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742 is HMRC’s published guidance on land and property. It’s available on their website here: https://www.gov.uk/guidance/vat-on-land-and-property-notice-742
By default, sales of land and property are generally exempt. However (subject to meeting various conditions), the owners can opt to charge VAT. This is often done with commercial property, as it allows the sellers to reclaim any VAT that they incur on their costs, and the buyer can reclaim the VAT charged on their VAT return. Presumably this is what the pub company did.
Once a property has been “opted”, any sales of it by the person who made that option become subject to VAT. So perhaps the first question is who technically owns it at the moment?
If the property now belongs to you, in my opinion as you haven’t opted to tax it, your sale would be exempt from VAT.
However, if it still belongs to your father’s estate, I think that you need to establish whether he ever opted to tax it. If he did, the option to tax would probably still apply even though his VAT registration has now ended. See section 2.7 of HMRC notice 700/11: https://www.gov.uk/government/publications/vat-notice-70011-cancelling-your-registration/vat-notice-70011-cancelling-your-registration
I suspect that your father may not have opted to tax at the time of purchase. If he had, his purchase would probably have fallen within “Transfer of a Going Concern” rules – and he wouldn’t have been charged VAT by the pub company, despite them having opted. But I can’t be 100% certain of this – and even if he didn’t opt to tax at the time of purchase, he may have done later.
How much the builder pays you is not a VAT issue as such, it is a matter between you and them. If there is something contractually requiring them to meet your costs, then your costs are the £2,400.
But, if the builder had subcontracted the kitchen fitting to the company you have found before selling the house to you, they could have reclaimed the £400 VAT from HMRC. Therefore they might only be prepared to pay you the amount that it would have cost them to have arranged the work – i.e. £2,000.
If you are acting as an agent (as in VAT-adviser’s reply), only your commission counts towards the £85k registration threshold. So at £20 per referral, you would need to be making 4,250 referrals per year before you need to register for VAT.
Firstly, I’m assuming that the invoices for the materials were in the company’s name. If they were addressed to you, the company cannot reclaim the VAT even if they paid the supplier.
If the invoices were in the company’s name, either of you could be right! You need to establish the contractual arrangements between the parties. Was anything formal ever drawn up? The possibilities I see are:
- You are supplying your time only, to carry out work using materials owned by the company; or
- The company has “subcontracted” the project out to you in full. Therefore if they have bought materials, there is an implied sale of those materials on to you.
Under option 1 above, the company charges £1,200 and pays £200 to HMRC, leaving them with £1,000. They pay the materials supplier £120 and reclaim £20 from HMRC. This leaves them £900 to pay you.
Under option 2 above, the company need to “sell” the materials to you, and will have to pay VAT to HMRC on that sale. So they pay you the £1,000 that they got from their customer, and at the same time charge you £120 (£100 + VAT) for the materials sold to you – which leaves you with the £880.
If there’s nothing formal in writing, best place to start would be by working out whether you have ever had any control / ownership of the materials. If you have not, then it’s likely that you’re supplying your time only – option 1 above.
It’s not down to whether or not your client is VAT registered. It’s to reflect the contractual position – whether the test centre’s customer is your client, or the vehicle owner direct (with your client acting as agent).
- If your client is the test centre’s customer, your client is making an onward supply of the test to the vehicle owner, and the full amount charged is your client’s turnover.
- But if the vehicle owner is the test centre’s customer, your client is only acting as an agent in making the arrangements and handling the payments. So only their fee for doing so (i.e. the amount they keep) counts as their turnover.
The bit about showing the elements separately on invoices is just because there’s no way that the vehicle owner can be a direct customer of the test centre if they don’t even know what the test centre has charged. But showing the elements separately is not necessarily enough on its own – you need to consider the full guidance in section 25.4 of HMRC’s notice 700: https://www.gov.uk/guidance/vat-guide-notice-700#section25
You can’t retrospectively change the contractual position between the parties. So you can’t exclude the test centre’s fees from your client’s taxable turnover prior to them being shown separately – and you can only exclude them after that date if the conditions in the VAT notice above are met to show that your client was acting as an agent.
It’s not just VAT, there are other reasons why you need good contractual documentation showing that your role is just acting as an agent in introducing the patient and dentist. For example, what would happen if the patient was unhappy with the treatment – or the dentist did something wrong? Without any documentation proving otherwise, the assumption may be that you’re the supplier of dental services to the patient – making you potentially liable for any claims.
Also in the documentation – make it clear who you’re acting as agent for. I.e. if you’re the patients’ agent, they are receiving both a supply of treatment from the dentist and a supply of introduction/booking services from you. But if you’re the dentists’ agent, the patients’ are only receiving a supply of treatment from the dentist, and the dentist receives the supply of the introduction/booking service from you. The only impact of this is on who you would need to issue your VAT invoice/receipt to. As dentists’ supplies are predominantly exempt, it is unlikely that they would be VAT registered, so would be unable to reclaim any of the VAT they are charged.
I actually believe that if you were regarded as the supplier of the dental services to the patient (i.e. you were acting as principal), your whole charge to the patient would be VAT exempt – you wouldn’t need to charge VAT on any of it. In the VAT Act 1994, schedule 9, group 7, item 2 exempts treatment by registered dentists – but note 2 to the same group exempts supplies by those without the appropriate medical registrations, provided that the actual work is carried out by a registered person. So just from a VAT perspective alone, you may be better off if you weren’t just acting as an agent. But the risks of being responsible for the dentists’ work would probably outweigh the VAT benefit – it’s safer to make sure that you’re just the agent, and declare VAT on the commission element.
