From 1 April 2010, any VAT registered business with a turnover in excess of £100,000 per annum has to file their VAT returns online and pay any VAT due electronically. Also any business registering for VAT on or after 1 April 2010 must file their VAT returns online and pay any VAT due electronically, irrespective of their turnover level.
Businesses registered for VAT before 1 April 2010 with turnover (excluding the VAT element) under £100,000 per annum are able to continue to file paper VAT returns and pay by cheque. However, from April 2012 all VAT registered businesses will be required to submit their VAT returns online and pay any VAT due electronically. In the meantime it should be noted that for returns commencing after 1 April 2010 any payment by cheque and the VAT return must reach HMRC in sufficient good time for the cheque to have cleared before the due date otherwise a default will be registered.
The basis of charging penalties for late filing of returns/payment of VAT is to be changed at some, as yet, unspecified date but perhaps April 2012. As with income tax self assessment there will be two penalty regimes, one for late filing of a return and one for late payment of the liability due. As at present there will be a rolling penalty period and the penalty clock will only be reset if and when a full period of compliance is achieved for twelve months.
Late filing of VAT Return penalties are proposed as follows:-
| Quarterly | Monthly |
| First – nil | First Three – nil |
| Second – £100 | Next Three – £100 |
| Third – £200 | Next Three – £200 |
| Fourth – £300 | Next Three – £300 |
| Fifth onwards – £400 | Thirteenth onwards – £400 |
Returns more than six months late will also attract a surcharge of 5% of the amount due, with a further 5% surcharge at the twelve months overdue point. For those deliberately withholding returns the surcharges can be increased to up to 100%.
Late payment penalties are proposed as follows:-
First Nil
Second 2%
Third 2%
Fourth 3%
Fifth onwards 4%
In view of the above it is important to have systems in place to ensure the timely submission of returns and payment of resultant liabilities.
Commercial Property Options to Tax
On 1 August 2009 the “option to tax” commercial property rules were 20 years old. This is important because once an option to tax election has been made it cannot be revoked for at least 20 years. Up until recently no revocations were therefore possible but from 1 August 2009 that position has altered. In the short term there will be few properties which will qualify under the 20 year rule but gradually this will change and is therefore a matter to keep under review in respect of each individual property. If the 20 year period has passed and revocation is desired contact should be made with the VAT option to tax unit in Glasgow. Whilst most revocations should be straight forward there are anti-avoidance rules in place to prevent certain potential abuses.
New VAT Error/Late Registration Penalty Regimes
The new all embracing tax penalty regime now applies to all VAT returns with a submission date on or after 1 April 2009 which is likely to lead to greater levels of penalties being applied for VAT errors, especially those uncovered via a VAT inspection. However, the old regime continues to apply for failure to register on time for VAT purposes for all such failures where the registration limit was exceeded before 1 April 2010.
Assessment and Correction of Errors Time Limit
With effect from 1 April 2010 the period for claims and assessments has increased from three to four years.
Voluntary Disclosure
For VAT return periods commencing on or after 1 July 2008 errors up to £10,000 (or if greater 1% of turnover for the VAT period subject to an overriding upper limit of £50,000) can now be corrected via VAT return adjustments rather than via formal voluntary disclosure on VAT form 652. These figures are much increased from the previous £2,000 limit. However, as before, separate voluntary disclosures can be made even for amounts below the limits. However, in a change of practice from 1 September 2008, interest is now charged on voluntary disclosures whether above or below the limit (previously an interest charge would only be levied for voluntary disclosures above the relevant limits, i.e. £2,000 to 30 June 2008 and £10,000 etc. thereafter).
Overseas Transactions
From 1 January 2010 the VAT rules with regard to the supply of services (i.e. the rules for the supply of goods remain as before) overseas (whether in the EU or elsewhere) have changed such that in most cases for business to business supplies the place of supply will be where the customer belongs (the main exceptions being land transactions, including architects, surveyors fees etc, direct building work and hotel accommodation charges where the place of supply is where the land is located and entertainment, cultural, artistic, sporting events (where the place of supply is where the event takes place, but see below), and educational services (to 31 December 2010 only)). As a result most business services supplied overseas will be outside the scope for UK VAT purposes (although note that establishment of a fixed base in another EU country may require registration in that jurisdiction). Similarly business services received from a supplier in another country will be outside the scope but will need to be accounted for in the UK under the reverse charge arrangements.
As a result of the above, business services supplied after 1 January 2010 to other businesses in the EU will need to be included on an EC sales list form along with details of sale of goods to other EU businesses (as at present). Note that an EC sales form should be completed for each calendar quarter for which previously goods and from1 January 2010 goods and services are supplied on an outside the scope basis to EU customers. Also note that evidence of the supply of goods and services overseas and of the business status of the customer must be obtained and be available for inspection. Usually such evidence will be the customer’s (overseas) VAT number together with evidence that goods have been physically despatched overseas and services rendered to an overseas entity (although the services themselves may have been performed in the UK).
Further changes took place on 1 January 2011 in respect of entertainment, cultural, artistic and sporting events so that these are now covered by the general rules regarding business and non-business customers, but note that services relating to admission to such events are still treated as supplied where the event takes place.
VAT paid in other EU countries on both goods and services consumed in such countries for business purposes can be recovered from the relevant overseas authority although in practice, at least until the end of 2009, this was often somewhat difficult, not least because of the need to complete claims in the local language. However, from 1 January 2010 claims are made via HMRC and in English so the procedure should be much simpler. Further information is available at www.lexisurl.com/vatrefund.
The place of supply for services rendered to non business customers (including non trading government or EU institutions) is generally where the supplier is based except that many services (but not all) rendered to non EU non business customers are considered to be outside the scope of VAT.
Suppliers of both goods and services overseas should seek specialist advice on the VAT treatment of all such transactions as the above only represents a broad outline of the rules.
Partial Exemption
From 1 April 2010 the rules on partial exemption calculations have been slightly simplified. Further information is available via HMRC VAT Information Sheet 4/10