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Charity Advertising – pay per click now accepted as zero-rated advertising

Robert Killington — Tue, 08 Jun 2010 09:00:21 +0000

HMRC has published Revenue & Customs Brief 25/10 announcing the change of policy. Following representations from charities that pay per click advertising should be zero-rated HMRC has reviewed its approach and concluded that it should change the VAT treatment of pay per click advertising supplied to charities.

The Revenue & Customs Brief invites businesses that have supplied pay per click advertising the charities to make claims for overpaid VAT. HMRC say that claims will only be accepted for supplies made in the last four years and subject to the unjust enrichment rules. This means that claims can be made for supplies made in the last four years, i.e. back to 2006 at the time of writing, and the VAT refunded to the charities from which it was collected.

Action to take

Suppliers of pay per click advertising

You should seek confirmation from your charity clients that they qualify for the zero-rating of advertising services using the form of declaration in the VAT Notice on “Charity advertising and goods collected in connection with donations” if you consider it necessary. At the very least you need to show that the service was provided to a charity.

You should also prepare a detailed claim for submission to HMRC. The claim should include as much supporting evidence as possible.

Charities

Contact your pay per click advertising suppliers and request a refund. It will no doubt help your supplier if you provide a list of the invoices involved together with the amounts, and suitable confirmation that you are a charity. You may wish to use the form of declaration shown in Section 10 of VAT Notice 701/58 (January 2010).

If you need further help with this contact your usual VAT adviser.

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HMRC move the goal posts on making VAT payments to them by cheque

Robert Killington — Fri, 26 Feb 2010 12:48:15 +0000

HMRC has announced that from 1 April 2010 it will be treating payments made by cheque for VAT as received on the date cleared funds reach its bank account.

This is a significant change and one of which businesses need to take account. From 1 April 2010 if you send in your VAT return and payment to arrive by the due date the payment will be late because it will clear on a date after receipt. This will leave your business liable to a late payment penalty. Currently late payment surcharges are on a sliding scale from 2% to 15% – be late paying at your peril.

After 1 April 2010 you will need to make sure you send your payment to HMRC so that they have sufficient time to present the cheque and for the funds to clear by the due date. This is effectively reducing the time available for preparing and submitting VAT returns and payments by as much as seven days.

Submit and pay electronically

You can avoid this difficulty by moving to submitting your returns online, which will require you to pay your VAT electronically. If you choose to pay by direct debit, not only do you get an addition seven days to submit your VAT return you also get a further three days before HMRC take the money from your bank account.

Comment

This change by HMRC is probably to help cash flow and generate additional revenue from increased penalties. HMRC still require businesses using the, for example, Cash Accounting Scheme or the cash basis of the Flat Rate Scheme for Small Businesses to account for VAT on cheques on the day they are received.

This appears to be yet another attempt by HMRC to put more businesses into the penalty régime by moving the goal posts, whilst requiring the businesses to account for VAT on a less beneficial, for the business, way.

What are your views? Leave a comment below.

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The new look website

Robert Killington — Tue, 25 Aug 2009 21:02:01 +0000

Just wanted to let you know that whilst the website looks and feels different from the old one, all the information that was on the old one is in the new design, it’s just in different places.

Instead of having fixed pages for information I’ve decided to put it all into the ‘blog’ side of things. This means that I can more easily update information and mark it so that it is easily found.

You will also find some entries on here that are not VAT related in any way. This is just to prove that I do think about things other than VAT!

If you can’t find something that you know was on the old site, please ask me about it, in case I’ve hidden it somewhere obscure.

If you have been, thank you for reading.

No related posts.

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HMRC update information on known fraud attempts against taxpayers

Robert Killington — Mon, 11 Aug 2008 16:48:00 +0000

HMRC has updated its website with additional information about known fraud attempts against taxpayers. You can find the latest information using this link: fraud attempts.

The phone calls referred to in the latest example concern impounded imports and VAT payments – probably not in the same call! It is likely that the recipient of such a call will be unaware of an import or the reason for a VAT payment.

HMRC do not pursue payments by making telephone calls to taxpayers. Payments for import duty and VAT will usually be done through the clearing agent who will send a notice to the addressee of the package. Most often this is done by Royal Mail and will details ways in which the payment can be made. Other clearing agents may deal with the matter in different ways.

For VAT payments the taxpayer will normally be asked for payment by way of an assessment contained in a letter or as a form. The taxpayer will no doubt be expecting or anticipating the assessment, so it won’t be too much of a surprise – although the amount assessed might be!

Please take care, its your money the fraudsters are after. If you do receive a call and want to check the bona fides of the caller you can contact HMRC on National Advice Service number: 0845 010 9000. HMRC staff should not be upset at you taking steps to protect yourself from fraud.

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Correcting errors and the new penalties – how they interact

Robert Killington — Tue, 01 Jul 2008 16:15:00 +0000

I’ve been looking at the new rules that came into affect concerning the correction of errors made on past VAT returns. Under the new rules you can correct an error made on past VAT returns provided the net error is not more than £10,000. The rules are a little more complex than that because they allow businesses with a turnover of more than £1,000,000 to correct errors in this way where the error is not more than 1% of their turnover up to a maximum of £50,000. For most businesses, however, the £10,000 limit will suffice.

This is good news for businesses as there is no longer a need to submit a ‘voluntary disclosure’ to HMRC for errors over £2,000, provided they aren’t more than £10,000! It should also be good news for HMRC as their own statistics on voluntary disclosures showed that 80% of voluntary disclosures were in the range up to £10,000. This, in theory, should free up resources within HMRC.

There is a fly in the ointment, however, in the new penalties that come into effect for returns that are due to be submitted to HMRC after 31 March 2009. Under those rules you’ll be required to make a disclosure to HMRC of any errors you make if you want to avoid a penalty. HMRC say that if you have taken reasonable care and still make a mistake, you can correct that by making an adjustment on your VAT return.

If, however, the mistake you are correcting is considered to be the result of carelessness on your part, an unprompted disclosure has to be sent to HMRC. This will help to mitigate the penalty. This means that if you correct an error on a VAT return because you believe you took reasonable care in preparing your past returns, but HMRC look at it later and decide that you were careless it doesn’t count as an unprompted disclosure so you become liable to a penalty.

How do you avoid or minimise a penalty? You make an unprompted disclosure to HMRC. Even if you believe you have taken reasonable care. Why? Because it will save you having to fight an issue should HMRC visit you three and a half years after you made the correction and then suggest you did not take reasonable care. Did I mention that HMRC are extending the time in which they can assess you, and you can recover any overpaid tax, from three years to four years for VAT?

If you want to find out more about the penalty régime HMRC have put up some useful pages on their website. You can find them by using this link.

Rebecca Benneyworth has written a series of very clear articles on AccountingWeb on the new penalties.

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Smoking cessation products

Robert Killington — Thu, 05 Jun 2008 11:28:00 +0000

HMRC have published a Statutory Instrument that changes the legislation that applied the reduced rate of VAT to smoking cessation products. This was introduced last year and was intended to run for one year, i.e. from 1 July 2007 to 30 June 2008. The change allows for smoking cessation products to continue to have VAT applied at the reduced rate from 1 July 2008 with no apparent end date.

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VAT Tribunals – reform legislation published

Robert Killington — Tue, 03 Jun 2008 08:02:00 +0000

H M Revenue & Customs have today published a draft Statutory Instrument and a Technical Note concerning changes to, amongst other tax law, the Value Added Tax Act 1994. The changes implement the new legislation on Tribunals that was enacted last year. The changes mean that HMRC have to offer a taxpayer the option of a review of any appealable decision they make. The taxpayer may choose to request the review or appeal direct to the new Tribunal.

The draft Statutory Instrument has been released by HMRC with a view to obtaining the views of interested parties on it, and its impact upon the appeals process.

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Update to VAT Notice: Should I be registered for VAT?

Robert Killington — Wed, 28 May 2008 14:33:00 +0000

VAT Notice 700/1: Should I be registered for VAT? has been updated.

The update concerns the change of rules concerning the retention of records from 1 September 2007.

