Since the 1st of October 2021, the hospitality and catering industry were granted a 12.5% reduction in VAT rates. This VAT reduction was a blessing for businesses that were victims of the COVID-19 outbreak. Because of this, consumers were enticed into further purchasing with the knowledge of getting more for their money.

However, as of the 1st of April 2022, VAT rates have reverted back to 20%. This leaves businesses outraged that they can no longer reap the benefits. Consequently, this has had a knock-on effect on the VAT Flat Rate Scheme percentages. This we will further explain in today’s article.

What Is The VAT Flat Rate Scheme?

The VAT Flat Rate Scheme is a system designed to simplify the VAT process, especially for small businesses. As opposed to monthly instalments, they are required to pay a fixed percentage of their annual turnover. Although without the recent VAT reduction enabling them to further their budget, this VAT scheme has meant that specific sectors are subject to a new VAT percentage annually.

What are the new VAT percentages for hospitality? From the 1st of April, catering services, including takeaways, restaurants and other outlets, are required to pay 12.5%, while the hotel & accommodation sector is at 10.5% and pubs are at 6.5%. A significant increase from the percentages that aligned with the VAT reduction in the UK.

Related: Correcting VAT Errors

What Does This Mean For Your Business?

With VAT Rates continuously fluctuating over recent years, it’s no surprise that your business has had to adjust its offerings to ensure business stability. With this new VAT increase, we hope you were agile in updating the point of sales systems to reflect these changes.

If unable, we recommend you backlog and set aside the required funds for this new VAT rate. This way, you can ensure that you’re providing accurate invoices. Also, while reducing the risk of impacting your profits and preventing retrospective adjustments.

Now that the hospitality industry cannot take advantage of VAT reduction, it may be time to inspect your sales prices to mirror these new charges. If you decide otherwise, you could potentially impact your overall profitability. Please note that your customers will want to be aware of these changes. So, ensure that you replace numbers on your current menu and/or online ventures such as Booking.com.

Related: Why Small Businesses Should Use An Accountant

How We Can Help 

Here at Thomas Nock Martin Chartered Accountants in Brierley Hill, we endeavour to stay up to date on VAT rates. This includes VAT reduction and increases to provide our clients with valuable insights into how they can sustain custom and profits. As leading tax accountants, we understand the vitality of rises and reductions in VAT. In addition, how this can have a detrimental effect on businesses.

This is why outsourcing tax assistance from experts like ourselves is the ideal way to stay on top of taxes & VAT Rates. You can continue running your business with the knowledge that you aren’t at risk of loss. If you’d like further information on how we can support you in your business’s finances, contact our team at mail@tnmca.com.

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VAT registration for your business may be voluntary or it may be compulsory. However, either way, it will still take time for HMRC to implement you into the system and issue a registration number. So what do you do when it comes to invoicing for VAT before registration?

How long does it take?

The VAT registration period can vary, depending on certain factors. As you probably suspected, there are factors that help determine the time it takes HMRC to register your business for VAT. For example, whether your business has started trading or if you’re backdating your registration. You may be waiting a month or possibly even longer before you receive your registration number. During this time you will still need to issue clients with invoices that manage your VAT correctly.

How do you account for VAT that you don’t charge?

HMRC’s advises that: “You cannot charge or show VAT on your invoices until you get your VAT number. However, you’ll still have to pay the VAT to HMRC for this period.” This construes that you will be footing the bill if the date you register from is before HMRC notifies you of your registration number. However, this implication is not true.

Our advice when it comes to registering is this:

• You can ask HMRC to apply for your VAT registration number from a future date. However, this only applies if you are registering voluntarily. Generally, one month in advance is plenty of time and you will not need to charge your customers VAT until this date.

• Special rules apply which allow you to claim VAT on pre-registration expenses, this means you won’t be out of pocket on purchases. Make sure you are up to date with these rules.

Be conscious of what you are charging

If you are delivering goods to a customer but billing them at a later date, and your VAT registration starts somewhere in-between, you need to be careful about how much VAT you charge. It’s important to ensure that where you supplied goods before the registration you don’t charge VAT – even though you’re registered when you bill your customer.

Invoicing clients for VAT before registration

There are a couple of options if you need to invoice a customer after the date of registration has passed, but before your VAT number arrives:

• A simple solution is to invoice the customer excluding VAT, then send a second invoice for VAT only, once you have received your registration number.
• A second option is to issue an invoice with the total amount inclusive of what the VAT amount will be, but do not break it down or call it VAT (this is illegal), then send an amended invoice once you have received your registration number showing the additional amount as VAT.

Make sure that whichever option you choose, you are clear with your invoicing. This will help to avoid customer confusion and any error in the handling of the VAT.  In addition to the above, to avoid any mal interpretation, we advise that if you choose to add an additional amount to your invoice that is equal to the VAT amount. Then you should also include a description that says something to this effect: “This charge is in lieu of VAT pending registration. You cannot reclaim it on your VAT return until we send you a VAT invoice.”

