VAT is one of the most complex tax regimes imposed on businesses and organisations. It’s such a mine field that many businesses are inadvertently paying the wrong amount of VAT. We cover some of the most common topics we discuss with our clients.
Retailers who sell food – hot or cold? VAT charged or not?
There are two key questions to ask when deciding whether the sale is standard rated or zero rated.
- Is any supply of food for consumption on the premises on which it is supplied; and
- Is any supply of hot food provided for consumption off those premises?
If the answer to either question is yes, then the chances are that the sale is going to be subject to VAT. However, HMRC have definitions of what is meant by the terms ‘hot’ and ‘premises’, so care needs to be taken to ensure VAT is not charged incorrectly.
For example, in some circumstances, a pasty from a bakery may be physically hot but if it is freshly baked then it may fall outside HMRC’s definition of hot. With regards premises this does not just mean your café or shop but can extend to seated areas outside your café.
Bad debt relief – two way street
It is commonly known there is an ability to make a claim on the VAT charged on bad debts in respect of sales that a business makes after it has remained unpaid for at least six months. However, some people overlook the fact that if a business has not paid an invoice from a supplier for six months it has to reverse out and paid back to HMRC for any of the input tax that it has reclaimed.
VAT invoices – do your sales invoices comply?
When was the last time you checked your sales invoices are compliant with HMRC’s rules? There are specific points of information needed on an invoice to make it a VAT invoice. Failure to adhere to these rules may create issues particularly if VAT has been reclaimed of an invoice that does not meet the conditions to be a VAT invoice.
Business entertainment – reclaiming VAT?
The general definition of what constitutes business entertaining is that it is any hospitality provided to non-employees. This type of expenditure is generally not allowable for VAT recovery. Entertaining costs may be food, drink, accommodation, tickets for events and can even include the use of certain assets such as yachts or private aircraft. The block on VAT recovery applies in all cases but subject to conditions there is a limited concession for overseas customers entertained in the UK and there are a few exceptions for sporting bodies and airlines.
The VAT incurred on staff entertaining is generally recoverable with a few exceptions. The VAT on expenses in relation to Directors, partners and sole proprietors of a business and employees acting as hosts to non-employees are not allowable for recovery.
Selling goods abroad – evidence that goods have left the UK
If you have export and or even sell goods to other EU countries you are able to treat such sales as zero rated provided you meet HMRC’s rules on holding the correct evidence at the right time. Failure to do so can lead to a business making an under declaration and having to pay VAT to HMRC together with interest and potentially penalties. To ensure that you are complying with HMRC’s VAT rules you must have documentary evidence that the goods have left the UK.