If you’re exporting goods, you won’t need to declare the 20% UK VAT – provided that you retain evidence of export. There may be a liability to sales and/or import taxes in the USA – could that be what the 8% / 8.75% figures are? If so, this would need to be accounted to their tax authorities – you can’t just include it in your UK VAT return.
I’d suggest that you need to contact Amazon and ask for an explanation. On face value, VAT should not be charged if the goods have not been supplied. But I doubt that Amazon’s systems routinely withhold VAT when processing refunds – if they did, I’m sure others would have queried it before.
Question 1.
Arrangements where customers collect and export goods are known as “indirect exports”. HMRC cover them in section 6.6 of notice 703: https://www.gov.uk/guidance/vat-on-goods-exported-from-the-uk-notice-703#sect6
They are risky, in that if you’re unable to obtain the proof of export detailed in that section, you will become liable for the VAT, whether or not you’re then able to recover it from your customer. You could (as you suggest) zero rate now and VAT only invoice later – but (especially if they’re not a regular customer) it could be difficult to get payment from them.
To protect your position, HMRC suggest that you can make providing the evidence a contractual obligation on the customer – and charge them an extra amount equivalent to what the VAT would be in advance, which you can refund to them once you’ve received the evidence.
Question 2.
I would enter these transactions as outside the scope of VAT.
Hi,
HMRC”s detailed guidance is in notice 700/2 https://www.gov.uk/guidance/group-and-divisional-registration-vat-notice-7002. But, assuming that all three members of the group are UK based, you need to consider the group as if it was a single organisation.
No VAT is charged on the management charge because the supply is “internal”, within the group. The ability of the group to recover VAT charged by “external” suppliers is dependent upon whether it relates to taxable supplies made by the group to “external” customers.
If the only supplies made by the group to the “external” customers are VAT exempt, the group won’t be entitled to input tax recovery.
It is 1/6th, because the 11p is the VAT-inclusive amount. So it’s 9.17p plus 1.83p VAT (20% of the 9.17p) = 11p
Hi Kate,
For the company car user, you can reclaim the VAT element (i.e. 1/6th) of the 11p per mile. You can also reclaim VAT on the business use by the private car owner – but not on the full 45p, as this amount is also intended to include a contribution towards non-fuel costs. In theory you can use any recognised published fuel rates to count as the “fuel element” of the 45p. But unless the amounts involved are huge, it’s probably easiest to use the same HMRC Advisory Fuel Rates that you’re already using for company car users.
In both cases (company car and private car users) the employee should obtain VAT receipts when they buy fuel and submit to you with their claims – which you’ll then need to keep on file. Clearly the amounts on the receipts won’t tie up exactly to the claim values – but in total there should be sufficient receipts submitted to cover the 11p per mile being claimed.
HMRC guidance is in sections 8.8 – 8.10 of HMRC manual 700/64: https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064
VAT on cross-border services is dependent upon the deemed “place of supply” – see HMRC’s notice 741A https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a#sec7 . Any liability to account for VAT arises in that place.
The “general rule” for B2B supplies is that they take place where the customer belongs. However, there is an exception for “land related” services (section 7 of HMRC’s notice), where the place of supply is deemed to be where the land is.
Storage is regarded as “land related” only if the customer is allocated a specific area for their exclusive use. If there’s no specific area allocated for the customer’s exclusive use, the “general rule” applies instead.
You’ll know best whether the storage you’re supplying would meet the criteria for counting as a “land related” service.
– If it doesn’t count as “land related”, you’ll need to charge UK VAT as that is where your customer belongs.
– If it does count as “land related”, you won’t need to charge UK VAT. However you may have some tax obligations in Tanzania!The taxable supplies that exceeded the VAT registration threshold were made by the sole trader business. You cannot retrospectively “reassign” those sales to a limited company, especially one which didn’t even exist at the time that they were made! So I think that your new accountant is right – you need to register the sole trader business.
As for the limited company, you potentially have a choice. If you will need to register soon/straight away, you can apply to have the sole trader registration transferred – this may give some admin/accounting benefits through reducing the number of changes. But if you think it may be a while before the company will need to register, you may prefer to deregister the sole trader business and leave registering the company until the appropriate time.
Firewood is covered by HMRC’s notice 701/19 – extract below:
“7.1.3 Firewood
Ready-cut pieces of wood of a size suitable for use as fuel such as logs, short waste ends or damaged timber, and held out for sale specifically as firewood maybe sold at the reduced rate. If not sold as firewood they are standard-rated.”If your son’s sales meet these criteria, and he registers for VAT, he would need to charge VAT at 5% on his sales, but could reclaim the VAT incurred on his costs. That is likely to mean that his VAT returns would result in HMRC paying him – although how much would depend on factors such as his profit margin and what other costs or income he might have.
As a simplified example, assuming that the purchase and sale takes place in the same VAT period and there are no other transactions:-
- Purchase price of £120 (incl. VAT) and a sale price to customer of £147 (incl. any VAT).
- Currently: income £147, expenditure £120, profit £27.
- If VAT registered: income £140 (£147 – £7 VAT paid over to HMRC), expenditure £100 (£120 – £20 VAT reclaimed from HMRC), profit £40.
If his turnover exceeds the VAT registration threshold (£85k over the past 12 months), he will have to register for VAT. Businesses below that threshold can apply to register for VAT voluntarily – and the example above implies that this may be worthwhile for him. But it’s worth checking with real figures. The higher his profit margin is, the less worthwhile registration will be, due to the 5% being calculated on his sale price rather than purchase price. And he’ll need to consider any additional costs – such as electronic record keeping (if he doesn’t already have this) / any help with VAT return submission.
