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VAT Dangers

We have one of the highest VAT thresholds in Europe at £82,000.  This can make us relaxed about the issue of VAT registration.  There are a number of pitfalls here.  We tend to forget that if we are going to exceed the VAT threshold within the next 30 days we need to register immediately.

Supposing you are going along with a turnover of £50,000 a year and you get a contract probably from a Government or quasi Government organisation for £50,000, you may think you don’t need to register until you have raised the invoice and you will have 30 days.  In fact as soon as you get the contract you need to register.  Otherwise the penalties are horrible!!!

Timing can also be important.  A high value cabinet maker with a business turnover just under the VAT threshold received a commission for a handmade staircase for a client.  This would have put him over the VAT threshold in the month of September.  So he needed to register from 1 November.  He had been approached to do a similar series of staircases for a developer and the contract was to be signed by 31 August.  This would have meant that he would need to register immediately therefore making VAT due on the original staircase – something he had not quoted for!

By dint of careful planning the contract signing was delayed until November, thus saving this client VAT of about £20,000. 


December 2015


VAT on The Internet:

Helpsheet on VAT - supplying digital services with MOSS (Mini One Stop Shop)

With the advent of modern technology and the internet, the rules have been amended for taxing the supply of telecommunications, broadcasting and electronically supplied services (TBES). On 1 January 2015, the 'place of supply' of such services will change to the country where the 'consumer' is established. Suppliers will either need to register for VAT in every Member State where TBES supplies are made or make use of an EU-wide accounting system known as the 'mini one stop shop'.

There is a lot of detail so if you want to read more use this link to the full article.

This is a major issue even for the smallest on-line business - Take Advice!!!

November 2014


Changes to wholesale energy supplies VAT

Domestic reverse charge for businesses trading in wholesale gas and electricity applies from 1st July 2014

A reverse charge accounting mechanism (domestic reverse charge) for wholesale supplies of gas and electricity will be introduced in the UK. Revenue & customs brief 23/14 contains the associated draft legislation and guidance on how the charge will operate. Extracts from the brief follow, but for full details see the brief on HMRC’s website at

Under the domestic reverse charge, the customer receiving wholesale supplies of gas or electricity must account for the VAT due on these supplies on their VAT return. The customer can deduct the VAT due on the supplies as input tax, so no net tax is payable to HMRC, subject to the normal rules for reclaiming VAT.

The aim is to prevent the evasion of VAT. The measure follows similar moves introduced in response to criminal threats for mobile telephones, computer chips and emissions allowances.

The domestic reverse charge will apply from 1 July 2014. HMRC will be adopting a “light touch” approach with regard to penalties to help those who are trying to comply but may not be able to do so in time.
Subject to certain exceptions, the domestic reverse charge will apply to all wholesale supplies of gas and electricity between counterparties established in the UK. It will not apply to supplies of gas and electricity made under supply licence or metered arrangements to domestic and business premises (supplies for consumption). VAT- registered businesses that do not resell or trade the gas or electricity will not be affected.

Suppliers of goods under this domestic reverse charge must not enter in box 1 of the VAT return any output tax on sales to which the domestic reverse charge applies, but must enter the value of such sales in box 6.

Customers must enter in box 1 of the VAT return the output tax on purchases to which this domestic reverse charge applies, but must not enter the value of such purchases in box 6. They must reclaim the input tax on their domestic reverse charge purchases in box 4 of the VAT return and include the value of the purchases in box 7 in the normal way.

When making a supply to which the domestic reverse charge applies, suppliers must show all the information normally required for a VAT invoice and annotate the invoice to make clear that the domestic reverse charge applies and that the customer is required to account for the VAT.

Detailed guidance on other domestic reverse charges can be found in Notice 735: VAT reverse charge on specified goods and services. It will be updated to include gas and electricity.

June 2014


VAT and Cross Border Rules

If you are a business that trades in a number of different jurisdictions you have got a lot to think about before 2015. Even if your turnover is not at the VAT limit you may need to consider registering for VAT in the UK to avoid registering in every European country where your customers live.
If this applies to you do come and talk to us.
May 2014

The Dangers of De-registration!

Charlie’s Café is struggling in the recession and turnover (excluding VAT) has fallen to £67,000.  Charlie applies to deregister but doesn’t reduce his prices once he is no longer liable to VAT as the extra profit is a great help. However, this brings his turnover to £67,000 x 1.2 = £80,400.  This means that he is trading above the threshold and liable to register again.  Reducing prices by 5% would take Charlie below the threshold, but still allow an additional contribution to profit of £9,300 and the hope of extra business through price reductions!

There is a deemed supply of stock and fixed assets on hand at date of deregistration on which VAT is due at the standard rate.  However, if the VAT due on the assets is less than £1,000 there will be no charge, so the value of stock and assets net of VAT could be as high as £5,000 and there would be no VAT to account for.

June 2013


VAT - supplying digital services with MOSS (Mini One Stop Shop)

With the advent of modern technology and the internet, the rules have been amended for taxing the supply of telecommunications, broadcasting and electronically supplied services (TBES). On 1 January 2015, the 'place of supply' of such services will change to the country where the 'consumer' is established. Suppliers will either need to register for VAT in every Member State where TBES supplies are made or make use of an EU-wide accounting system known as the 'mini one stop shop'.

