Charities only need to account for VAT on those parts of its activities that are within the scope of VAT. A quick checklist follows:

* Sale of donated goods from a charity shop – zero rated supply
* Investment income, bank interest etc – outside the scope of VAT
* Donations from general public – outside the scope of VAT
* Fundraising events – exempt from VAT
* Grants, see below

The VAT status of the charity shops is advantageous. Even if the zero rated sales are below the current registration limit of £73,000, it would be worthwhile registering the trade voluntarily as any associated costs that include VAT can be reclaimed.

Grants received

Although most grants received by a charity are outside the scope of VAT, occasionally grant providers will require the charity to provide services to individuals or groups as a direct condition of grants made. If this is the case the grant is a standard rated transaction. In most cases this will not cause difficulties as most grant providers are Local Authorities that are VAT registered and can claim back any VAT charged.

Nevertheless charities should take care to seek advice and ensure that they charge VAT on grant income when appropriate.

Due to a recent European Court of Justice ruling, HMRC now consider that the provision of a benefit via salary sacrifice to employees constitutes a supply of services for consideration and is therefore subject to VAT.

Benefits that will be affected include:

* Cycle to work schemes.
* Face value vouchers.
* Childcare vouchers.
* Food and catering provided by employers.

To give employers time to make the necessary changes to their record keeping HMRC will not require output tax to be accounted for on salary sacrifice supplies until 1 January 2012.

HMRC believe that there are a number of businesses that should be registered for VAT, and so far, they have not registered. They are in the process of sending out 40,000 letters to traders who they believe may be in this category.

HMRC are offering businesses that “come clean” and notify HMRC of an intention to register before the end of September 2011, reduced or nil penalties. Subsequently formal applications have to be submitted on VAT form 1 before 31 December 2011.

The current VAT registration threshold is £73,000. If you have already passed this annual limit in the last twelve months, are about to, or expect to in the next 30 days, you might like to respond to this offer.

Penalties for late registration can be up to 100% of additional VAT due.

Fast Food Outlets

HMRC believes that there are a number of fast food outlets that are deliberately falsifying their records and miss-declaring their true sales levels in order to avoid paying their correct taxes.

They have set up yet another specialist task force to tackle this avoidance.

Penalties will be levied in addition to recovery of unpaid taxes. Those businesses discovered may also face criminal prosecution.

Related articles

• HMRC arrests five plumbers in tax clampdown (telegraph.co.uk)

H M Revenue & Customs (HMRC) is launching a new disclosure opportunity, this time aimed specifically at businesses evading VAT.

The initiative is aimed at businesses not registered for VAT but who are in fact been trading above the turnover threshold, currently £73,000 in a 12 month period.

In a similar vain to previous facilities, beneficial terms are on offer. HMRC states that most (but interestingly, not all) businesses making a full disclosure of under-declared VAT will pay a lower than normal penalty rate of 10% in addition to the tax and interest. Businesses must notify their intention to disclose by 30 September 2011 and then actually make a full disclosure and pay the additional liabilities, including the penalty, by 31 December 2011.

HMRC, in time-honoured fashion, has promised to begin investigating those who fail to come forward after the initial deadline passes on 30 September 2011, where it suspects evasion.

The announcement also promises to look favourably on the disclosure of other taxes associated with the trade, citing lower than normal, albeit unspecified, levels of penalties.

Image via Wikipedia

At present the more you prepare food for consumption, the more likely the supply will be considered a standard rated supply for VAT purposes.

HMRC turned their nose up when an EU case recently came to a different conclusion. A German trader succeeded in having the supply of a hot sausage treated as a supply at a reduced rate rather than a catered supply which would have been subject to the standard rate in Germany.

HMRC continues to view food sold on a takeout basis as a standard rated supply. However a recent UK case has drawn a further distinction:
•    Food sold and delivered hot, to be consumed hot, was held to be a standard rated supply, for instance a curry.
•    Food sold and delivered hot as part of its preparation, but it is not necessary that they be consumed whilst hot, were considered to be a zero rated supply. For example naan breads, salads etc.

So affected traders could now consider that they are making a split supply, some standard rated, some zero rated.

Now may be a good time to check and make sure that you are not including VAT for the supply of takeaway goods that can now be treated as zero rated. These could also include:

•    Cold sandwiches
•    Cakes
•    Biscuits (without chocolate covering)
•    Milkshakes
•    Frozen meals
•    Yoghurt

At present the more you prepare food for consumption, the more likely the supply will be considered a standard rated supply for VAT purposes.

