You may have in the past overpaid VAT output tax or underclaimed VAT input tax, and this might date back many years. Now is the time to claim the overpayment back from H M Revenue & Customs.

– Claims can be back dated to April 1973, or the date of your VAT registration if later.
– But the deadline for submitting a claim is the end of this month, 31 March 2009.

It is possible to base a claim on a reasonable and valid estimate if the underlying records no longer exist. Claims can include a request for interest.

The following list includes items for a possible claim:

* Mileage costs paid to employees
* Staff expenses
* Subsistence
* Recovery of VAT on imports

If you are at all unsure about VAT that has been added to particular supplies you have made, or whether VAT should have been recovered on certain costs, please call.

Many building firms are now holding completed residential property which is proving difficult to sell in the current property market. One solution is to rent out this property for a short period in the expectation that property prices will recover.

Ordinarily most of the VAT paid on construction costs is recoverable. Unfortunately rents received from the letting of residential property are an exempt supply for VAT purposes.

So potential problem, a builder who both constructs and lets residential property is considered to be a “Partially Exempt” trader. Potentially a proportion of the VAT recovered on the construction work may have to be paid back!

The builder may have to:

. adjust the VAT recovered on his submitted VAT returns

. restrict the VAT to be recovered on current and future VAT returns

. or both
Contact us for advice. For instance if the amount of input tax which can be attributed to the exempt rental income is below a defined “de minimis” amount, no adjustment to past or future returns is required – VAT input tax can be recovered in full.

Provided the exempt input tax is below:

. £625 per month, on average, up to £7,500 per year; and

. is not more than half of total input tax ,

then the exempt input tax is de minimis and recoverable in full.

If you are a house builder, and considering the rental of residential building stock, do contact us at an early stage so we can help you through the partial exemption calculations which are tedious and complex.

As widely leaked/predicted the standard rate of VAT has been reduced to 15% from 1 December 2008. This reduction will be effective for a fixed period of 13 months. From the 1 January 2010 the rate will revert to 17.5%.

For VAT registered traders this creates a number of practical problems and issues, which we try to help with here

1. All sales on or after 1 December 2008 should be charged plus 15% VAT.
2. Zero rated, reduced rate and exempt sales or supplies are unchanged.
3. Retail businesses should use the new 15% rate on all takings received on or after 1 December 2008 – unless the customer took delivery before 1 December, in which case you should apply the 17.5% rate.
4. If you supply goods or services to other VAT registered customers and need to issue tax invoices, you should add on 15% VAT to all invoices dated 1 December or later – except where you provided the goods or services more than 14 days before you issued the VAT invoice.                                                                                 For example, if you issue a VAT invoice on 1 December for goods or services provided before 18 November 2008, or you were paid before 1 December. In these cases, your sale takes place before 1 December and you must use the old rate of 17.5%. Note if you received part payment before 1 December, use the old rate for the part payment.
5. Under the normal rules all invoices issued and all payments received before 1 December 2008 are subject to VAT at the old rate- 17.5%. There are also optional rules that you can adopt. See section 3 of the HMRC publication recommended at the end of this article for more information on these special rules.
6. If you need to work out the 15% VAT charged in a VAT inclusive amount, multiply by the fraction 3/23.
7. If you have point of sale tills etc that produce a VAT inclusive receipt you may need to contact your supplier to ensure the VAT rate applied is changed for sales after 1 December.
8. If you want to reduce your current (pre 1 December) sales price to reflect the reduction in VAT to 15%, multiply your old price by 115/117.5, this is equal to 46/47.
9. Are you required to pass on the reduction in VAT to your customers? The answer is no – its entirely up to you. Many retailers and other businesses will choose to improve their own margin.
10. If your VAT return period does not begin on 1 December, you will have account for VAT in the quarter which straddles this date accommodating both rates of VAT. If you use software to produce your VAT returns your supplier should be able to advise you on this.
11. Make sure that you follow your accounts software supplier’s instructions regarding the change in VAT rate. If you use Sage Line 50 accounts software you can download instructions from the Ask Sage area, article number 22856 for the standard VAT scheme, and article 22857 for the cash accounting scheme.

HM Revenue & Customs have published a comprehensive guide to the VAT change. You can download it at:
http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf. It is quite a large PDF document. If you need specific advice on any aspect of the change please call.

The purchase of a business as a ‘going concern’ is not subject to VAT. So if you continue with the existing trade in place of the seller, you do not have to pay VAT on the transfer of the trading assets.

