VAT & Making Tax Digital

All businesses are required to keep accurate records for both taxation and VAT (Value Added Tax) purposes. VAT is one of the most complex and onerous tax regimes imposed on business – so complex that many businesses inadvertently overpay or underpay VAT. We will also run a series of tests to see if there is a benefit in employing the Standard Rate or Flat Rate Scheme. We can also offer advise in respect of applying for the Option to Tax scheme, enabling the reclaim of VAT on property purchases, renovations or whether to opt out from such a scheme.

The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.

The reduced rate of VAT of 5% to the hospitality, holiday accommodation and attractions sector is extended until 30 September 2021. After this date, the VAT rate will be 12.5% to the end of 31 March 2022, before returning to the standard rate of VAT of 20% from 1 April 2022.

VAT deferral

Businesses with outstanding VAT from last year may join the VAT deferral new payment scheme to spread their payments. The online service is open until 21 June 2021.

Making Tax Digital in the UK from 2019

  1. Making Tax Digital for VAT
    VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns.

    If you are below the VAT threshold you can voluntarily join the Making Tax Digital service now.

    VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax digital rules for their first return starting on or after April 2022.

  2. Digital submission
    At present, most businesses submit their VAT returns through manually re-keying into HMRC’s online portal. This will no longer be permitted once Making Tax Digital comes into force and instead, VAT return submissions must be done digitally via HMRC’s Making Tax Digital API. Digital submission of VAT returns will be required for most businesses for periods starting on or after 1 April 2019. vat-notice-70022-making-tax-digital-for-vat

The ever-widening scope of VAT, the constant stream of detailed changes to the regulations, and the ever growing demands of Customs and Excise call for a trained professional eye to ensure that you do not fall foul of the regulations and do not pay the Exchequer more than you need to!

Particular trades: Hairdressing: Accounting consequences.
If the stylists are employees of the salon, the salon supplies hairdressing services to the customers, and must declare output tax on the gross value. Monies paid by the salon to the stylist are payment for the services of that stylist as an employee, and are outside the scope of VAT. Alternatively if the stylists are self-employed contractors who supply their services to the salon, the salon must account for output tax on gross takings. Monies paid by the salon to the stylist are consideration for a supply of services. The stylist must declare output tax if registered or registrable. vtaxper68900

Distance selling of goods (Post Brexit), means that a UK supplier sells goods to private individuals or customers established in another EU Member State.

From 1 January 2021
The six months between January and until the end of June 2021, goods despatched from the UK to private customers in the EU member state will classed as zero-rated exports. Any import VAT will be due on arrival in the EU member state where the customer belongs will be collected from the customers by the customs declarant (eg the courier, postal operator or customs agent), who in turn will pay over the VAT to the tax authority by a monthly payment for goods with a value less than € 150 (except alcohol, tobacco, perfume) will not be liable to customs duty when they are imported from a non-EU member territory for delivery direct to an end consumer in the EU member state. There are three possible options as follows;

  • You can arrange for your consignment forwarder/express carrier to manage the importation into the EU of packages for EU customers and pay the import VAT (and possibly customs duty if value is greater than €150) on the customers behalf. The UK seller reimburses the freight agent for the payment. Check with your carrier whether you require an EU EORI number. The EU import VAT is not recoverable as input tax.

  • You may register if not already for VAT in the EU member state of the customer and obtain an EU EORI number to import into the EU. Charge domestic VAT to the customer.  This option will allow the UK seller to hold stock within the EU for the fulfilment of orders throughout the EU. The other benefit of holding stock in one EU member state, is that goods can be dispatched to private consumers in all other EU member states, using the distance selling thresholds (until the end of June).  

The current UK customs export declarations for parcel and postage, for movements to non-EU member state countries, will apply also to movements to the EU member states.  For mailing shipments exported by Royal Mail, the use of forms CN22 and 23 will apply for non-controlled goods with a value less than £ 900. For all other mailing activities an electronic full customs declaration must be submitted to HMRC.  For goods exported by express parcel operators other than Royal Mail, a similar full export entry is needed.

From 1 July 2021
The EU is to introduce two procedures to assist e-commerce, two “one stop shop” procedures, which will permit e-sellers to clients to account for VAT, without the need for multiple EU VAT registrations. The seller can choose either option of the two simplifications described below or alternatively can register for VAT in each EU member state they trade.

One stop shop (OSS)
For UK trades selling goods to EU member state customers, the OSS return will allow them to file a single quarterly return declaring and paying any output VAT at the appropriate rates on these sales to consumers in all EU member states.  The UK tax authority will distribute the tax to each EU member state as declared on the return. This OSS return is an extension of the existing EU MOSS system for digital services. The OSS return cannot be used for UK businesses who hold stock inside the EU or use the Fulfilment by Amazon (FBA) programme.

Import one stop shop (IOSS)
UK trades selling goods from outside the EU member states to private consumers valued at less than €150, can register for IOSS in just one EU state.  They will be issued a unique IOSS identification number which should be listed on all packages sent to the EU. This will indicate to Customs that VAT is being properly declared and help ensure speedy customs clearance. Like the OSS, IOSS will be a quarterly filing submitted to a tax authority in one designated EU member state. It will declare import VAT due in all EU member states. A typical example is mail order companies.

Online marketplaces and imports

Changes also affect online marketplaces (OMP) importing goods into the EU and Northern Ireland. The UK partly implemented this for imports into Northern Ireland from outside the UK and the EU from 1 January 2021.