Selling a car, watch out for VAT sting

Image by Getty Images via @daylife

If your business accounts for VAT under the flat rate scheme, the sale of a second hand car creates an unwelcome complication – the car must be included in the flat rate takings for the period. This means that although there is no VAT charged on the sale, and no VAT would have been reclaimed on the purchase of the vehicle, the business must account for VAT at their normal flat rate on the proceeds of sale. Accordingly if you sell a car for £1,000 and your VAT flat rate percentage is 10%, you will have to pay £100 to the VAT man!

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman’s account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman’s bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

You might have received a letter from the VATman that officially notifies your company or business to file its VAT return online, or face penalties.

If your business had a turnover of £100,000 or more in the year ending 31 December 2009 you are legally required to file your VAT returns online, rather than as a paper form, for all periods beginning on or after 1 April 2010. So you can file your VAT return for the quarter to 31 March 2010 on paper, but VAT returns for later periods must be submitted online.

Our online accounting software makes online filing of your VAT return very easy.

If you don’t agree that your turnover was £100,000 or more in the year to 31 December 2009, you need appeal against the VATman’s decision within 30 days of the date of his letter. The VATman has not sent a copy of his letter to us, so please forward it on if you have concerns about this turnover threshold. If you want us to submit your VAT returns online on your behalf we will need that letter as it contains some key details for the registration process.

Even if you have already filed several of your VAT returns online, and your turnover is over £100,000, you will still receive the notification letter from the VATman, including the expensive glossy brochure. If your turnover is currently less than £100,000 per year, you will not have to file your VAT returns online until 2011. The Government has announced that all VAT registered businesses will be required to file their VAT returns online from April 2011, but that requirement is not law yet.

If your business first registers for VAT on or after 1 April 2010 you will be required to file all your VAT returns online from your first VAT return, even if your turnover is way below the £100,000 threshold.

We can assist with online filing of VAT returns.  From simply submitting the return to a full outsourced bookkeeping function.  Please contact us for more details.

There has been a lot of publicity lately about the tax advantages of running cars with low CO2 ratings. There are a number of benefits:

• possible 100% first year tax deduction for the cost of the vehicle,

• much reduced benefit in kind charges,

• lower road fund tax and so on.

But not all of us want to run such vehicles even if there are tax, VAT and running cost advantages.

Double cab pickups, sometimes described as crew cab pickups, are an anomaly!

For business users, especially the self

-employed, they present an unusual tax opportunity.

The HMRC web site describes double cab pickups as:

“… a front passenger cab that contains a second row of seats and is capable of seating about 4 passengers, plus the driver with four doors capable of being opened independently (two door versions are normally accepted to be vans, even those with rear doors that can only be opened after the front doors and that must be closed before the front doors) and an uncovered pick-up area behind the passenger cab.”

From the tax year 2002 -03 onwards a double cab pickup is classified as a van for both VAT and benefits purposes if it has a payload of 1 tonne (1,000kg) or more.

If your double cab pickup meets this definition:

You can reclaim any VAT added to the purchase price, and

The net capital cost (after VAT has been reclaimed) could be available for a 100% first year tax allowance as part of your Annual Investment Allowance up to a maximum of £50,000 each tax year.

If you are a director or employee, any significant private use of the double cab pickup will trigger a standard benefit in kind charge of tax on £3,000 per year. In addition if your firm/employer provides fuel to cover private use of the vehicle there will be an extra benefit charge of tax on £500 per year at current rates. The best way to minimise any risk of these benefits being applied is to restrict the use of the pickup to business use only, or make sure that any private use meets the HMRC definition of “insignificant private use”.

If you would like more information regarding this article, or any advice regarding tax effective strategies for running your business vehicles please call.

The European Commission have enhanced their on-line service which allows taxpayers to check if the VAT number given to them by a potential supplier or customer is valid.

The on-line service has been updated to allow taxpayers to obtain a certificate to prove that they checked that a VAT registration number was valid at a given time and date.  This system has been designed primarily to protect taxpayers who become innocently involved in a chain of fraudulent transactions such as carousel fraud.

The certificate will provide valuable evidence for a taxpayer to prove that they acted in good faith should HMRC challenge input tax recovery or seek payment of lost VAT.

The new on-line system will also be useful to businesses who zero-rate sales to businesses in other EU countries.  Specifically in meeting one of the conditions for zero-rating which states that your customer must be VAT registered.

The on-line service is available at the following address:

http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN