My thanks to John Shearer of VAT Consultants Mayell Shearer for this information.

From 1st April 2012 all VAT registered businesses will have to submit their VAT returns on-line. The paper VAT Returns will no longer apply to the vast majority of businesses.

The only exceptions will be those that are insolvent or where the business is run by members of a religious group whose beliefs are incompatible with the use of computers.

Do you need to update your accounting systems to allow for this change? Please contact us for help.

It has been confirmed that if an employee surrenders part of their salary on the basis their employer provides some other service in return, then this will shortly be a supply for VAT purposes from the employer to the employee.

This means that the employer will need to account for VAT on the value of the service. In the past, input tax was recoverable but no VAT payable.

This new understanding applies from 1 January 2012 to allow businesses to adjust to this situation and output tax will not be payable on such supplies until then.

The value will be based on the level of the sacrificed salary or if this is less than the cost to the employer then the cost will be the value.

As an example an employee who is a keen cyclist requests a bike costing £500 in exchange for £500 less salary. This would give an £83 VAT bill for the employer. The input VAT on providing the bike is recovered in the normal way.

Childcare vouchers and pension contributions are not affected by this change as they are exempt supplies for VAT purposes.

My thanks goes to John Shearer of Mayell Shearer VAT Consultants for providing the details on this, John’s website is here.

John says one might think that this item would probably be of interest only to inhabitants of Wales; however it also affects retailers in the rest of the UK who deliver goods to customers in Wales in carrier bags.

Basically the Welsh Assembly will, from 1 October 2011, introduce a charge on single-use carrier bags. Initially set at 5p per bag, every retailer in Wales and any who deliver into Wales in such bags, must charge this fee.

The fee will be treated as the minimum but will be deemed to include VAT if the retailer is VAT registered (thus: 4.17 pence for the bag plus VAT).

This will be quite tedious for retailers in and around Wales and how can this be controlled?

They are required to record how many bags they sell and to account for what they do with the proceeds.

All VAT registered businesses who supply more than 1,000 bags per annum must publish this record in its shop or on its website.

The Welsh Assembly has intimated that it ‘expects’ retailers to pass the proceeds to good causes in Wales.

Furthermore it is forbidden to give away a single single-use carrier bag and an offender could face a fine of up to £5,000 (which accountants will instantly recognise as the value of 100,000 bags!).

The Welsh Assembly also sets out detailed instructions as to the treatment of bags that are found to be not-fit-for-purpose.

Incidentally, if a retailer gives a customer a refund for a returned bag, this is not deductible from the gross amount because the bag was used to carry away goods.

Altogether the regulations make a good ‘read’ if one has nothing else to do and although the overall purpose is praiseworthy, the wording and the hopes behind the venture make me wonder if there may be some holes in it (a carrier bag with a leek?).

John’s website can be found by clicking http://www.mayellshearer.co.uk/

Do you intend buying a yacht for your business?
Where a business acquires a yacht (or any other asset – but a yacht is the popular example in this scenario) from a supplier in another EC country and uses a UK VAT number to gain zero-rating by the supplier… however, does not bring the asset into the UK but instead has it removed to another EC state because, say, it is used elsewhere for chartering, then the acquisition tax cannot be recovered until it can be evidenced that VAT has been accounted for in the other EC state.

This ruling is effective from 1st June and follows two cases judged by the Court of Justice of the European Union.

Hot gossip! Attention everyone selling or buying takeaways! Update on supplies of hot food
HMRC has published guidance with regard to the treatment of hot food made in the course of catering. This follows the recent cases in Germany which have caused so much excitement for those with an interest in pizzas, fish and chips and other delights. German folk can now enjoy Mehrvertsteuer-free take-aways (some mit chips and some mit-out, as the old joke goes).

However, here in the UK our national dishes (including hot take-away haggises for people in the far north) are still subject to VAT at the standard rate.

Basically, HMRC advises that the liability of foodstuffs in the UK is treated under a very specific legal structure and is not on the same plate as the position in Germany. Accordingly, HMRC very firmly rejects any claim that the German ruling will prevail.

We understand that some accountancy firms seek to encourage the submission of so-called ‘protective’ claims. No doubt HMRC has taken very strong legal advice on its stance so it would not be a simple matter to counter this view.

That said, certainly if anyone does win a case against this position, those who have submitted claims may feel smugly happy.

A hint of things to come?
This may come as no surprise following the merger of my own dear HM Revenue &Customs with The Inland Revenue. However, HMRC is to pilot trials of ‘single compliance’ enquiries in lucky areas including Reading/Slough, Newcastle, Warrington, York, Exeter, London Euston and Southampton in England; Cardiff in Wales; Belfast and Edinburgh/Dundee. Single compliance means all-encompassing (VAT/CT/PAYE/IT).

This project will start on 1st June and will run for six months after which, from January 2012, it will operate nationally if all has proceeded satisfactorily. According to HMRC this will ‘improve customer experience’. Let us hope so.

Retail schemes
There has been some updated guidance on ‘bespoke retail schemes’ and this prompts me to remind you that retailers use ‘schemes’ to calculate the VAT they must account for.  There are a number of schemes and sometimes a retailer has a choice to make.  Obviously, any two different calculations will produce different results and it follows that some schemes work better than others for individual outlets.

Many retailers are paying more VAT than they may need to and so these issues should be reviewed.  It goes without saying, but I shall… I have chosen the appropriate schemes in past years for one of the largest superstores in the UK and also many small ones, so shall be more than happy to assist with advice regarding this sector. Why pay more tax than you legally need to?

