VAT compliance
Firms that understand their risk exposure and implement procedures to manage this typically obtain twice the VAT return review work for the same chargeable hours. Whether you use in-house, outsourced, or combination delivery for your compliance work, our Compliance services are cost effective and offers a clear return on investment and a route forward with VAT return work.
Charities/NFPs: It is commonly thought that only businesses need to be registered for VAT, and that Charities either cannot be registered, or need not be registered. In fact, there is no over-riding principle that prevents a Charity from registering for VAT.
A Charity may be required to register for VAT; or it may be beneficial to do so if it makes ‘taxable supplies’ in the course of its business activities, and if the value of those supplies exceeds the registration threshold. A Charity may incorporate a subsidiary trading company, to make such ‘taxable supplies.’ If so, then it should consider a Group VAT registration, which will allow the Charity to register as well. This is subject to another set of specific rules and actually we have found that, if a Charity owns a building, and its subsidiary trades from that building, then a Group VAT registration can help with recovery of VAT.
Even if a Charity does not need to register for VAT, it should be aware of the cost of irrecoverable VAT, and seek advice on ways this may be mitigated.
Businesses: most businesses should be registered for VAT. The compliance with VAT regulations should allow you to claim VAT back on certain things. Registering for VAT can be a bit complex, and we not only cover the basic administration for a VAT registration, but also review each registration for future opportunity, risk and requirement.
The age old VAT question – What Constitutes Business Income and what am I liable to pay VAT?
The basic legislation is quite simple. VAT is charged on supplies of goods or services made ‘in the course or furtherance of any business’ (VAT Acts 1994, s4(1)).
Businesses may easily be able to identify that but it’s not always that straightforward particularly for NFPs and charities. Whether an activity operated by a charity is treated as a business or not, will have certain implications in respect of VAT. Donations for example, a gift of money without receiving anything in return, is outside the scope of VAT as is where a gift is acknowledged by a low value item, such as a lapel sticker. If goods or services are provided in return for a payment, in principle, that is a business activity. It may be subject to some level of VAT.
Grants are another area of complexity. If a charity or business has to provide certain services to the grantor, that may be deemed to be made in the course of a business. If the charity simply reports back to the grantor as to how it has spent the month, it is likely to be outside the scope of VAT.
Our experience and expertise means we can identify in detail what does and does not constitute as business income, and will ensure your VAT liability is correct and robust should anything be called into question.
The basic principle is that VAT incurred on non-business activity cannot be reclaimed. VAT incurred on business activity can be reclaimed.
Depending on your specific circumstances, a method can be operated without notification to HMRC. The legislation requires only that the method is ‘fair and reasonable.’ Ideally the method you use will be easy to operate and easy to check. We can review an existing method, or advise on the most appropriate method to use. Where necessary we can assist in negotiating a method with HMRC.
If you have the added complication of exempt business income, then you are required to carry out a ‘Combined Method,’ which takes into account all the various income streams. The additional complication is because VAT cannot be reclaimed in relation to exempt business activity. This is generally more complex than a BNB, and usually requires notification to, or negotiation with, HMRC.
The basis of the method is especially important where you have a substantial property development, as the amount of input tax at stake can be very large. You will also need to consider future use of the property for ten years, under the Capital Goods Scheme (CGS). This will mean an annual calculation to reflect any changes in use of the property.
Where a Charity is registered for VAT, it is likely to be have both business and non-business income. It is therefore required to carry out a “business : non-business” (BNB) calculation to determine how much input tax it can claim. If the Charity has a subsidiary trading company, then a BNB or Combined Method may work in conjunction with a VAT Group registration. Whilst this does introduce a further issue (a Group Registration), this can also provide significant administrative savings.
The rules are, as you would expect, not easy to follow. There are often a number of inter-related VAT issues to consider, and we are here to help you. Drop an email or give our team a call for an initial discussion.