Under the new rules a seller of a business as a going concern has to keep the business’s records, but has to make available to the purchaser sufficient information for them to be able to meet their VAT obligations.

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Monthly VAT returns – BMW AG win Judicial Review

Robert Killington — Sun, 18 May 2008 08:54:00 +0000

BMW AG sought a judicial review after HMRC withdrew the company’s use of monthly VAT returns. BMW AG were in the position where its input tax each VAT period was greater than the output tax. In 2002 they sought permission from HMRC to move from quarterly VAT returns to monthly. HMRC granted this permission. In 2006 HMRC put BMW AG back onto quarterly returns.

HMRC’s grounds for withdrawing BMW AG’s use of monthly returns was that the BMW group in the UK was gaining a cash flow advantage from the arrangement.

BMW AG bought all the Minis produced in the UK by the BMW group, even those that were destined for the UK market. BMW paid for the cars supplied in month one half way through month two. The supplier company accounted for VAT on its VAT returns every three months.

BMW AG recovered VAT on its purchases every month, but also accounted for VAT on the sales of cars it made in the UK. The UK supplier was in the payment on accounts scheme, making a payment in the first and second months of each VAT period to be off-set against its total liability for the period.

HMRC had set out its policy on the manipulation of VAT return periods by businesses to gain a cash flow advantage in its Internal Guidance. This was first set out in 2004, and late updated in 2005. HMRC published a Business Brief in 2005 announcing its revised policy. The aim of HMRC was to remove any benefit that might accrue to associated businesses that exploited being on different VAT period ends. If the customer is on a period that ends before the supplier’s, the customer can recover the VAT on the supplier’s invoices before the supplier has to account for the output tax to HMRC – a negative cash flow for HMRC. HMRC indicated in the Business Brief that there had to be little or no commercial rationale for the associated businesses using different VAT period ends.

HMRC accepted that the BMW UK Mini supplier and BMW AG were set up for sound commercial reasons.

HMRC filed evidence with the Court to support its case that it had acted lawfully and taken into account all pertinent facts. Given that the decision of the Court was that HMRC had not acted unlawfully, nor irrationally, nor that its policy breached EU policy, as suggested by BMW AG, there appeared to be little chance of BMW AG being successful in its application. What let HMRC down was that in reaching its decision it had not taken into account all the pertinent facts.

HMRC had only considered the input tax recovery by BMW AG, and its timing in relation to the submission of returns by the UK supplier. It had not considered the impact of the sales by BMW AG in the UK, nor that the UK Supplier was making payments on account. HMRC also didn’t take into consideration whether the UK Supplier would have been in a better position had it not used BMW AG to export its cars.

The Court decided that the application of HMRC’s policy in this case was flawed because HMRC had not considered all the grounds that might justify the businesses being on different VAT return periods, and they did not consider whether the arrangements provided a better cash flow than if the UK supplier had acted as exporter and been a repayment trader itself.

The Court granted BMW AG permission to apply for an order, and made the order, to quash the decision letter issued by HMRC,

This just goes to show that HMRC don’t let the facts get in the way of a good argument.

The impact of this decision is not going to be wide reaching. It will only affect businesses that export a lot of their goods, and make use of an export company. Where these businesses can show that the use of the export company was for sound commercial reasons, and didn’t provide a benefit over the situation that would arise without using an export company, they may have an argument that HMRC mis-applied its policy. Whether it will do them any good will depend on their own circumstances.

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Option to Tax – changes to legislation

Robert Killington — Wed, 23 Apr 2008 21:56:00 +0000

HMRC have published guidance on changes to the rules applying to the option to tax. The new rules come into effect on 1 June 2008 – subject to the legislation being accepted by Parliament. The legislation, a Statutory Instrument, was laid before Parliament yesterday, Tuesday April 22, 2008.

The guidance was contained in a Revenue & Customs Brief, 24/08, and an Information Sheet, 3/08. The information sheet has a 50 page annex containing the detailed guidance on the new rules. You can find copies of the Revenue & Customs Brief and Information Sheet on HMRC’s website.

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