Invoice details

Once you are VAT registered it is a good idea to check the information you currently include on your invoices. You may be required to display further details to ensure you are acting within the law.  

Get in touch today

If you have any questions about VAT registration or need VAT support and advice, then Contact Thomas Nock Martin accountants today. Our team will be happy to help and can check that your company is operating within the law.  Alternatively, call us on 01384 261300.

If you have found this blog helpful, you may wish to read our previous blog on Making Tax Digital.

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With 2021 in full swing we are very much living in a digital world, with the online possibilities seemingly endless. However, there are some businesses where cash is still the primary transaction means.

These businesses face more scrutiny from HMRC and are more prone to HMRC VAT enquiries due to their high risk status. But what are the justifications and causes for VAT investigation? And how can you respond to them if challenged?

Cash 

Small businesses such as stallholders, cafés and takeaway food outlets are examples of the types of business still making substantial cash transactions. Some may even be cash only. Because of this HMRC are more likely to initiate a VAT compliance check. The reason being either by mistake or design, cash transactions are less likely to be recorded accurately.

HMRC has very diligent methods of checking. Therefore, if you are a cash business it’s in your favour to know the rules and play by them.

Models & Data Used for HMRC VAT Enquiries

When it comes to HMRC VAT enquiries, HMRC will compare your records with its extensive data on profit margins, turnover, mark-ups and more. HMRC has significant tools, data and time to investigate businesses in depth. It uses clever software to identify apparent differences between figures in a business’s accounts and those it expects to see for the type and location of your business.

Of course, discrepancies aren’t evidence of dishonest behaviour, simply a signal to look deeper. However, it is a red flag, especially if your business takes a lot of cash. 

HMRC Compliance Checks for a Small Business

HMRC might be proactive and take immediate action, or they may take a different approach and wait until a later date to look at investigating further. 

If they do decide to take immediate action HMRC might carry out a thorough observation of your premises. For example, in the case of a pub or bar, VAT officers will count the number of customers and, wherever possible, how each customer pays. Multiple visits will be made to get an accurate conclusion of how your business runs.

HMRC do not have to announce their visit. They can ask you to offer sales records and other information, showing sales for a specified period to compare with their observations. However, it’s important to note that you don’t have to provide documents or information at this point. You are within the law to politely refuse and say that you’re happy to cooperate, but wish to consult your accountant first.

How to Handle Discrepancies

The conclusions that HMRC officers draw from their VAT enquiry are trusted and viewed accurate enough for HMRC to make their case. However, from a business perspective there could be any number of legitimate reasons why your takings may not marry up to the observations by the VAT officer. A margin for human error has to be taken into consideration. Therefore, if you are investigated and discrepancies apply consider the following: 

• consider if there were reasons why their observations regarding the level of trade or cash taken might not be representative. For example, you were running a sales promotion at the time.
• check its workings for basic errors such as the hours of business, incorrect mark-ups, not accounting for shrinkage, etc;

Keep Accurate Records

Your best defence is good record keeping. However, even if you have nothing to hide it’s advisable to speak to your accountant before handing over any documentation.

If you have systems in place for checking cash sales against the cash deposits, HMRC is more likely to budge on their findings. Keep track of all outgoings so that you can easily account for any differences.

Thomas Nock Martin | Small Business Tax Specialists

We are specialists in small business tax UK, which means we can offer the right guidance for your circumstance. If you’re looking for guidance on HMRC VAT enquiries, then call us today on 01384 261300. Alternatively, you can visit our website for more information. Let us help your business. 

You may also want to read up on VAT Partial Exemption | Do You Know What You’re Entitled To?

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VAT partial exemption is one of the most difficult aspects of the VAT system and more often than not, requires an accountant that knows VAT schemes (in the) UK inside out. A business is partly exempt if it makes, or intends to make, both taxable and exempt supplies and incurs tax on costs, which relate to both.

If your business is partially exempt, you may not be able to recover all your input tax. You will have to use a partial exemption method to work out how much input tax you can recover. But what VAT scheme for small businesses saves the most money? When can you use a “special method” to lower your VAT bill? And what does “de minimis” mean when it comes to business tax? Read on to discover tax saving tips for a small business in the UK. 

VAT partial exemption – recognising if you are exempt

So how do you know if your business is eligible for VAT partial exemption? Let’s say you own a dentist surgery. Your main revenue stream is dental services, which are exempt from VAT. However, you also sell toothbrushes and other oral hygiene products, which are taxable sales. This makes you a partially exempt business.

The basic concept of VAT partial exemption is:

• You can reclaim VAT on purchases that have a direct and immediate link to a taxable sale.
• You cannot reclaim VAT on purchases that have a direct and immediate link to an exempt sale.
• You can reclaim VAT on purchases that cannot be attributed to either a taxable or exempt (overhead VAT) sale based on the ratio of the value of your taxable and exempt sales.

You can start to understand why professional advice is often sought in this complex area of VAT partial exemption. 

