VATARK: The Fun VAT Man

Mostly VAT related posts...

Sponsorship - can it be zero-rated as charity advertising?

I had a 'phone call recently from a charitable organisation that was intending to give another charitable body a grant with which to buy vehicles. The intention of the grant giving organisation was to require the recipient to put certain logos on the vehicles to indicate that they had been funded by the organisations providing the money. By putting this requirement into the contract with the recipient organisation there seemed to be a danger that this could make the transaction liable to VAT. That VAT would have to be charged by the recipient but would be unrecoverable by the giver - so either the recipient lost out by about 15% or the donor had to find another 17.5% to fund the VAT. Neither answer was particularly good.

In this instance the advice given was simply to remove the clause that imposed an obligation on the recipient to do anything in return for the grant. Most recipients would be happy to make it clear who had provided the funds for the purchase of the goods, in this case vehicles, without it being obliged to do so. One of the potential recipients of the grant then contacted me to discuss whether the grant would, if the obligation to put the logos on the vehicles was retained, be zero-rated as paying for the supply of advertising to a charity.

Criteria for zero-rating

There are a number of criteria that have to be met for charity advertising to be zero-rated. H M Revenue & Customs (HMRC) set out these criteria in the VAT Notice 700/58. In summary, the criteria are:

  • The advertisement has to appear in a medium that is available to the 'public'
  • The advertisement has to occupy someone else's space or time, i.e. the advert cannot be on the charity's own web site, magazine, etc.

Advertisements can appear on any medium from billboards to newspapers, beer mats to sides of vehicles, and will qualify for zero-rating provided the space or time used belongs to someone other than the charity, i.e. the charity has to pay for the space or time being used for the advertising.

Those are the criteria for advertising on its own, not part of what is more often referred to as sponsorship.

What is sponsorship?

Good question, I'm glad you asked...

Sponsorship is when one person agrees to support another either by giving goods, services and/or money. If the sponsor obliges the recipient to do something in return, e.g. name an event after the sponsor, or show the sponsor's logo on event materials, there is a supply of services by the recipient to the sponsor. This supply is generally a taxable supply, liable to VAT at the standard rate (17.5%) for supplies within the UK. A different VAT treatment might apply if the supply is to a charity outside the UK.

Whether sponsorship can be a single supply of advertising will depend on the terms of the agreement between the parties involved. If the agreement, for example, only requires that the sponsor's logo appears prominently on relevant event notices, leaflets, advertising, etc. then there is possibly just a single supply of advertising.

So, can advertising by a charity be zero-rated as part of a sponsorship deal?

Possibly. It depends on the facts of the situation. HMRC might argue that just using a logo in this case was insufficient for it to be clear who was doing the advertising. Whilst it would be possible to successfully challenge HMRC's argument the costs involved might make that action commercially unsound.

In this case I thought it was too risky for the donor organisation to have a clause obliging the recipients to put the logos on the vehicles. The risk was that the recipient might have to charge VAT at the standard rate and that would mean either the donor had to find the extra money or the recipient in effect had less to spend.

The best thing to do? Seek professional advice. Give the adviser the full facts. Yes. All of them; leave nothing out. That will protect you from penalties for not taking reasonable care.

Got a view on this? I'd love to hear your views - leave a comment.

 

Paying VAT by cheque? You'll need to get the cheque in much earlier...

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, you get an addition seven days to submit your VAT return and 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? I'd love to read your thoughts on this - please leave a comment.

Time limits for keeping VAT records

A little while ago I put out a note about new time limits that HMRC have introduced for how far back it and taxpayers can go when correcting errors, and highlighted the good and the bad points. You can find the post on my website.

After that post, I was asked if that meant that the time limits for keeping records had been reduced from six years. I was unable to answer that question then, but HMRC has again come to my rescue by issuing some guidance on how long papers need to be kept. The bad news is that nothing in their guidance has really changed.

You can download the HMRC guidance from its website. For more specific guidance on VAT you can find it on HMRC's website here.

What do you think? Given that for direct tax the time limits have been reduced, and for VAT they've been increased, should the time one has to keep records for be brought into line with the new rules?

VAT Fuel Scale Charge - what to do after 1 January 2010

After yesterday's post about the Flat Rate Scheme for small business rates that apply from 1 January 2010 I thought I'd remind you about the change to the Fuel Scale Charge. I've prepared a table showing the new amounts to apply now that the VAT rate has increased to 17.5%.

