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The limited cost trader is an anti avoidance legislation hence its difficult to get around it. I would recommend closely looking through notice 733 so you understand all the finer points esp section 4.6 which confirms that goods should be relevant and used exclusively for the purposes of the business and do not include capital items.
I guess the process you sell it to a re-seller and they immediately resell it to a client and the usual payment processor like most retailer include collect sale proceeds, and VAT and paying VAT.
However this not a simple black and white case. There are a number of outstanding questions including:
1. what the nature of the “sale” actually is and what are the terms of agreement between you and reseller?
2 is the relationship of an agency nature?,
3. does the reseller have unencumbered world wide-selling rights?
4. Do they have FULL (ie royalty free) ownership of the software once it leaves reseller premises?
5. Do you have direct relationship (eg support) with the end clients etc etc.This may turn out to be somewhat more complex than first appears given the nature of the product
Please read VAT notice 733 para 4.6 “Relevant goods are goods that are used exclusively for the purposes of your business, but don’t include goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods;goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
goods for disposal such as promotional items, gifts or donations ; etc”Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services). Hence if your clients are involved in transport business then fuel is considered goods.
In the unlikely event you find a used car for which the VAT was originally reclaimed, it will be described by the seller as ‘VAT Qualifying’. This means that a VAT-registered individual or company buying the car solely for business use can reclaim the VAT from the purchase price.
If you sell a car on which you recovered VAT then you must account for output tax on the full selling price. You must issue a tax invoice to a VAT-registered buyer who requests one. Sales of these vehicles are not exempt and they cannot be sold under the second hand margin scheme.
Where you incur input VAT attributable to an intention to make an exempt supply and, before that intention is fulfilled, you use the costs in making a taxable supply, reg. 109 SI 1995/2518 allows for adjustment of the original attribution and recovery of the VAT previously disallowed. The time limit for making the adjustment is 6 years from the first day of the accounting period in which the original attribution occurred.
The provision of credit is an exempt supply to UK/EU. However certain exempt supplies when provided to non-EU counterparties are specified as allowing recovery of related costs [SI 1995/2518 Reg 103 and SI 1999/3121 refers]. Thereforeyou can recover the VAT incurred in what turned out to be a loan to a non-EU counterparty.
One would need to consider carefully whether the loan constituted a non-business activity which would not allow recovery of associated VAT on costs.
VAT on staff entertainment is recoverable. VAT for personal use is subject to deemed output VAT if not available to all staff – hence VAT on CEO golf club membership is not recoverable.
The VAT standard method of apportioning output VAT is not mandatory – though the majority of businesses do use this method.
Any VAT registered trader can use “special method” that suits a business’ activities better. Any special method has to be “fair and reasonable” and it has to be agreed with HMRC in advance. When using a special method no rounding of the percentage is permitted and it has to be applied to two decimal places.
This is particularly so in the first years of trading when the business is incurring an unproportionable amount of exempt supplies which would reduce in future years.
Commonly used special methods include those based on staff numbers, floor space, purchases or transaction counts, or a combination of these or other methods.
However, even if a business uses a special method it will still have to undertake an annual adjustment calculation once a year using its agreed special method.
The European commission (“EC”) operates more like a government cabinet and is made up of 28 commissioners each representing the 28 member states. The EC has two main responsibilities ie to propose draft VAT legislation which could be VAT directives or Regulations recommended by the VAT committee; and to policy member states on implementation of the EU policies.
The Council of European Union is made up of head of governments of the 28 member states. They formally adopt the draft legislation proposed by the EC. Hence EU law is essentially Council directives or regulations.
The court of justice of the European Union (CJEU) is the supreme authority in the EU for appeals and national courts. The court does not allow or dismiss disputes directly but instead answers questions raised by national courts and upto national courts to resolve the disputes.
VAT changes for international transactions are likely to significantly impacted by BREXIT depending on the terms of the UK’s exit. Currently, as a full member state of the EU, the UK is within the single market and the customs union. This means borderless movement of goods/services within the EU. With BREXIT, the obvious changes are that CJEU will no longer a supreme VAT authority but UK Supreme court will.
Hope this helps
Firstly an assessment is based on the commissioner’s “best judgement” [VAT Act 1994] within time limits. [A good case on best judgement is Singh case].
