Forum Replies Created
-
Posts
-
The issue is whether the two businesses are in fact one business from a VAT perspective and have been artificially split. Without the disaggregation rules, businesses would stop trading in one company before they reach the VAT registration threshold, set up a new company and begin trading from the new company, repeating the process without ever charging VAT on their sales. The disaggregation rules are therefore important to the integrity of the VAT system. However, there are situations where businesses are genuinely independent despite close links, but HMRC claim the two businesses should be combined.
Hence it is important to understand how HMRC views disaggregation. Some of the most common reasons why HMRC will consider that businesses have been artificially separated include:
1. They have financial links, e.g. shared financial support, one business not being sustainable without support from the other, owners having common financial interest in profits;
2. They have economic links, e.g. they share customers or the activity of one business benefits the other;
3. They have organisational links, e.g. the same management or employees, premises or equipment.CASE LAW:
A recent tax case involving a barber’s shop and ladies’ hairdressers (Belcher & Belcher), illustrates how HMRC can target businesses, that it believes are connected, for suspected non-compliance. HMRC argued that these two businesses, each trading without being VAT registered, were actually connected and should be a single VAT registered entity. It wanted to charge the business owners for backdated VAT that it believed was outstanding as a result. Although the businesses shared the same trading name and premises, they were not cross charging for utilities and other services e.g. banking, insurance, purchasing account for consumables. The businesses were partnerships and filed separate tax returns. In this particular case, the owners were able to successfully argue before a tax tribunal that they were independent because they were not closely connected by financial, economic and organisational links. The case does however serve as a useful reminder of the need to be cautious when it comes to the VAT registration of different businesses owned by the same people.If you have any concerns over VAT registration we can help. Contact us.
Legislation on the option to tax underwent some changes in 2008 and since then it has no longer been possible to opt land and buildings separately.
The option to tax in 2011 covers the whole of the building, and the land under the building and within its curtilage (the land immediately around the building including, for example, forecourts and yards). If your interest in the building is restricted to one floor, your option to tax will still cover the remaining floors of the building.
I’m afraid if the building is demolished or destroyed, the option to tax will still apply to the land on which the building stood and to any future buildings that are constructed on the land.
Please this link: https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg23250
You can register voluntarily and claim input VAT as long as you meet these conditions:
• they have a business establishment or usual place of residence in the UK, and
• they receive taxable supplies from UK VAT-registered businesses, for which they are entitled to recover input tax, or
• they receive taxable supplies from another Member State which are subject to the reverse charge, or
• they import goods into the UK, for which they are entitled to recover input tax.VAT incurred by developers in the construction of new properties is recoverable based on a developer’s INTENDED USE of the property.
1. If the intention is to sell, then newly built residential property are zero-rated.
2. If the intention is to lease, then this would be an exempt supply under which VAT incurred cannot be recovered. HMRC consider such developers as investors instead.
3. However if this is only temporarily letting the property until the property market recovers, then the zero-rating of the new build stays. HMRC issued a Brief and an Information Sheet to clarify the VAT position where a house builder decides to let a new house in the short term instead of selling it.
Alternatively one can use Reg 108 adjustment which would be required if the builder abandoned his intention to sell in favour of exempt lettings and this requires a computation of a clawback on a just and reasonable basis.Also note VAT directly attributable to letting is exempt supplies and the input tax is irrecoverable.
Other considerations include transferring the site, or granting a long lease of it, to a group entity. This group entity would then grant assured shorthold tenancies of the completed /houses/flats to tenants. Provided the transfer to the group entity happens after the foundations are above ground level (“Golden Brick” stage) it will qualify for zero-rating and entitle the developer to recover the VAT incurred on site acquisition and most other costs. This type of structuring is commonly used by developer operators in the build-to-rent and student accommodation sectors.
Is this abusive arrangement?
HMRC have been asked about the possibility that house builders might, in advance of any short term lets, make the first grant of a major interest in the completed dwellings to a connected person, who would not be a member of a VAT group with the house builder. This zero-rated sale might remove the need for the kind of adjustments explained in Information Sheet 07/08. The suggestion put to HMRC is that the connected person would then rent out the properties until such a time as they could be sold. The rentals would be exempt and not give rise to input tax deduction on ongoing costs including the costs of the eventual sale (for example estate agency and legal costs). HMRC sees this as NOT abusive.It is likely that the a developer’s intention to sell a property once the market recovers will remain. If so, only part of the VAT originally recovered by the developer needs to be repaid. It is important to note that such adjustments should be made when the developer’s intention changes, not when the new-build has been let. HM Revenue and Customs have stated that such a change of intention may be evidenced by board minutes resolving to pursue short term letting of properties or an estate agent being instructed to let the property in question.
