Category Archives: VAT

VAT and digital services

HMRC have issued some additional guidance for small businesses which supply digital services to consumers in other EU Member States.

The guidance advises:

  • how to comply with new VAT rules on the place of supply of digital services that came into force on 1 January 2015
  • how to register for HMRC’s VAT Mini-One Stop Shop (MOSS) and still benefit from the UK’s VAT registration threshold for sales to UK consumers.

On 1 January 2015, the VAT rules for cross-border Business to Consumer supplies of ‘digital services’ (for example broadcasting, telecoms and e-services) changed. Broadly from that date, VAT must be accounted for in the Member State where the consumer normally is, rather than where the supplier of the service is established.

HMRC have also issued more general guidance on the change to all businesses which can be found here

If you would like further information on this issue please contact us.

Internet links: News  Guidance

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VAT on ‘snowballs’

HMRC have published a Brief which advises that ‘snowballs’ are zero rated for VAT purposes.

Following the decision of the First Tier Tribunal HMRC have issued guidance on the VAT treatment of ‘snowballs’. The case concerned the VAT liability of this food item and whether or not it was confectionary (standard rated) or a cake (zero-rated). The ‘snowballs’ considered were those manufactured by Lees of Scotland and Thomas Tunnock Ltd which are a dome of marshmallow covered with sugar strands and a chocolate, carob, cocoa or coconut coating with or without a jam filling.

Both manufacturers had challenged a previous ruling that ‘snowballs’ were standard rated confectionery by claiming they were also cakes and submitted voluntary disclosures for VAT they claimed was overcharged. HMRC disagreed with this view and so the matter was decided by the First Tier Tribunal.

The Tribunal considered what factors should be considered when identifying whether a product is a cake and weighed the relevant factors in the balance. The Tribunal did not dispute that snowballs are confectionery however they accepted they do have sufficient characteristics of a cake for them to be characterised as a cake, which means they are zero rated for VAT purposes.

HMRC have accepted that decision and will be updating their guidance in respect of this type of snowball in due course.

In limited circumstances suppliers of these products may be entitled to a refund however this claim would be subject to the ‘unjust enrichment’ rules and the 4 year cap in line with normal HMRC procedures.

This case helps to illustrate how important it is to get the VAT treatment right. Please do get in touch for advice on VAT issues.

Internet link: Brief

Guidance on changes to VAT filing rules

The majority of businesses have to file their VAT returns online. HMRC have issued guidance on changes to VAT rules which introduce additional exemptions to the requirement to file VAT returns online. The changes, which came into effect at the beginning of July 2014, allow business owners that satisfy HMRC that it is ‘not reasonably practicable’ for them to use the online system to submit ‘paper’ VAT returns.

HMRC will also be able to approve telephone filing as an alternative method of electronic filing in certain circumstances.

If you would like any advice on VAT issues please do get in touch.

Internet link: HMRC VAT Brief

VAT and prompt payment discounts

Businesses which currently offer prompt payment discounts (PPD) to their customers need to be aware that there are some changes ahead to the rules.

Currently under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the PPD and pays promptly.

For example if you sell some goods for £1,000 plus VAT and offer 5% discount if the customer pays within 10 days then VAT is charged at 20% on £950 being £190, rather than 20% of £1,000 which is £200. Even if the customer takes 30 days to pay and therefore does not qualify for the PPD, the amount due will be £1,190.

This rule regarding PPD is in the process of being changed and from 1 April 2015  VAT will be due on the amount the customer actually pays. So using the above example if the customer fails to take advantage of the PPD he would need to pay the full £1,000 plus VAT of £200.

The business making the supply will have to issue a credit note to account for the PPD where this is taken up. So using the same example if the customer takes up the discount then the credit note would be for £50 plus £10 VAT.

Apparently PPD have been widely used by suppliers of telecommunications and broadcasting services and so the use of PPD to reduce VAT due has already been blocked in those sectors from 1 May 2014. This applies where the customer cannot recover the VAT charged.

If your business currently offers PPD you may need to change your invoicing procedures from 1 April 2015 and the Government are going to consult on the implementation of the change.  We will keep you informed of the details of the changes as and when further detailed guidance is made available.

Internet link: VAT TIIN

Changes to VAT online services

HMRC have announced various changes to their online services including the introduction of the VAT online registration service which was promised earlier this year.

They have also taken the opportunity to introduce a new online variations service which should allow businesses to:

  • make changes to the principal place of business and contact details
  • deregister for VAT
  • apply for Annual Accounting or Flat Rate Scheme
  • view and print the VAT certificate and
  • enrol for VAT Online.

Please do get in touch if you would like any assistance with any of these issues.

Internet links:    HMRC News