The time limits at which HMRC can raise an assessment is:
o 2 yrs from VAT return period OR 1 year after new evidence
o Overall 4 years max (20 years if fraud or criminal conduct)
o No time limits for “Books of prime entry” requestsA Court decision does not reset of the 1-year new evidence clock, on the basis that if HMRC are concerned they could raise a “protective assessment”
If no evidence of carelessness/deliberate, you can resist penalties.
The appeal process is as follows:
1. You are entitled to a review by independent office <30 days & HMRC to complete review <45 days
2. Review decision can be appealed to either FTT or UT <30 days
3. When applying to the courts, the courts need details of the appellant & representative details, details of case,
4. Note requirement for tax to be paid before Appeal court (but not on a Review) unless potential hardship application and interest is due date on settlement
5. The FTT court categories court cases before UT – default paper (not hearing), basic, standard or complex (tend to go straight to UT)I advise to get legal representation if need be. OR consider potential agreement prior to hearing. And if the case goes that far and you know you are losing, you have potential to withdraw and avoid further costs.
Also note the courts do not reimburse costs unless if party HRMC acted unreasonable (rare for HMRC to pay) hence weigh costs vs benefit before appeal.
Generally, supplies of financial services are exempted under the provisions of Group 5 Schedule 9 VATA 1994. Exemption also extends to intermediary services supplied in relation to exempt financial transactions.
However administrative functions, accountancy functions, credit management and processing services are not exempt financial services but rather are standard-rated for VAT. Also standard-rated are services preparatory to transactions in money, securities for money, notes or orders for payment of money (e.g. data-preparation work for transferring funds between bank accounts).
The case of FDR Ltd established that a company which processed credit card transactions for clearing banks and retailers could be providing an exempt service, on the grounds that:
• it was providing a single, compound service rather than a range of different services which might have different liabilities;
• a major part of that service was effecting the transfer of the funds at the end of the day;
• it was therefore involved in financial transactions, and the whole of the service took its character from that, and was exempt within Group 5 Sch 9.The nature of the company’s service needs to be examined carefully to find out if it is involved in financial transactions, or is merely carrying out administrative and accountancy functions.
Hot food is subject to standard rate VAT anyway even if bought in a supermarket. Eating in vs. taking away only makes a VAT difference for some cold food- from VAT point of view eating in means you are buying catering services AND take away means you are buying food.
Most retailers/restaurants do not price these differently but they have a way of accounting for it differently for VAT purposes. So they charge £12 for cold food which can be either eaten in (VAT is £2) or taken away (VTA is nil). So to the retailer they make an extra £2 in taken away. No need for a separate invoice.
With regards to McDonalds, probably only the salads would come under the zero-rated if a customer takes away. McDonalds ask if you’re eat in or takeaway but don’t charge the price of the salads depending on the answer -the price is fixed.
Hope this helps.
Input tax is reclaimable in the VAT return period in which it is incurred; in this case the quarter ended September 2018. The effect of the early reclaim of input tax is that the tax due for the quarter ended June 2018 is understated by £10,000 and the net tax due for quarter ended 30 September 2018 is correspondingly overstated by £10,000.
Where the total net errors discovered by a taxpayer in any VAT period do not exceed £50,000, an adjustment can be made on the next VAT return (and certain other requirements are met). Where, as here, the amount exceeds £50,000, a separate notification must be made to HM Revenue & Customs using form VAT 652 or by letter.
This error will be subject to a penalty as delayed tax. The potential lost tax for penalty purposes is a percentage of the delayed tax which equates to 5% per year. Therefore since the delay is three months, the potential lost tax is calculated as
£10,000 x 3/12 x 5% = £125.Default interest will be payable on the amounts underdeclared. This will run from the due date for submission of the respective VAT returns until payment is made. It is the practice of HM Revenue & Customs to waive payment of interest where it does not represent commercial restitution, for example another party would have reclaimed an amount of output tax not paid. However in your case there is a net tax loss to HM Revenue & Customs and interest will be charged.
For educational services to be EXEMPT these conditions must be met:
– the tutor/teacher must be acting independently, or an eligible body
– the subject my ordinarily taught in schools and it forms part of the National Curriculum recent cases has shown that even belly dancing, yoga etc qualify for exemption.Hence swimming lessons taught by your client – i assume he is trading as a sole trader (not a company). However services by his employees are SR because clients contract with XX swimming school instead of the teachers direct and do not meet condition above.
Also note merchandise is SR even if its closely related to the services being provided.