The taxable turnover threshold which determines whether a person must be registered for VAT , is at £85,000 hence you are well below the VAT threshold unless you have other businesses – hence you dont have to be VAT registered and you have to tell the sports site.
Note this VAT threshold is per person (not business) – ie self employed/ company etc ; if you have other trades and you exceed this threshold then you may need to register for VAT.
1 & 3 . The sale of land is exempt from VAT. However some sellers may choose to “opt to tax” the land and charge standard-rate VAT on the sale if they want recover the VAT incurred on the purchase or development of the land or on professional services associated with the sale.
2. Stamp duty is paid by the purchaser.
4. If the land has gained in value, you may need to pay capital gains tax.
Tell your supplier to issue a credit note or a new invoice. You cannot claim UK vat in France and vice versa.
Supplies of services and goods (if provided with the services) of a new build are zero rated. However supplies after completion do not qualify for zero rating. I suggest to read VAT notice 708, section the key question is whether the building 3.3.2 for the definition of completion. If not complete, you can claim VAT through the DIY scheme – again you can see details on the VAT notice 708.
You are going to pay VAT for the discounted price.
The supplier should issue a credit note to you for the discount and reduction in VAT or reissue the invoice.
You can ask the supplier to invoice your share. You need a valid invoice in your name to avoid any future issues with the VAT man.
A VAT registered person is required to issue a proper VAT invoice for taxable supplies to other taxable persons. If the other parties are VAT registered, you must issue invoices.
Where the customers are not VAT registered, you must issue a VAT invoice on request.VAT is a consumer based tax. Someone has to pay VAT at the end of the chain. Hence the client has to pay the VAT whether or not they are VAT registered. I’m sure you are aware that when you buy chocolate from the shop, VAT is applied to all buyers.
1. If I register for VAT, should I charge VAT for my next clients? (suppose that revenues remain under the threshold of 85 000£ for this tax year)- You can register for VAT voluntarily if you are below the threshold. However you may need to weigh the pros and cons of VAT registration if your sales are that low. Once you register for VAT you will have to charge VAT on your invoices and you will recover in put VAT from your suppliers – i guess as a management consultant you have a few invoices from suppliers. You can also recover VAT on computer as long as its used in business.
2. Should pay back any VAT to HMRC on the previous revenue (on which I did not charge any VAT)?
In some circumstances you can pick an effective date of registration of VAT before the actual date you are applying for registration. Prior to the effective date you can reclaim input VAT on your first VAT return (in the previous 6 months for services and 4 years for goods provided they are still in your possession).
3. If I don’t need to charge VAT for the future invoices (output VAT), can I only claim the expense on my professional expense (input VAT)? You cant choose to claim VAT and not charging VAT on your supply. You can apply for de-registration but the VAT claimed on computer may need to be paid back.
VAT is charged to the person (not business) ie self employed, company etc. That means your company and your self-employed status are treated differently as long as there is no linked activities.
VAT is compulsory if you exceed the threshold (over 12 months period) or at anytime your sales in the next 30 days exceed the threshold. It appears you will be caught by the later. However since you are not expecting to be paid why not invoice when you know you will be paid. Alternatively you can join the cash accounting system where you only account for VAT when the invoice is paid.
Here’s a quick summary of zero, reduced and standard rated work:
1 ZERO RATED
-applies to NEW & QUALIFYING BUILDINGS below:
1. Construction of a dwelling (house or flat)
2. Construction of a building solely for a RELEVENT residential purpose (“RRP”) (nursing home, school buildings, student accommodation etc)
3. Construction of a building solely solely for a RELEVENT charitable purpose (“RCP”).Note:
– materials on their own are standard rated. However, materials supplied with labour is zero rated. White goods like fridges are not zero-rated – only goods that are incorporated into the buildings are zero-rated.
– Professional fees like architect fees are always standard rated.
– However, design & build contracts where both the design and construction is under a single form of contract allows zero-rating of such services.You can also zero rate when:
• Supplying or installing goods for a disabled person in their own home
• Making alterations to suit a disabled person2 REDUCED RATE
• Converting a building into a house or flat
• Renovating or altering an empty house or flat
• Supplying and installing mobility aids for elderly people
• Supplying and installing certain energy saving materials and equipment
• Supplying and installing certain heating systems and security goods when grant funded
• Connecting or reconnecting to the mains gas
• Converting a residential property into a different residential use – eg a house into flats3 STANDARD RATE
• All other construction work including for example,
• Building an extension, annex or granny flat
• Loft conversions
• Repairs and renovationsNOTE:
If you are working on a building that will be for mixed use then you have to account for VAT separately e.g. a shop (SR) with a flat over (ZR).