If you apply the Fuel Scale Charge for private motoring you need to remember to apply the correct rate for months after 31 December 2009. If your VAT period spans the change in rate, those months that come after the change will need to pro-rate your fuel scale charge for that VAT period.

VAT: The Flat Rate Scheme - new rates from 1 January 2010

With the change in rate of VAT on 1 January 2010 the rates to be applied by those using the Flat Rate Scheme have changed, again! For information on how to apply the changes visit HMRC's website.

 

The following table shows the percentage that businesses in the Flat Rate Scheme should use from 1 January 2010 in preparing their VAT returns.

Category of business

Appropriate percentage

Accountancy or book-keeping

13

Advertising

10

Agricultural services

10

Any other activity not listed elsewhere

10.5

Architect, civil and structural engineer or surveyor

13

Boarding or care of animals

10.5

Business services that are not listed elsewhere

10.5

Catering services including restaurants and takeaways

11

Computer and IT consultancy or data processing

13

Computer repair services

9.5

Dealing in waste or scrap

9.5

Entertainment or journalism

11

Estate agency or property management services

10.5

Farming or agriculture that is not listed elsewhere

6

Film, radio, television or video production

11.5

Financial services

12

Forestry or fishing

9.5

General building or construction services*

8.5

Hairdressing or other beauty treatment services

11.5

Hiring or renting goods

8.5

Hotel or accommodation

9.5

Investigation or security

10.5

Labour-only building or construction services*

13

Laundry or dry-cleaning services

10.5

Lawyer or legal services

13

Library, archive, museum or other cultural activity

8.5

Management consultancy

12.5

Manufacturing fabricated metal products

9.5

Manufacturing food

8

Manufacturing that is not listed elsewhere

8.5

Manufacturing yarn, textiles or clothing

8

Membership organisation

7

Mining or quarrying

9

Packaging

8

Photography

10

Post offices

4.5

Printing

7.5

Publishing

10

Pubs

6

Real estate activity not listed elsewhere

12.5

Repairing personal or household goods

9

Repairing vehicles

7.5

Retailing food, confectionary, tobacco, newspapers or children’s clothing

3.5

Retailing pharmaceuticals, medical goods, cosmetics or toiletries

7

Retailing that is not listed elsewhere

6.5

Retailing vehicles or fuel

6

Secretarial services

11.5

Social work

10

Sport or recreation

7.5

Transport or storage, including couriers, freight, removals and taxis

9

Travel agency

9.5

Veterinary medicine

10

Wholesaling agricultural products

7

Wholesaling food

6.5

Wholesaling that is not listed elsewhere

7.5

(1) * “Labour-only building or construction services” means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are “general building or construction services”.

Want to know how much VAT you're paying? Here's how to work it out

If you run a VAT registered business you will get bills that show a VAT inclusive price. You need to know how much VAT is in that price so you can reclaim it on your next VAT return. Here's how you do it:

Let's work with a nice round figure: £100.

The current VAT rate (November 2010) is 15%. So you multiply £100 by 15 and divide it by 115... Eek! big numbers. It's easier, you multiply it by 3 and divide by 23.

100 x 3 = 300

300 ÷ 23 = 13.0434

The VAT in £100 is £13.04.

The VAT rate goes up on 1 January 2010, so here's how it works from then. Same method just different numbers:

100 x 7 = 700

700 ÷ 47 = 14.8936

The VAT in £100 is £14.89 when the VAT rate is 17.5%

Buying VAT free from abroad...

I had a letter from Royal Mail the other day asking me to pay VAT on a parcel I had ordered from the USA. The parcel arrived today, after I'd paid the VAT and Royal Mail's handling fee.

So what? 

Well I've bought quite a few things from the USA and received the goods without paying VAT, so it's a bit of a lottery.

BUT...

If you are buying low value items, up to £18 including delivery, you can get these imported free of VAT. HMRC have been concerned that UK businesses are misusing this relief by sending goods, such as CDs and DVDs, out to the Channel Islands and claiming that they are selling them there to UK customers. Provided the items are within the £18 limit they don't account for UK VAT on them. They'll even split an order into smaller packs to take advantage of the relief from VAT.

It appears, according to an article on the Guardian website, that HMRC are now looking at how they can beat this loss to the Revenue by saying that the use by UK businesses of this system is abusive. I can see how HMRC would consider that they had a case to bring against some of the UK retailers. If you are interested in that aspect I suggest you read the Guardian article.

What did I want to say?

