VAT Inspection
Discussion
VAT inspections are usually not too bad. However, if you are aware of any areas where you may not have applied the VAT rules correctly (whether by accident or design) and you have not subsequently corrected any of these "errors", it is best practice to draw the Inspector's attention to these problems BEFORE he or she formally commences the inspection.
Typical areas where traders "get it wrong" -
Claiming Input VAT where it doesn't exist.
Claiming Input VAT on "Non-Trading" expenditure.
Claiming excessive Input VAT i.e. failing to apply restrictions on Input VAT when they are required.
Understating Output VAT by treating Sales as Zero Rated or Exempt inappropriately.
Understating Output VAT by failure to apply the VAT fuel scale charges.
Failing to declare Output VAT on the sale of a fixed asset on which Input VAT had been claimed at the point of purchase.
Incorrect VAT treatment of sales of overseas "services".
Hope the above pointers are of help.
>> Edited by eric mc on Friday 5th September 15:05
Typical areas where traders "get it wrong" -
Claiming Input VAT where it doesn't exist.
Claiming Input VAT on "Non-Trading" expenditure.
Claiming excessive Input VAT i.e. failing to apply restrictions on Input VAT when they are required.
Understating Output VAT by treating Sales as Zero Rated or Exempt inappropriately.
Understating Output VAT by failure to apply the VAT fuel scale charges.
Failing to declare Output VAT on the sale of a fixed asset on which Input VAT had been claimed at the point of purchase.
Incorrect VAT treatment of sales of overseas "services".
Hope the above pointers are of help.
>> Edited by eric mc on Friday 5th September 15:05
So if i say i have got some of the terms wrong have claimed to much, im in for a fine or is it a rap on the knuckles and get it right next time.
But i have only got one supplier for this and only a hand full if invoices in. but loads of invoices out as i export software to other countris. Plus occassionally sell in this country
steve
But i have only got one supplier for this and only a hand full if invoices in. but loads of invoices out as i export software to other countris. Plus occassionally sell in this country
steve
If you have overclaimed Input VAT on some of your costs, the Inspector will want to recoup these amounts from you. He could also impose a VAT surcharge (the VAT equivalent of interest) on the underpaid amount. Finally, there could also be a penalty imposed for "getting it wrong". However, it is at the Inspector's discretion how much of a penalty (if any) to levy. The level of co-operation between the trader and the VAT authorities is taken into account when deciding the level of penalties.
PetrolTed said:
Claiming Input VAT on "Non-Trading" expenditure.
Eric, what does that mean?
Caliming for VAT back on stuff you use personally as well as business i think. You only claim back a percentage of the INput VAT for these items??? am i correct??
I have had long hard conversations with the VAT office previously regarding the Electronic export of data, they gave me the indication it was outside the scope of VAT and hence either Zero rated or exempt i have put it as Zero Rated. We will see what he says.
Steve
Essentially it means claiming back Input VAT on costs that were not directly related to the trading activity of the business. Usually it means personal expenses (such as "Drawings") or perhaps expenses relating to non trading income (like "Rental Income").
If a cost has a dual aspect to it (part business/part private) then the Input VAT should be apportioned between the business and private element. The types of costs that sometimes fall into this category would be telephone bills, light and heat bills, subsistence, hotel accomodation expenses etc.
"Exporting" is a very complicated area of VAT legislation. The basic rules are as follows:
Export of Goods - To non EU Countries - Zero Rated
Export of Goods - To other EU countries - Zero Rate when your customer is VAT registered in their country AND they have provided you with proof that they are VAT registered, Standard Rated if they are not VAT registered.
Export of Services - This is much more complicated. Whether the service is "VATable" or not depends on the "Place of Supply" of the service.
If the place of supply is within the UK, then it is VATable - although it can be Zero Rated if the customer produces evidence of being VAT registered as stated above. If the place of supply is outside the UK, then no UK VAT is chargeable.
And this is only the "simple" explanation.
>> Edited by eric mc on Friday 5th September 16:37
If a cost has a dual aspect to it (part business/part private) then the Input VAT should be apportioned between the business and private element. The types of costs that sometimes fall into this category would be telephone bills, light and heat bills, subsistence, hotel accomodation expenses etc.
"Exporting" is a very complicated area of VAT legislation. The basic rules are as follows:
Export of Goods - To non EU Countries - Zero Rated
Export of Goods - To other EU countries - Zero Rate when your customer is VAT registered in their country AND they have provided you with proof that they are VAT registered, Standard Rated if they are not VAT registered.