What's the issue?
On 1 January 2015, the rules determining the place of supply of TBES services supplied to consumers (B2C supplies) are to change. Under current rules, the place of supply is determined as being in the country where the supplier belongs, has a business establishment or usually resides. For B2C supplies the place of supply will be the Member State of the consumer. The main consequence of this change is that VAT will be due in each of the Member States in which TBES supplies are made. Suppliers will have a choice. They can register for VAT in each Member State (up to 27 separate VAT registrations) or, they can elect to register under an EU-wide scheme known as the mini one stop shop (MOSS).

MOSS registration
From 1 January 2015, there will actually be two separate MOSS schemes. One for non-EU based suppliers and one for EU based suppliers. The Non-EU scheme replaces the current VAT on Electronic Services (VoES) scheme. Registration for both schemes will be available in the United Kingdom from 1 October 2014. However, registration under the MOSS scheme is voluntary. Suppliers who choose not to register under MOSS will be required to register for VAT in any Member State where they make a supply of TBES services to consumers. There is no de-minimis turnover threshold so, for suppliers preferring not to register under MOSS, they will be required to register for VAT in a Member State irrespective of the value of such sales in that state. Where suppliers have a business establishment in a Member State, they cannot use the MOSS scheme to account for VAT on supplies in that state. They will be required to account for VAT there using a 'local' VAT registration.

UK VAT groups
According to guidance published by HMRC, a UK VAT group will be entitled to register under the MOSS scheme. As a VAT group operates as a single taxable person under a single VAT number, supplies of TBES services on a B2C basis made by members of a VAT group will be regarded as made by the group's representative member. However, the law relating to VAT groups is different in each Member State. Businesses with group registrations outside the UK will need to check the particular rules in countries where a MOSS return is to be filed.

Small businesses
To register under the MOSS scheme, a business will have to be registered for VAT. UK businesses trading below the current VAT registration threshold (£81,000) will not, therefore be able to use the MOSS scheme. Instead, they will have to register for VAT in their customer's country and account for VAT on sales through a local VAT return.

HMRC is aware of this anomaly and has brought it to the attention of the EU Commission. Unfortunately, the Commission simply points to the fact that the UK has a very high turnover threshold compared to other Member States and is not inclined to alter the MOSS rules. Small businesses could choose to voluntarily register for UK VAT but this is likely to have an impact either on prices charged to customers or on profitability

Multiple establishments
Business that have establishments in multiple Member States are entitled to register for and operate MOSS in whichever Member State they choose. For example, a UK business with establishments in both France and in Germany could, if it wished to, elect to register for the MOSS scheme and account for VAT in France or Germany. Wherever a business registers, it will normally have to remain registered there for a minimum of two years.

MOSS returns
MOSS returns are only to be used for accounting for VAT on the supply of TBES services and, in the UK, are to be submitted on a calendar quarter basis. MOSS returns must be submitted electronically within 20 days of the quarter end. Depending on the volume of TBES transactions, businesses registered for UK VAT with calendar quarter VAT returns may want to consider adopting a different quarter end for submission of UK VAT returns. Once registered under the MOSS scheme, nil returns are required in periods when no TBES services have been supplied.  When a MOSS return has been completed and submitted, the system will generate a unique reference number for the return. The portal allows businesses to partly complete a return, save it and return to it at a later date. The system will also accept electronic file formats such as .xml and .csv. In the UK, the currency for the MOSS return will be GBP £ and the rate of exchange to be used to convert other EU currencies to GBP £ will be published by the European Central Bank. No other exchange rate is allowed.  In situations where an error has occurred on a MOSS return, any corrections must be made to the original return. In other words, adjustments for errors will not be allowed to be made on subsequent returns. Each Member State is to fix a time limit for corrections to be made so businesses will need to familiarise themselves with the error correction rules. Once the MOSS return has been completed and a final amount of VAT due has been calculated, the total amount of VAT due must be paid by the 20th of the month following the quarter end. Exact details of the payment facilities will be announced shortly but HMRC has made it clear that a payment is only deemed to have been 'made' when it reaches the Member State's bank account. Also, there will be no facility for payment to be made by direct debit and there will be no ability to negotiate payment plans or deferred payment mechanisms.

MOSS compliance
The entire MOSS system depends on affected businesses complying with the scheme rules and regulations relating to registration and VAT accounting via the MOSS returns. To ensure compliance with these rules, businesses registered in the UK under the MOSS scheme will be subject to periodic audits by the tax authorities in each Member State where they supply TBES services to consumers.  In order to prevent multiple and/or frequent audits, special arrangements have been agreed between Member States. In simple terms, audits will be co-ordinated by the Member State within which the business is MOSS registered. In the UK, it is likely that MOSS audits will take place at the same time as ordinary VAT inspections. In certain cases, it is possible that inspectors from the Member State of consumption (ie where the consumer belongs) will also attend along with an HMRC inspector.

What to do now

Businesses supplying TBES services have little time left to prepare for these significant changes. With just over six months to go until the new rules are introduced, affected business need to ensure that they are well prepared. It will be necessary to make an early decision on whether to register for VAT separately in each Member State or whether to register voluntarily under the MOSS scheme. Businesses will be able to apply for MOSS registration in the UK from October 2014.
November 2014