View the related Tax Guidance about VAT return
Submitting online VAT returns
Submitting online VAT returnsAll VAT registered businesses are required to submit their VAT return electronically unless they are covered by one of the exemptions explained below. If a business is legally required to submit an electronic return and it renders a paper VAT return, it may incur a penalty. This note should be read in conjunction with the Making Tax Digital ― overview guidance note as most businesses are required to meet the MTD provisions when submitting VAT returns. Who must submit an electronic VAT return?All businesses are required to submit an electronic VAT return, with the exception of the following, who are exempted from being required to submit an electronic VAT return:•where it is not possible for the business to use a computer to submit its returns, for reasons of age, disability or remoteness of location•where HMRC is satisfied that the business is run by practising members of a religious society, whose beliefs prevent them from using computers•where the business is subject to an insolvency procedure; however, if the business has an approved voluntary arrangement online returns can be submittedIf the business considers that it meets one of the exemptions then it needs to write to HMRC providing a full explanation, together with any supporting documentation, detailing why it is not required submit its returns electronically.HMRC also has the ability to approve telephone filing as an electronic return system for use by specified categories of VAT registered businesses as a result of the decision reached
Reverse charge ― buying in services from outside the UK
Reverse charge ― buying in services from outside the UKThis guidance note covers the reverse charge that applies to services that have been bought in from outside the UK. For an overview of VAT and international services more broadly, see the International services ― overview guidance note. For in-depth commentary on the legislation and case law in relation to the reverse charge, see De Voil Indirect Tax Service V3.231.Reverse charge ― the basicsCertain services are subject to a reverse charge when they are bought in from outside the UK. This means that instead of the supplier being required to register and account for VAT on its supply of services as normal, the obligation to account for VAT on the services is actually shifted to the customer. The customer therefore treats the service as if it were supplied both to and by itself. In other words, the customer must ‘self-account’ for the VAT on its purchase. The customer is still able to recover the VAT that it charges to itself under the reverse charge subject to the normal VAT rules for input tax recovery. This means that if the customer is entitled to recover all of its VAT, the reverse charge ends up being a simple administrative entry on its VAT return. However, if the customer is not entitled to recover all of its VAT (for example because it is partly exempt), then the reverse charge will have the effect of increasing the amount of VAT due to HMRC. The
Input tax ― business, non-business and private use
Input tax ― business, non-business and private useThis guidance note looks at issues around whether expenditure is used for business, private or other non-business purposes in the context of VAT recovery and input tax.For an overview of input tax more broadly, see the Input tax ― overview guidance note.For in-depth commentary on the legislation and case law on input tax and business activities, see De Voil Indirect Tax Service V3.405A–V3.410.Business, non-business and private use ― the basicsA general rule is that it is not possible to recover VAT on costs incurred on non-business activities. There are, however, a number of significant exceptions to this general rule that are summarised towards the end of this guidance note. Only VAT on costs which is used for business purposes can properly be said to be ‘input tax’. VAT which is incurred for either private or non-business purposes is not input tax and cannot be recovered, other than in exceptional circumstances. HMRC policy regarding whether an activity is in the course or furtherance of a business has been influenced by Court decisions. The Court of Appeal decision in Wakefield College v HMRC is particularly relevant in this context and has resulted in HMRC referring to a two-stage test to determine whether an activity is a business activity, namely:•does the activity result in a supply of goods or services for consideration?•is the supply made for the purpose of obtaining income?Wakefield College v HMRC [2018] EWCA Civ 952Please refer to the General principles
VAT review ― registration and compliance
