For businesses handling shipments that occur around the time of the new calendar year, understanding what the VAT charges are can be tricky. This is especially true when the VAT percentage changes starting on the 1st of January. Here, we explain some regulations surrounding this issue to help you better understand and navigate the situation. The legislation’s goal is to curtail certain anti-avoidance actions that some business may choose to take. In order for your business to be in accordance with all laws concerning VAT compliance, it is important to make sure you follow the regulations outlined here.
The Details of Anti-Avoidance Regulation
The Finance Act was introduced into UK legislation in 2009. This Act aimed to keep businesses from avoiding VAT tax by manipulating supply shipments to be after the end of the calendar year. For VAT-blocked businesses and consumers, the benefit of manipulating shipments in this way would extend the lower standard rate into the new year with no increased cost to the supplier. Once the Act goes into effect, a supplementary VAT charge would be imposed on such business before the end of the calendar year, causing the supplier to have to pay additional VAT regardless of what was charged to the supplier’s customer.
However, certain conditions need to be met in order for this charge to be imposed. First, the supply shipments must span across the change of the new year. For example, a shipment is made in December but received in January and be liable for VAT at the standard rate. The supply must also be made to a person who is unable to either obtain the full credit, or the full repayment, of all the VAT that said person bears. This stipulation covers those who are partially exempt, unregistered business, and members of the public. Lastly, a “relevant condition” must be met.
There are four relevant conditions where the tax-point was fixed via early issuing of the tax invoice. If any of these conditions are met, then the supplementary VAT charge is due and must be paid by the supplier.
- The supplier, along with the recipient of the supply, has a connection that extends outside of the specific shipment that is being treated as having been made, and the 1st of January of the following year.
- The total aggregate value of the supply, along with all related supplies, amounts to a total of more than £100,000.
- The advance payment related to the supply is paid for by the supplier or a person connected to the supplier.
- The full payment on the VAT invoice is due at least six months after the date the invoice was issued.
Regarding the hiring of assets, the supplementary charge does not apply so long as the amount is for less than one year and that any invoice that is issued, or payment that is received, follows normal commercial practices.
In all these cases, the supplier must pay the supplementary VAT charge on the 1st of January, instead of at the time of the supply. However, for supplies which constitute a grant of a right to a good, and not a service, the supplementary VAT charge must be paid on the first exercise that occurs after the 1st of January. Here, the charge will be equal to the difference between the amount of the VAT charge, and the charge at 17.5%. In cases where the supply spans into the new year, the consideration for the supplementary charge is on a just and reasonable basis. Here, only supplies that are actually made after the 1st of January are liable to the supplementary charge.
Finally, the schedule put forth dictates a basic time regarding to the rules of supply for the purpose of the supplementary VAT charge. These specific instances are termed “listed supplies” and are not considered to follow normal basic tax point regulations.
In order to be a “listed supply”, the supply must:
- Arise from a grant of a major interest in the land
- Consist of mains water
- Consist of coal gas, or producer sasses and similar petroleum gases
- Consist of power, heat, refrigeration, or ventilation
- Consist of both goods and services together to be used in the course of construction or civil engineer work
Helping Businesses with VAT Compliance
VAT regulations are ever-changing, and many companies fail to reclaim all the VAT expenses that are allowed. It is estimated that the amount of unrecovered VAT each year is about 70%. Expenses such as conferences, hotels, car rentals, food and phone charges often go un-reclaimed. This is partially due to the fact that employees fail to claim VAT expenses while filling out expense reports, or that companies charge the expense to the individual employee and not to the company itself. Additionally, it can be often difficult to collect the necessary invoices and documents to recover VAT expenses.
If you have employees traveling for your business, educated them in the procedure of including VAT expenses in their reports, as well as collecting and keeping all the necessary documentation. However, it is impossible for all employees to be as well versed as necessary to ensure that you follow every VAT law and regulation. If you want to avoid VAT anti-avoidance regulations, you should first work closely with a qualified VAT specialist to ensure that your business is completely on board with VAT compliance regulations, and also reclaiming all of the VAT it can.
Lastly, technology is a good side-kick in these situations. Without the right VAT technology, your employees will not be able to keep up with the complicated and ever-changing VAT rules. They waste hours each month filing reports of expenses while traveling for work. With an automated system, such as that offered by VATBox, employees can upload pictures of receipts from their smartphones and track expenses, mileage, and other necessary details as they occur.
Let VATBox Work for You
VATBox, an automated, enterprise-wide, cloud-based VAT recovery solution, has successfully streamlined the global VAT recovery process, providing businesses with unrivaled visibility, compliance, and data integrity, and ultimately boosting its bottom line. Whether you are dealing with domestic VAT, international VAT, or both, our solution can help your company stay compliant with all the rules and regulations. With the right VAT manage, ent system your business will be able to reclaim all of the VAT spend. For more information on the VATBox solution, request a free demo here.