VAT just how simple can a simple tax be?
VAT is a simple tax – the consumer / end user pays the VAT whilst the business recovers the VAT charged upon goods and services it uses. Given that the rate of tax is 20%, one can almost calculate the VAT in your head or at the very least on a piece of paper, a pen and a calculator, deducting the VAT you pay from the total of VAT collected from customers.
Unfortunately, the simplicity of the VAT system becomes complicated when the facts are introduced. Indeed, it becomes so complicated that in my experience businesses are much more familiar with direct taxes, Income Tax / National Insurance and Corporation Tax, than VAT leaving VAT to so-called experts.
Can it be simplified?
It can if a few rules are applied.
ASE Tax Director Michelle Malone spends a large amount of her time advising motor dealers about VAT. Michelle has identified a dozen principals to which motor dealers should pay careful attention. “In my experience” says Michelle, “if you adopt these rules, you will be far clearer about VAT and appreciate, like I do, that it is indeed a simple tax”
- In order to claim back VAT which you have paid, DON’T unless you have a VAT receipt.
- If the expenditure is partly business and non-business make sure you DON’T reclaim all the VAT; apply a suitable restriction to reflect the personal element of the expenditure
- DON’T claim back VAT on a motor vehicle which is available for private use unless you also account for demonstrator scale charges. Where fuel is provided ensure you have the up to date private fuel scale details to restrict VAT recoveries
- DON’T claim VAT back on entertainment even though it is accepted that such expenditure may be justifiable to win orders.
- DON’T forget that you can claim back VAT on staff entertainment
- Poor bookkeeping will cause problems especially when HMRC are present during a regular VAT visit. DON’T rely upon external advisors to put things right by asking them to prepare VAT returns and file accounts. Make sure you have sufficient internal resources to keep your records accurate and sufficient time is allocated to collecting and analysing the data
- DON’T forget that VAT applies no less to non-standard transactions such as management charges, asset purchase and disposals and cash sales
- DON’T ignore the obvious. Property is a very complex area and within the motor industry specifically be aware of the implications of exempt transactions.
- DON’T forget that if you recover VAT on expenditure but don’t pay the supplier for over six months, you are required to repay the VAT you have recovered. Equally, if a debt is unpaid for over six months, DON’T forget you can reclaim the VAT you have paid
- HMRC collect tax, can charge interest as well as penalties, and in some cases can issue criminal prosecutions for failure to account for VAT correctly. DON’T ignore communication from HMRC.
- All taxation involves self-assessment, self-assessment is at the mercy of human interaction, and humans tend to heavily rely upon computers. DON’T rely upon computers or specialist software. If something looks wrong it probably is and blindly accepting what the software says may lead to costly tax enquiries
- DON’T imagine that in matters VAT you can ever be self-sufficient and know it all. Seek professional help
Having spent 15 years advising motor dealers about VAT matters, Michelle remains confident that VAT is a simple tax. “These rules have served me well to date and hopefully might provide you with a template too”
In case of any questions please contact at Michelle.Malone@ase-global.com
Tel: +44 (0)161 493 1930