of small business accounting software. Most of these should be compliant with MTD, and will be kept up-to-date if the requirements change in the future. If they have an accountant, it would be worth asking the accountant to recommend a package. But if they haven’t already got an accountant, it’s worth considering speaking to one – as they’ll be able to go through all aspects of the business and explain the implications.
The same principles apply as if you’d bought from a supplier in the UK. The only difference is that when you buy from a UK supplier, they charge you the VAT and they pay it to HMRC – whereas with the import it’s the courier that has paid it to HMRC, on your behalf.
So, if the purchase is by a VAT registered business to be used for their taxable business activities (e.g. resale), the VAT is recoverable via the VAT return. It doesn’t matter if you don’t actually sell the wine until the next VAT period. You’ll declare VAT on the income on the VAT return covering the period of the sale.
Bear in mind that this just applies to the VAT. The charge from the courier is also likely to include a fee / admin charge for dealing with HMRC on your behalf, which of course can’t be reclaimed.
I’m assuming that the invoices are from different suppliers in Austria (as it would seem odd that one supplier would use two different methods), and your customer is located in GB rather than NI. Rules for goods are different in NI.
In preparation for Brexit, many EU suppliers registered for VAT in the UK. Effectively their UK VAT registration imports the goods, so although the company’s head office may be in the EU, the goods are actually being sold to your client from the UK. So the first invoice should be treated in the same way as an invoice from a UK supplier.
On the second invoice, do you really mean self-billing? Self-billing is where there is an agreement in place for a customer to raise VAT invoices on the supplier’s behalf. If this is the case, it would be useful to have a bit more detail about what the arrangements are.
If it’s not self-billing, import VAT will need to be paid at some point. By default this is done before the goods are released from customs, although the courier may pay on the customer’s behalf and charge the customer. Alternatively it is possible for customers to register for PIVA (postponed import VAT accounting). Goods are then cleared through customs without import VAT being paid. The transactions are added to a monthly statement downloadable via the Government Gateway, and the transactions on the statement should be accounted for on the VAT return.
I’ve always worked as an in-house VAT advisor in the public sector, so I don’t know what the going rates would be for an advisory firm! If you are considering getting paid advice, you could always try a second firm – this may give an indication as to how reasonable the figure you’ve been quoted is.
Generally speaking – when HMRC find errors, they will assess for any VAT underdeclared plus interest. They will also consider charging a penalty, however this can be significantly reduced or even waived/suspended altogether if they believe that you took “reasonable care” to determine the correct VAT treatment, cooperated during their enquiries and (if appropriate) have taken steps to avoid similar errors in the future. Starting a forum thread is certainly an indication of taking care, but it’s possible that going to an advisory firm if you’re still uncertain might be considered better.
Many paid advisors (but not all, so worth checking) are likely to have some form of professional indemnity insurance – it may even be a requirement of any professional bodies that they’re a member of. But I’m not sure whether that would actually cover the VAT itself, as the only real “loss” through following incorrect advice would be any penalty that HMRC may charge.
Thanks for the clarification. I’m assuming that your dad was registered for VAT as a “sole trader”. A sole trader registration can’t just be converted into a partnership registration – see https://www.gov.uk/vat-registration/transfer-registration. This would explain why you and your brother would have needed a new (partnership) VAT registration, the partnership needed to opt to tax the property, and there was an actual transfer of the property from your dad’s VAT registration to the partnership’s – which would have been treated as the transfer of a going concern.
But, I still think the position now is different. The link in my previous post implies that removing your brother from and adding your wife to the partnership won’t require a new VAT registration. In which case there is no transfer of the property between VAT registrations and no new options to tax are needed. Your option to tax would have been made by the partnership, and it will continue to apply to the partnership even if individual partners change.
The transaction between you and your brother wouldn’t appear to be a supply of the property by the partnership, therefore it wouldn’t be affected by the partnership’s option to tax.
So I think all you need to do for HMRC VAT is the VAT2 form to change the partners in the partnership.
However I have been making some assumptions about the arrangements. So if your accountant knows and could recommend a VAT advisor, you may want them to give you a written opinion having seen all the relevant documentation, just so that you have something you can keep on file. I’d imagine it should be relatively straight forward for someone with experience in this area, so shouldn’t be too expensive. Alternatively of course, just printing and retaining a copy of this forum thread would at least show that you took some steps to establish the VAT position, should you need to demonstrate this in the future.