VAT review ― registration and complianceThis guidance note is intended to provide more detail on areas to consider during a VAT review which relate to general compliance. This document should be used in conjunction with the Checklist ― VAT review when undertaking the actual review in order to ensure that all relevant items have been covered.Whilst this guidance and associated checklist have been prepared to seek to cover the common issues and risks which might arise, care should be taken to ensure that any specific business or sector issues are considered as part of a comprehensive review.VAT returns and compliance ― return and payment deadlinesA typical starting point when undertaking a VAT review or due diligence exercise is to confirm whether all VAT returns and payments have been made on time. The VAT return and any payment due must reach HMRC by the due date stated on the return. For a normal return, this will be:•no later than one month after the end of the VAT return period, and•no later than one month after the effective date for cancellation of registration (or, in the case of a business that had failed to register, one month after the date when liability to be registered ceases)Businesses can check the payment deadline using the payment deadline calculator provided by HMRC.If during the course of a VAT review it is identified that returns or payments have been made late, the next step will be to confirm whether the business has
Exemption ― finance ― intermediaries
Exemption ― finance ― intermediariesThis guidance note is intended to provide details on the VAT treatment of intermediary services provided in connection with the provision of financial services. What are intermediaries?It is very common for supplies of financial services to involve other businesses acting as intermediaries between the parties buying and selling the financial services. Other businesses may also be involved in the transaction providing specialist advice or assisting with ensuring that the transaction takes place. The supply of intermediary services connected with financial services are often exempt from VAT.A supply of intermediary services consists of bringing together, with a view to the provision of financial services:•persons who are or may be seeking to receive financial services•persons who provide financial servicesThe performance of preparatory work before the conclusion of a financial services contract can be exempt from VAT. This does not include a supply of market research, product design, advertising, promotional or similar services unless it forms part of a composite supply of exempt intermediary services (see below).In order for an intermediary service to be exempt from VAT, the party must be acting in the following capacity:•must be acting as an intermediary in relation to an exempt financial services transaction•must be providing an intermediary service in relation to the exempt financial services transaction•if the financial services transaction falls within VATA 1994, Sch 9, Part II, Group 5, item 1, 2, 3 or 4, the intermediary must be undertaking work that is preparatory to the
Flat rate scheme (FRS) — operating the scheme
Flat rate scheme (FRS) - operating the schemeThis guidance note sets out how to operate the flat rate scheme (FRS). For an overview of the FRS more broadly, see the Flat rate scheme (FRS) - overview guidance note.See also De Voil Indirect Tax Service V2.199B and V2.199C.Operating the FRS - the basicsA business operating the flat rate scheme (FRS) must choose, from a prescribed list of sectors, the sector which most closely describes its type of business. A set ‘flat rate percentage’ is applicable to each sector.In simple terms, this flat rate percentage is applied to the VAT inclusive turnover of the business to calculate VAT due to HMRC for a period. This means that the business is not required to keep detailed input tax records to work out exactly how much VAT can be reclaimed on costs. Instead, a notional amount of VAT recovery is built into the flat rate percentage.For example, an accountant operating the FRS is likely to choose ‘accountancy or book-keeping’ as its type of business. The applicable flat rate percentage is 14.5%. If the accountant has a VAT inclusive turnover of £120,000, VAT due will be £17,400 (£120,000 x 14.5%).Various factors can complicate the basic operation of the FRS. For example, when choosing an appropriate sector there may be multiple possibilities or a business may have more than one kind of business activity. There are also special ‘limited cost trader’ rules which mean that businesses with low levels of costs must use a higher
Annual accounting scheme (AAS) ― eligibility, joining and leaving the scheme
Annual accounting scheme (AAS) ― eligibility, joining and leaving the schemeThis guidance note provides an overview of the main principles regarding the annual accounting scheme. It should be read in conjunction with the Annual accounting scheme (AAS) ― operating the scheme guidance note. AAS ― main principlesThe annual accounting scheme enables qualifying businesses to submit one VAT return each year. The business will need to pay its annual VAT liability via nine monthly or three quarterly instalments during the tax year. The payments must be made by either direct debit, standing order or another form of electronic payment.When a business joins the scheme, HMRC will calculate the instalment amount and due date. If the business disagrees with the amount calculated or the business activities change, it should write to HMRC to request that the value of the instalments is amended (see below for contact details).Businesses are entitled to make additional voluntary contributions towards their annual VAT liability if desirable.At the end of the tax year, the business will need to submit a VAT return together with any balancing payment due.AAS ― scheme advantagesThe following are the main benefits:•provides certainty in terms of cash flow as the business knows what VAT needs to be paid via instalments during the tax year•additional payments can be made if the business is aware that it may have to make a larger payment at the end of the year•only one VAT return needs to be submitted each year•businesses have two