A common example would be taking on a public house, if the changeover happens ‘overnight’ or if the pub is closed for just a day or two it would be a transfer of a going concern. However if the pub had been closed for a period of weeks, it would not constitute a transfer of an existing business.

But beware. The reason you do not need to pay VAT is that the transfer of a business is considered to be outside the scope of VAT. If the seller is advised to adopt a ‘broad brush’ approach and just charge VAT because he cannot decide if the transaction really is a bona fide sale of a going concern then you may be denied recovery of the VAT added!

It is important to clarify whether the sale is a sale as a going concerns or not. Don’t hesitate to ask us if this applies to you.

Purchasing property
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Further complications can arise if you purchase a business property which has an existing option to tax applied. This means that all income generated by the property is a standard rated output. It also means that a seller may be required to add VAT to the sale price.

However the seller can avoid this VAT add-on if one of two specific circumstances apply:

• if the new owner makes an election to opt to tax their interest in the same property. This election must be made before ownership is transferred.
• if the new owner is buying the property to convert to dwellings.

In both cases there are prescribed forms to fill in and file.

From 1 October 2008 HMRC will no longer send taxpayers a postage paid envelope to use when paying their tax or filing/paying their VAT returns.

This apparently is a signal to us all to make returns and payments online.

To ease the payment process HMRC are also about to make it easier to pay our tax by allowing us to use our credit card. Legislation has just been passed that will allow them to recover the credit card charges. HMRC will charge you 0.91% for the privilege.

A guide to help you determine if NI numbers and VAT numbers are valid.

Certain PAYE returns (P35, P11D) will be rejected by HMR&C if a National Insurance number (NINO) is incorrectly displayed. Valid numbers always follow the same format, two letters, followed by six numbers, followed by a single letter. i.e. AB123456D.

The following information sets out the valid alpha prefixes and suffixes. If you are at all uncertain that you have been given a correct NINO, you should check with your local tax office.

Valid National Insurance Number Prefixes:

AA, AB, AE, AH, AK, AL, AM, AP, AR, AS, AT, AW, AX, AY, AZ BA, BB, BE, BH, BK, BL, BM, BT CA, CB, CE, CH, CK, CL, CR EA, EB, EE, EH, EK, EL, EM, EP, ER, ES, ET, EW, EX, EY, EZ GY HA, HB, HE, HH, HK, HL, HM, HP, HR, HS, HT, HW, HX, HY, HZ JA, JB, JC, JE, JG, JH, JJ, JK, JL, JM, JN, JP, JR, JS, JT, JW, JX, JY, JZ KA, KB, KE, KH, KK, KL, KM, KP, KR, KS, KT, KW, KX, KY, KZ LA, LB, LE, LH, LK, LL, LM, LP, LR, LS, LT, LW, LX, LY, LZ MA, MW, MX NA, NB, NE, NH, NL, NM, NP, NR, NS, NW, NX, NY, NZ OA, OB, OE, OH, OK, OL, OM, OP, OR, OS, OX PA, PB, PC, PE, PG, PH, PJ, PK, PL, PM, PN, PP, PR, PS, PT, PW, PX, PY RA, RB, RE, RH, RK, RM, RP, RR, RS, RT, RW, RX, RY, RZ SA, SB, SC, SE, SG, SH, SJ, SK, SL, SM, SN, SP, SR, SS, ST, SW, SX, SY ,SZ TA, TB, TE, TH, TK, TL, TM, TP, TR, TS, TT, TW, TX, TY, TZ WA, WB, WE, WK, WL, WM, WP YA, YB, YE, YH, YK, YL, YM, YP, YR, YS, YT, YW, YX, YY, YZ ZA, ZB, ZE, ZH, ZK, ZL, ZM, ZP, ZR, ZS, ZT, ZW, ZX, ZY

The characters D, F, I, Q, U and V are not used as either the first or second letter of a National Insurance Number prefix.

Valid National Insurance Number Suffixes:

The final alpha of the NINO should be A, B, C, or D.
VAT Registration numbers

There are occasions when the validity of a VAT registration number is critical. Particularly:

• When you make a supply to a registered European Union trader, or
• When you receive an invoice from a supplier on which VAT has been added.

Supply to EU trader

If it appears that the VAT number you have been given is incorrect, you should charge VAT rather than exempt the supply.

Purchase of goods/services from registered UK trader.

One of the aspects that qualifies a supply for a reclaim of input tax charged, is if the invoice shows a valid VAT registration number. Although HMR&C have discretion to allow a deduction even if the number is wrong, the discretion only applies in certain circumstances.

How to check a VAT registration number.