Oh, yes...

If you are looking for CDs, DVDs, SD cards, Compact Flash cards, etc. that are relatively cheap, you might find you can save money by buying from a business outside the EU. The important thing to remember is that the real limit is £18 but that HMRC don't always spot those that are over the limit, so you can get a real bargain. On the other hand, if your purchase only just exceeds the limit and you have to pay VAT, you'll also pay Royal Mail or Parcel Force a clearance fee that might make the whole exercise rather expensive.

So, the lesson to take from this article?

Be aware of the limit.
Expect to pay VAT if your order is over the limit.
If you receive the goods without paying VAT, that's a bit of good fortune and something that is unlikely to happen every time.
If you've been lucky, let me know in the comments below. If you've had to pay VAT, have a moan in the comments - get it off your chest!

I'm looking forward to reading your comments.

If you have been, thank you for reading this far.

Can I claim back VAT on car parking charges?

I was asked this recently and like a good VAT adviser answered with a non-commital: it depends.

The client explained that they had several employees who travelled to meetings and incurred costs of parking. Sometimes the vouchers the employee got when parking showed a VAT number and sometimes it didn't. This was confusing and they wondered whether they could just write the VAT number on the vouchers they had which didn't have a VAT number on.

No! That way lies problems.

Let me explain. Car parking falls into two categories:

1. On-street parking; and
2. Off-street parking.

On-street parking is operated by the Local Authority and is covered by statute. Because of this there is no VAT on on-street parking charges.

Off-street parking is probably liable to VAT. It depends on whether the organisation operating the car park is VAT registered. You will know this because the car park vouchers will show a VAT number, or you can get a VAT receipt for the parking charge from the attendant. It's harder to get a VAT invoice from an attendant as more and more car parks rely on machines to deal with the money and tickets.

So the answer: it depends!

If the voucher has a VAT number on it you can claim back the VAT.

What if you've overstayed your welcome and incurred a penalty in an off-street car park?

This is harder to answer, but in most cases there will be no VAT on the penalty as it is compensation for loss of use of the parking space. Most car parks will operate on this basis. However, to be really sure of the right answer you'd have to get a copy of the terms and conditions of the car park... 

Yeah! Right! who's going to do that...

If you're really lucky you can take a photo of the car park's basic terms that might be on display near the entrance and read that when you have quiet five minutes. No? Well it was just a suggestion since most of us have a camera in our mobile phone. It's probably safer to just accept that you don't recover the VAT on parking penalties.

As most parking vouchers don't show the VAT separately do you know how to work it out? I'll post an article on how to do this soon.

If you've read this far, thank you. Please leave a comment or ask a question below.

VAT registration woes..

Picture

Oh! Good grief! Is that really the standard of response people get from HMRC's VAT registration unit in Wolverhampton??

Let me explain. I've just been reviewing a copy of a letter that an accountant client received from HMRC. He had submitted an application to register for VAT on behalf of his client because they'd acquired a property as a transfer as a going concern.

Eh? I hear being muttered. The entity applying for the VAT registration had acquired a commercial property with a sitting tenant from another entity that had opted to tax the property, i.e. charge VAT on the rent.

So the accountant had sent in an authorisation for HMRC to talk to him and HMRC's note says, in essence, before we can talk to the agent (the accountant) they have to submit a form, and it has to be the latest edition of the form. And as we haven't received the form we aren't sending this to your accountant. Err? Who sent me the copy? Oh! yeah! that's right the accountant to whom HMRC haven't sent a copy. Confused? You'll be more confused as this story unfolds.

In addition to this they enclosed a 'property questionnaire' which has left me almost speechless. The questionnaire appears to have been put together randomly from parts that are provided as boiler plate text in a template without any thought for the information already held! At least two of the questions cannot be answered because they either don't apply or none of the options applies to the situation. This is worrying because at the top of the form it says: "Any missing or incomplete information/evidence will delay your application."

One question asks questions that can only apply to non-commercial property and given the applicant has already told them this is commercial property...

Another asks for information that was provided on the application form! {Shakes head in wonder at the lack of forethought of the person compiling the form}

See the picture of the questionnaire if you need convincing!

I can almost hear you cry: Enough! Enough! And I haven't even posted this yet!

If you have any examples of similar correspondence from HMRC and want to vent your frustration, please comment below. I'll consider using any tales of woe I receive in a paper to HMRC, so I'm looking forward to reading them.

If you have been, thank you for reading!