Penalties for late filing
Penalties for late filingIntroductionA single regime that imposes penalties for failure to make or deliver returns or documents on or before the statutory filing date for the particular return in question was legislated in FA 2009, Sch 55.Despite this intention, the FA 2009, Sch 55 penalty regime does not apply to:•corporation tax returns•inheritance tax returns•share scheme returns•digital services tax returns•VAT returnsThe penalties under the FA 2009, Sch 55 regime and the penalties outside of that regime are summarised below.When is a return considered to be delivered to HMRC?Online returns are automatically recorded as being received as soon as the HMRC computer system receives the return. Simple checks are carried out automatically and HMRC reviews the return to ensure it is complete.Returns sent by post or delivered in person are considered to be delivered when physically handed over to HMRC office staff, or placed in an HMRC office letter box during work hours. HMRC will update its computer system to show the return has been received, either on the day of receipt or as soon as possible afterwards. Again, simple checks are carried out and the return reviewed to ensure it is complete.Taxpayers or agents who post or hand deliver paper returns to HMRC should retain evidence of the date on which this was done; for example, proof of postage or a contemporaneous file note.FA 2009, Sch 55 late filing penalty regimeFor a list of taxes to which the FA 2009, Sch 55 late filing penalty regime applies, see Simon’s Taxes A4.550.The FA 2009, Sch 55 penalty regime
Cancelling a VAT registration number
Cancelling a VAT registration numberThis guidance note provides:•guidance regarding when a person must deregister from VAT on a compulsory basis•guidance regarding when a person can deregister from VAT on a voluntary basis•practical points to consider in relation to the cancellation of a VAT registrationFor in-depth commentary on VAT deregistration please refer to De Voil Indirect Tax Service V2.151 to V2.155.When must a person deregister from VAT on a compulsory basis?The VAT registration ― voluntary guidance note explains when a person is entitled to be registered for VAT. A person who is registered for VAT and ceases to be entitled to be registered must notify HMRC within 30 days from the date they ceased to be entitled to be registered. HMRC can cancel the registration of a person who has ceased to be entitled to be registered for VAT, even if the person has not notified HMRC. A failure to notify HMRC may result in a penalty. If the reason the person is no longer entitled to be registered is because they have transferred their business as a going concern the VAT registration number may, subject to the agreement of the person acquiring the business and HMRC, be transferred to the person acquiring the business. The request for the VAT registration number to be transferred should be submitted to HMRC using the form VAT68. In all other circumstances the VAT registration number must be cancelled, although HMRC may agree to a request for the deregistration to be
Sector summary ― retail
Sector summary ― retailIntroduction to the sectorThe retail industry includes any businesses involved with selling products directly to consumers for use or consumption, rather than for resale. Traditionally, the retail sector encompassed shops, department stores and supermarkets. However, online retail is a prolific and growing segment of the market. This guidance note covers the key areas of consideration within VAT and indirect taxes for the retail sector. This guidance note acts as a useful starting point for advisers preparing for a meeting with a retail client, as well as in-house VAT teams.Key considerationsTopicOverviewCommon issuesLinks to further guidanceVAT liability of productsEnsuring that the correct VAT rate is applied to each product can be a significant challenge for retailers. Regular VAT liability reviews should be performed and product files updated to reflect any changes in the applicable VAT rate. This will be a particular focus for retailers selling:– food– pharmaceutical products (including contraceptives and smoking cessation products) – children’s clothes or safety equipment– books / magazines– women’s sanitary products– ensuring the correct VAT rate is applied to new products (it is not sufficient to rely on the VAT rate applied by the manufacturer) – monitoring changes to VAT rates – single vs multiple supplies. For example, applying the correct VAT rate to meal deals or products which are bundled (eg a free toy with a magazine)VAT rates applicable to goods and services ― overview; Single or multiple supplies ― overviewRetail
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