Penalties for rendering paper VAT returns
Where paper returns are submitted instead of on-line, there will be a penalty of £100. This appears quite harsh considering the return will have been submitted; however, this is the way things are heading. This will apply to accounting periods ending on or after 31 March 2011.  You need to check if you or any clients are still using paper returns contrary to the requirements!

How do you use these new rates?

1. If you pay employees and directors a 40p per mile mileage then you can use the above figures to calculate the amount of VAT that can be reclaimed on the petrol element of the mileage allowance.

For example, a claim for 500 miles in a petrol 1600 cc car would give a VAT reclaim of 500 x 16p = £80 x 20/120 (VAT fraction) = £13.33. The employee must provide you with VAT petrol receipts to support your VAT reclaim.

2. If you ask employees to reimburse you for the private miles they carry out in a company car you use these rates.

Earlier periods were as follows:

A recent tribunal case has again highlighted the need to be able to identify what materials/fittings or fixtures a builder may include as supplied with his services during the construction of a new house, and hence are zero-rated. The rules also apply to DIY claimants who wish to recover VAT they have paid out.

The case revolved around roller blinds. The Tribunal ruled that roller blinds are building materials and hence the DIY claimant could recover VAT on the costs.  HMRC does not agree but is not appealing. Whether one can rely on the Tribunal ruling, given HMRC’s refusal to accept, I cannot comment. Perhaps HMRC will turn a ‘blind eye’?

There are strict guidelines as to what items can be included in zero-rated supplies relating to the construction of new dwellings. However, one very interesting matter that is not commonly appreciated is that, even if a supplier cannot zero-rate the inclusion of some materials during the construction of a new house, he may be able to zero-rate his services so long as the service element is separately itemised on the invoice and the standard rate is applied to the item. This would apply, for example, to fitted carpets.

John says that most people are giving some thought to the increase in the standard VAT rate. This of course will have effect from 4 January and will impact on virtually every person and business. It will be the highest rate we in the UK have endured and is precisely twice the rate when VAT was first introduced. I would like to say I was just a boy at the time but alas cannot!

However, there is an opportunity for retailers and other suppliers to the public or to business customers who cannot recover VAT to arrange transactions so as to benefit from the current rate. This is a matter of ensuring that the tax point is effective pre 4 January.

It is therefore possible to issue a tax invoice prior to a supply which will take place at a later date. This works best, of course, for businesses on cash accounting. Another way is to seek settlement for an intended transaction pre 4 January. It may, however, not be sensible to pay with a credit card if one cannot pay the balance as the benefit of the 2.5% saving could disappear in interest charges.

There are anti-forestalling provisions (forestall …to anticipate, in case you don’t know) that prevent serious abuse. However these measures apply only in specific situations and probably are not a problem for the average forestaller.

The conditions that call into play the measures include:

• The supplier and customer are connected persons

• The value exceeds £100,000

• The supplier (or a connected person) funds the prepayment

• An advance invoice where payment is not required in full within six months (although this is not a problem re an HP agreement in normal commercial practice)

• Note that similar measures relate to the granting of rights or options

So, for most ordinary transactions, the measures will not present an issue.

This is from a recent VAT Tribunal decision.

The general rule is that you can reclaim the VAT on materials if you build your own house using a special VAT scheme.

The facts of the case are that Mr Harrison-Devereux had a house constructed for him. Why he chose to call it The Piggery is not known but there may be a clue there somewhere.

The construction work was slow but completion was even slower due to continued squabbles with the local Planning Department.

Once everything was finished, Mr Harrison-Devereux sent in his VAT claim to the VAT office and waited for his cheque. You cannot make a claim under the DIY scheme until the building has been completed.

The VAT office verify all DIY claims and as part of its checks found that one of the building contractors had charged VAT at 17.5%.

The invoice appeared to be for services rendered and related materials. These invoices were rejected from the claim. The VAT Office refused to repay the VAT paid on these invoices.

Mr Harrison-Devereux called foul and lodged an appeal before an independent VAT Tribunal, and he lost! The Tribunal agreed with the Revenue.

The Tribunal said that if the builder had only supplied materials then it was correct to charge VAT. Mr Harrison-Devereux would then have had a valid claim but as the builder also carried out building work he should have zero-rated his total invoice.

This was because it was a ’supply in the course of construction of a new dwelling’. The VAT charged and paid in error could not be reclaimed from the VAT Office.

Normally this would not be an insurmountable problem as the builder would credit the customer and adjust on his next VAT return.

However in this instance, as the building took so long to complete, the invoice was ‘out of time’ for the builder to make any such adjustment!

We do not know if Mr Harrison-Devereux pursued the builder for the amount of the VAT involved but the fact is that he could do so and the builder might then have to bear the cost!

Moral of the story…make sure you get it right!

We already know that VAT is due to revert back to 17.5% but, using my crystal ball, the tax that I believe will increase in the future is Capital Gains Tax.

The current rate is only 18% and this compares with an income tax rate that will soon increase to 50% for high earners.

The annual exempt amount is £10,100 (your tax-free allowance) compared with £6,475 for income.

I would never advise anyone to sell something purely for tax reasons but I do think that, as far as Capital Gains tax is concerned, we have never had it so good.

Simplifying the VAT Flat Rate Scheme
From 1 April 2009, only the turnover test will apply for eligibility to use the VAT Flat Rate scheme