There are two ways to check the validity of a VAT number:

1. Call HMR&C 0845-010-9000.
2. A more hi-tech solution, visit the Europa web site at http://ec.europa.eu/taxation_customs/vies/vieshome.do, select the correct member state and enter the VAT number you have been given. This will only confirm if the number is a valid registration number. There is no way to use this service to confirm the number belongs to your customer/supplier

Davies McLennon are Stockport Accountants

We seem to be entering a period when banks are likely to have less money to lend, and when they do lend interest rates charged will be “realistic”. The self styled liquidity crisis is with us!

Consequently the management of your cash resources will be critical in the coming months as businesses chase liquidity by tightening up on their credit control. This process will of course be frustrated as creditors hang on to cash reserves by extending the credit they take from suppliers.

If your business qualifies, and you are not already using the scheme, the VAT Cash Accounting scheme could be a lifesaver.

What are the rules of the cash accounting scheme?

• VAT is accounted for on a payments basis i.e. output tax due on date of payment from a customer; input tax can be claimed when a supplier is paid
• available to any business with annual taxable sales of £1.35m or less (zero-rated sales are still taxable but exempt sales are not; exclude any sales of capital assets)
• no application form needed to join the scheme – can be adopted by an eligible business at the beginning of any VAT period
• before adopting the scheme, a business must ensure it is up-to-date with its VAT returns and payments.

What are the advantages of using the cash accounting scheme?

• automatic bad debt relief – because output tax is never declared until a payment is made by the customer
• cash flow benefits by delaying payment of output tax from invoice date until payment is made by a customer
• simplified record keeping – VAT can be accounted for through a cash book – no need for separate sales/purchase day books
• the scheme is of particular benefit (for cash flow purposes) to a business that gives extended credit terms to its customers in relation to standard rated sales

What are the disadvantages of using the cash accounting scheme?

• input tax cannot be claimed until payment is made to a supplier
• the scheme will not benefit a business where most/all sales are zero-rated e.g. a milkman
• the scheme will not benefit a business where sales are paid for, either in advance of invoicing, or at the same time a sales invoice is raised

How does a business apply to join the cash accounting scheme?

• there is no requirement to notify HMRC in advance of using the scheme
• scheme can be adopted by any eligible user (i.e. taxable sales of £1.35m or less) at the beginning of any VAT period
• the scheme can only be used from a current VAT period i.e. no retrospective use

Will HMRC ever prevent a business from using the scheme?

• as long as a business is up-to-date with its VAT returns and payments, and has not been convicted of a VAT offence within the last 12 months, then use of the scheme will always be allowed
• a business must withdraw from the scheme if its taxable sales exceed £1.6m per year (VAT exclusive)

At what point may or must a business leave the scheme?

• a business can voluntarily withdraw from the scheme at the end of any VAT period
• a business must withdraw from the scheme if the value of its taxable supplies has exceeded £1.6m per annum
• HMRC has the power to impose compulsory withdrawal in order to protect the tax yield

If you would like us to check out the viability of Cash Accounting for your business, please call.

The VAT registration threshold increased from £64,000 to £67,000 from 1 April 2008.

The VAT deregistration threshold is increased from £62,000 to £65,000 from 1 April 2008.

The legislation relating to the option to tax land and/or buildings will be simplified and minor changes will be introduced to enable taxpayers to revoke an ‘option to tax’ after 20 years.

From 1 July 2008 the voluntary disclosure threshold is to increase from £2,000 to the greater of: £10,000 or 1% of turnover (subject to a maximum of £50,000)

If you own a business property you are probably aware if the property is subject to an election to tax for VAT purposes. If you charge VAT on the rents invoiced to your tenants, you will have an election to tax in place.In certain circumstances this can be a commercial inconvenience!

Rental issues
For example certain businesses, banks, unregistered small businesses, will be keen to find premises that have no election to tax in place, otherwise they will be charged 17.5% VAT which they cannot recover.

Purchase and sale
If there is an existing election to tax when a property is sold 17.5% VAT is added to the sale price, a significant problem if you are a purchaser who is not registered for VAT.

2009 and the 20 year rule
The election to tax, once made, cannot be revoked for 20 years. Interestingly the first elections to tax were granted in 1989, 20 years ago next year!

If there would appear to be an advantage for the original election on your property to be revoked, you may like to find out when the election was granted. If it was during 1989, you should be able to file a formal revocation on the 20 year anniversary date.

Flat Rate Scheme

Beware of selling a property if you are in the flat rate VAT scheme. Ask our advise before you sell.