News & Updates

Since 2010 UK business have been able to use an electronic service operated by HMRC to claim refunds of VAT incurred in other EU member states. This process is accessed through the government gateway as part of the old VAT online service, and this is causing problems for businesses which have filed VAT returns under MTD.

When you log into the EU VAT claim system it may request that you enter the amount of VAT paid on the last VAT return as the answer to a security question. However, if you enter the VAT reported on the last VAT return submitted under MTD, this answer will be rejected. You need to enter the VAT liability as reported on the last VAT return submitted through the government gateway old online portal.

HMRC is aware of this problem and may fix it before the deadline for submitting refund claims for VAT incurred within 2018, which is 30 September 2019.

If the UK leaves the EU on 31 October 2019 without a reciprocal arrangement in place for VAT refunds, HMRC’s access to the digital portal for claiming refunds from EU member states will close. UK businesses will have until 5pm on 31 October 2019 to use that digital portal to claim any refunds for VAT incurred in 2019 up to that date.

After that point UK businesses will have to use the paper-based system available to non-EU businesses. Each refund claim will have to be made directly to the tax authority of the country where the VAT was incurred, and it may have to be submitted in the language of that country. There is likely to be a delay in obtaining refunds.

Written by the Tax Advice Network

The tour operators margin scheme (TOMS) is used by businesses in the travel and leisure sector. Earlier this year HMRC changed its policy on the treatment of retained deposits, such as when a customer doesn’t turn up at a hotel to use the room as booked.

From 1 March 2019 HMRC’s advice was that the retained deposit income had to be included in the TOMS VAT calculation. HMRC has now changed its guidance on forfeited deposits and cancellation fees, but outcome depends on whether the business uses method 1 or method 2 of TOMS.

Method 1 is more widely used, and requires the business to recognise the income when the customer either arrives or departs. If the customer never arrives no tax point arises, and as such the forfeited deposit is not included in the TOMS calculation.

Where you have included deposit income in the TOMS calculations since 1 March 2019 it can correct that error on their next VAT return. If the amount of VAT exceeds £10,000 it needs to be separately disclosed to HMRC.

Written by the Tax Advice Network

RTi was introduced over five years ago, but the automatic penalty system for late filing has still not been turned on. The latest Employer Bulletin (issue 79) confirms that HMRC will continue to risk-assess each significant case of late filing or late payment.

HMRC do not charge a penalty if the FPS is filed within three days of the payment date, and only issue a penalty when the late filing is persistent. Late paid PAYE will attract interest.

Don’t forget to check for electronic warning messages through your payroll software, or by logging into PAYE online and access the Notice Summary section. The penalties due for 2019/20 so far will be issued in September 2019.

Incidentally the “payment date” referred to in the Employer Bulletin is not necessarily the date on which the employees are paid, but it is the date on which the employees are contractually due to be paid. Say the employees are normally paid on 26th of each month, but this month they are paid on 23rd August because of the bank holiday, the payment date should not be changed on the FPS, but should remain 26 August.

Written by the Tax Advice Network

The VAT rates and thresholds applicable in the UK haven’t been altered for some years, but when the underlying rules change for certain goods and services, this can mean that VAT must be applied at a different rate, or that the method of accounting for VAT changes.

Construction industry reverse charge
The introduction of the domestic reverse charge for the CIS registered businesses on 1 October 2019 is the biggest change in VAT for some years. We outlined the changes in our newsletter on 13 June 2019, and the action to take for builder clients in our newsletter on 25 July 2019.

If you are one of subcontractor builder clients who is affected by the reverse charge, and most will be, it may be sensible for you to leave the VAT flat rate scheme on 30 September. It is possible to leave the flat rate scheme in the middle of a VAT quarter, but it is easier from an accounting point of view if the change is made at the end of a VAT quarter.

Energy saving materials
Some firms in the construction industry will be affected by a second alteration in VAT law on 1 October 2019; a change in the rate charged on the installation of solar panels and other energy saving items such as domestic wind or water turbines.

The installation cost is currently subject to 5% VAT, but this is increased to the standard rate of 20% for all turbines.

Installation of solar panels can continue to be charged at 5% VAT where the building is social housing, or the building occupant meets certain conditions. Solar panel installers need to research the detailed rules for installations undertaken from October onwards.

Education
Supplies of education are usually exempt from VAT, but where a charge is made the education provider must be an eligible body for the services to be exempt from VAT. The definition of eligible bodies has been revised from 1 August 2019 (see section 4.1 of VAT notice 701/30). If you are involved in the education sector refresh your understanding of VAT notice 701/30.

Ebooks
If you sell electronic services such as ebooks to customers in other EU countries, and they are not within the de-minimis exemption (£8,188) for VAT MOSS, they need to account for VAT at the rate due where the customer is based. The rate of VAT due on digital publications has been reduced in many EU countries this year, from varying dates depending on the country.

When the UK leaves the EU the de-minimis VAT MOSS turnover exemption will immediately fall away as the UK will be a non-EU country.

Written by the Tax Advice Network

We provided a brief overview of the SBA in our newsletter on 15 November 2018, as this new allowance was first announced in the Budget on 28 October 2019. HMRC has now produced some basic guidance on the SBA.

The SBA provides a 2% flat rate allowance for the cost of constructing non-residential buildings which are used for trading or business purposes, including managing investments and commercial property businesses. Residential properties include any building located in the grounds of a residence such as a home office built in the garden. Also properties used for furnished holiday lettings or residential letting don’t qualify for the SBA.

Construction costs include; building, renovation, repairs, fitting out, site preparation and design. Buying a newly constructed building can qualify for the SBA. However, the SBA can only be claimed on the lower of the construction costs and what the business paid for the building.

You may have incurred costs which qualify for the SBA in an accounting period which ended since October 2018, in which case they need to make a claim in their tax return.

To make this claim the business needs to have an “allowance statement” for the building. The first business that uses the building creates the allowance statement and passes it on to the next user when the building is sold. An allowance statement is also needed for any new extensions or renovations completed for existing structures.

The HMRC guidance on the SBA doesn’t include much detail about the allowance statement. Ideally before you submit a claim for SBA you should read more the detailed guidance in the HMRC capital allowances manual, but that hasn’t been published yet.

If you need to submit an SBA claim as part of a corporation tax return for the year to 31 December 2018 we will be happy to help you.

Written by the Tax Advice Network

A shocking case was reported in the Financial Times this week of two step-sisters who were arguing over which of them should inherit their late parents’ house. The elderly couple had been found dead in their home, and it was not possible to determine who had died first.

The situation was complicated because the father had not made a Will, and his younger wife had made no provision in her Will for her step daughter. If the wife was deemed to have died first her share in the home would pass to her husband. Under the intestacy rules his estate would pass only to his daughter and not to his wife’s daughter.

If the husband died first, the wife would inherit the property and it then would pass only to her own daughter under her Will.

The Court decided that the Law of Property Act 1925 should apply which determines that the elder of the two is deemed to have died first. The wife’s daughter thus inherited the entire property to the exclusion of her step-sister.

This gordian knot would have been easier to unwind if both individuals had made Wills with express provision for both daughters.

Which of our clients have a Will in place? It is important to have an up to date Will, not only for IHT planning, but also to prevent family disputes as described above. Perhaps you can use this shocking news story as a conversation starter to prompt you to think about the division of your assets after your death.

If you want to take advantage of the 36% rate of IHT by leaving at least 10% of your net estate to charities, then your Will should include express provision for those gifts. STEP has recommended a draft clause to be used to achieve this goal.

Written by the Tax Advice Network