Using the dental surgery example, you can reclaim VAT incurred on the purchase of dental products for resale, but you can’t reclaim VAT incurred on the purchase of equipment for providing dental services. The VAT incurred on the electricity supplied to the surgery, can’t be attributed to either the taxable or exempt sales, in this instance a portion of this VAT can be recovered; it is calculated based on the ratio of the value of the taxable and exempt sales.

De minimis

It’s worth noting that where the amount of VAT paid on costs linked to exempt supplies is small or proportionately small compared to the overall total, the “de minimis” rule may allow you to reclaim all the VAT on costs even though some of it relates to your exempt supplies. To fall under the de-minimis limits the exempt input tax must be both:

• Below £7,500 per year, or £1,875 per quarter or £625 per month; and 
• below 50% of the total input tax.

If the amount of input tax is beneath both of the above the de-minimis limits it is recoverable in full, if it exceeds the de-minimis limits it is wholly irrecoverable.

What is a special method?

There is also an option to propose a special method of calculating how much input VAT you can reclaim if your business is partially exempt, but HMRC must agree to this. For HMRC to agree to the special method the calculation must produce a fair and reasonable result that is equally or more fair and reasonable than the standard method. HMRC won’t approve the method otherwise.

How much VAT can you reclaim?

The proportion of VAT you can reclaim on general costs is worked out using HMRC’s standard method unless HMRC agrees to a proposed special method. In order to calculate how much VAT you can claim via the standard method you have to compare the value of your VATable sales with the exempt sales and limit the VAT you reclaim in proportion to the VATable fraction. 

Methods of apportionment 

The standard method of splitting the pot is based on turnover. The recoverable amount is the percentage of taxable sales as a proportion of total sales whilst the exempt amount is the percentage of exempt sales as a proportion of total sales. This will generally give you a reasonable approximation of how overheads have been used between taxable and exempt sales. This does not require an agreement from HMRC. It is usually possible to round up the percentage recovery rate to the next whole number, provided residual input tax does not exceed £400,000 per month on average.

Contact us today

If you would like advice on VAT partial exemption, or more information on VAT schemes in the UK then get in touch today. Call 01384 261300. Our experienced accountants will be happy to help and can make reclaiming VAT (even partial exemption) a simple and smooth process.  

If you have found this blog helpful, you may wish to read our previous blog on Employment Allowance. 

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You’re on holiday in Europe and you find an item that would be perfect for your office, but reclaiming VAT on EU purchases made abroad can be a daunting prospect. You question whether you should buy it and whether you would be able to reclaim the foreign VAT you pay.  So, how does an EU VAT refund work? 

EU VAT refund directive

The EU directive that you must follow took effect on 1 January 2010. It introduced a new procedure for businesses established and registered for VAT purposes within the EU to request a refund of VAT incurred in other EU countries. The directive allows EU businesses to submit an EU VAT refund form via the website of the tax authorities of the country in which you are VAT registered. Previously, you had to submit claims in hard copy and in the country where you made the purchase. The revised systems work in favour of facilitating and expediting the recovery process of VAT between EU countries. 

Goods and services in the EU

Making a business purchase in an EU country where you are not established or VAT-registered incurs significant VAT on your expenditures in that country. However, non-resident businesses should be able to recover some or all of the VAT incurred, thereby reducing the cost. 

Goods – Generally, the supply of goods from one EU country to a customer in another EU country is zero-rated provided that you are registered for VAT purposes elsewhere in the EU and you can provide your VAT registration number to the supplier. 

Services – Following the implementation of the new rules relating to the supply of services, VAT incurred on acquired services in other EU countries has been considerably reduced, the reason being that these transactions normally have to be reverse charged when back in the UK (or country of establishment). 

The problem people have is not being clear on what they can or cannot claim for, resulting in incorrect claims that HMRC will reject. 

Where people go wrong

Often the service is confused with imports (goods that you bring back to the UK). Normal VAT rules apply to these purchases. In this instance you should ask the seller to zero-rate the tax, then you would declare the transaction as an import on your UK VAT return. Making sure to zero-rate the tax when making a purchase is crucial because you cannot reclaim foreign tax that you have already paid.

Back in the UK

If you follow the above procedure and do not pay foreign VAT, on your return to the UK you would account for VAT on the goods, then on the same return reclaim any of the VAT that UK rules entitle you to. Generally, you must submit the refund application by September 30th of the calendar year following the refund period.

EU VAT refund on services

You can use the EU VAT refund service for goods bought for your business in another EU country but you did not bring back to the UK, e.g. hotel bills, car hire etc. 

Claims must be:

• For a period of at least three months (or less if the period of claim ends 31 December).
• For a period not exceeding twelve months.
• Submitted by 30 September following the calendar year in which the purchase was made. 

Need advice?

If you would like VAT advice for businesses then contact Thomas Nock Martin accountants today. Our chartered accountants in Brierley Hill will be happy to talk to you and offer their expert advice. If you require more information on the EU VAT refund procedure, head to our website today.  Or, call us on 01384 261300 to speak to a member of our helpful and friendly team.

If you have found this blog helpful, you may wish to read our previous blog on Self-assessment tax returns.

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