Export of Services - This is much more complicated. Whether the service is "VATable" or not depends on the "Place of Supply" of the service.
If the place of supply is within the UK, then it is VATable - although it can be Zero Rated if the customer produces evidence of being VAT registered as stated above. If the place of supply is outside the UK, then no UK VAT is chargeable.
And this is only the "simple" explanation.
>> Edited by eric mc on Friday 5th September 16:37
Well i give access to my server on payment of a membership fee.
I have many Clients in the US which download various things from me.
What would be the place of supply???
UK or US
steve
Edited to add, is the place of supply where my web servers are located or where they access the information from
>> Edited by stc_bennett on Friday 5th September 17:07
I have many Clients in the US which download various things from me.
What would be the place of supply???
UK or US
steve
Edited to add, is the place of supply where my web servers are located or where they access the information from
>> Edited by stc_bennett on Friday 5th September 17:07
eric mc said:
Essentially it means claiming back Input VAT on costs that were not directly related to the trading activity of the business. Usually it means personal expenses (such as "Drawings")
Perhaps I'm being thick but how on earth could you try and justify claiming back VAT on drawings?
The Internet has brought into play concepts which were never envisaged in the original VAT legislation. The place of supply rules were based on the location where the service was actually provided. In other words, if you travelled abroad and provided the service whilst physically present in your customer's country, the place of supply was outside the UK and you could Zero Rate the service. If the service was supplied to an overseas customer whilst you were still physically present in the UK, then the place of supply was within the UK and standard rating applied. The Internet has muddied the waters as to where the place of supply really is. If in doubt, the correct course of action is to seek an official ruling, in writing, from the VAT authorities. Verbal advice from a VAT officer has no legal standing.
With respect to "Drawings" - it is indeed correct that you cannot claim back Input VAT on "Drawings". Where people get "found out" is when they put personal costs through their business as " business" costs - in fact, they may even deliberately claim back the Input VAT in the hope that they might convince a Tax Inspector (as opposed to a VAT Inspector) that the cost is a legitimate budsiness cost. A classic example of this occured a few years ago when a builder diverted purchases of building materials to his home where he was carrying out some refurbishment work. He neglected to differentiate between those materials which were for business purposes and those being used for the refurbishment of his home and claimed the costs for both Income Tax and VAT purposes.
With respect to "Drawings" - it is indeed correct that you cannot claim back Input VAT on "Drawings". Where people get "found out" is when they put personal costs through their business as " business" costs - in fact, they may even deliberately claim back the Input VAT in the hope that they might convince a Tax Inspector (as opposed to a VAT Inspector) that the cost is a legitimate budsiness cost. A classic example of this occured a few years ago when a builder diverted purchases of building materials to his home where he was carrying out some refurbishment work. He neglected to differentiate between those materials which were for business purposes and those being used for the refurbishment of his home and claimed the costs for both Income Tax and VAT purposes.
I know that VAT on internet goods is being tightened, but up until recently I've always used one or more US-based firms to collect payments for my shareware products which are priced in US$. They collect the money and notify me of the sale and I email an unlock code to the customer.
Since the US firm(s) are essentially acting as agents then I zero-rate these sales as they are non-EU sales.
However, I suppose it gets a bit grey when people in the EU buy the product.
All a bit complicated, I fear, and I might make all but my most profitable titles freeware since it is becoming more hassle than it is worth.
Since the US firm(s) are essentially acting as agents then I zero-rate these sales as they are non-EU sales.
However, I suppose it gets a bit grey when people in the EU buy the product.
All a bit complicated, I fear, and I might make all but my most profitable titles freeware since it is becoming more hassle than it is worth.
Sorry for delay in responding - I've been away at Goodwood all week-end.
"Triangulation" is when an arrangement is set up whereby a sale is routed through two or more countries. The VAT authorities do not take very kindly to this, particularly if they decide that the reason the "arrangement" has been set up is to exploit the possibility of "Zero Rating". They may decide that the intermediary steps in the transaction are false and just look at where the goods or services were delivered and make their VAT decision on that basis.
"Triangulation" is when an arrangement is set up whereby a sale is routed through two or more countries. The VAT authorities do not take very kindly to this, particularly if they decide that the reason the "arrangement" has been set up is to exploit the possibility of "Zero Rating". They may decide that the intermediary steps in the transaction are false and just look at where the goods or services were delivered and make their VAT decision on that basis.
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