An OMP that is registered for the IOSS will be liable to account for the supply VAT on imports of low value goods into the EU and Northern Ireland under the schemes rules. For imports into Northern Ireland, where the OMP has not opted to register for IOSS, import VAT will continue to be collected in the same way as it is now.

Sales made by businesses through an online marketplace that is not registered for IOSS has the option to appoint an EU established intermediary to represent them and to account for VAT on their sales through IOSS. Alternatively, where an intermediary is not appointed and IOSS is not used import VAT will be due on importation as it is now.

Online marketplace liability will not apply in relation to Great Britain businesses that make sales of goods to Northern Ireland customers.

Online marketplaces and supplies within the EU

OMPs will be liable to account for the supply VAT on goods located within the EU or Northern Ireland when they sell these goods on behalf of overseas sellers located outside of the EU and Northern Ireland. The online marketplace liability will also apply in relation to Great Britain businesses that make sales of goods located in Northern Ireland at the point of sale for delivery to EU customers, but not customers in Northern Ireland.

The OMP will account for the VAT as though it were a sale by them and where it is a distance sale within the EU the OSS can be used by the OMP to account for the VAT on those sales.

Examples

Distance selling

Business DA sells £3,000 of goods from Northern Ireland to each of France, Italy and Bulgaria. As the combined value (£9,000) exceeds the £8,818 pan-EU threshold, the seller is required to account for VAT in each of these EU member states. The default requirement is to register for VAT in each EU member state. However, the Northern Ireland seller can register for the OSS in the UK and make one declaration for all 3 sales.

Business DB in Northern Ireland with a total turnover of £30,600, wants to register for OSS in the UK. It is thus required to register for VAT in the UK first to obtain an XI indicator. As the turnover of Business DB is below the domestic UK VAT registration threshold of £85,000, the business does not need to account for VAT on these domestic sales. Business DB can, of course, voluntarily VAT register for these sales. Further information on registration in these circumstances will be provided soon.

Business DC, based in Ireland, is registered for OSS because it makes B2C supplies of electronically supplied services to consumers in EU member states. It also makes these supplies to Northern Ireland customers. As services are not within the scope of the Northern Ireland Protocol, these supplies should not count towards the €10,000 threshold nor be declared through OSS. Instead, the Irish supplier will be required to register for VAT in the UK and account for VAT through a UK VAT return.

Low value imports

Supplier LA based in the US supplies £120 worth of goods to a customer in Northern Ireland. As the value is below the £135 threshold, the supplier is liable to register for VAT in the UK and account for VAT on the UK VAT return. Supplier LA may opt to register for the IOSS, and they can do this in any EU member state or the UK. Once registered, supplier LA can account for all their sales valued below £135 made to EU and Northern Ireland customers via IOSS.

Supplier LB based in Japan makes occasional low value supplies of goods into a number of EU member states and is unsure of how the IOSS works. They can use an EU or Northern Ireland established intermediary (agent Z) that is registered for IOSS to account for their sales as though they were the supplier. Agent Z may be similarly contracted with many suppliers like LB around the world. Agent Z is treated as the supplier of all these goods so makes a single declaration for all their clients’ sales through the IOSS.

Supplier LC VAT registered in Great Britain ships £50 worth of goods to a Northern Ireland consumer from Great Britain. The supplier in Great Britain can opt to use the IOSS, they can do this in any EU member state or the UK. If they do not use IOSS, then the normal Great Britain to Northern Ireland rules will apply, and the supplier will account for the import VAT on their VAT return.

Online marketplace imports

Suppler MA based in China sells goods located in China to a Northern Ireland consumer through an OMP registered for IOSS. The OMP is deemed to be the supplier to the customer and the example of Supplier LA (in the Low value imports section) will apply.

Online marketplace intra-Northern Ireland

Supplier NA based in China also has goods stored in Northern Ireland which he sells to a customer through an OMP. The OMP is deemed to sell the goods within Northern Ireland and is required to register in the UK and account for the sales VAT. Similarly if the OMP is also the platform that NA sell goods through in several EU member states that are located in those EU member states, then the OMP will be required to account for the VAT on the sales of these goods in each member state.

OMPs can opt to use OSS for goods located in the EU where goods are sold within and shipped between EU member states including to or from Northern Ireland. If the OMP does not opt to use OSS, then they would be required to register and account for VAT in each of the relevant member states.

EORI; If you move goods between the EU and the UK, you will need an Economic Operation Registration Identification (EORI) number to continue trading with the European Union if the UK leaves without a deal. This is irrespective of the mode of transport being used to move your goods from one place to another.

We provide an efficient cost-effective VAT service, which includes:

  • Assistance with VAT registration both in the United Kingdom and all countries within the European Union
  • Advice on VAT planning and administration
  • Use of the most appropriate scheme
  • VAT control and reconciliation
  • Help with completing VAT returns
  • File on line to meet current regulation
  • Planning to minimise future problems with Customs and Excise
  • Negotiating with Customs and Excise in disputes and representing you at VAT tribunals

If you would like more information or would like to ask us a question then call us on 0161 283 9639. JT Accountants take every care in making their recommendations and offering advice, any contract is bound between the selected accountant and the client.

JT Accountants cannot be held liable for any failure on the part of either of the parties concerned. JT Accountants is a trading name of JT Accountants Limited Company No. 06554865. Registered in England and Wales. Registered Office Flat 1, Sir Matt Busby Way, Old Trafford, Manchester, M16 0QG.

  

 


JT Accountants

Tel. 0161 283 9639
Suite 1, Sir Matt Busby Way, Old Trafford, Manchester, M16 0QG.