It is very difficult to know some of the finer details, or intricacies, of VAT and every VAT registered business at some point will ask, should I charge VAT on that?
So what are the potential problem areas where VAT is concerned?
The legislation around food is probably the worst written law I know. Everyone knows about the Jaffa Cake case, but there are countless examples of inconsistencies with seemingly similar products. If you are supplying food products I would suggest taking advice.
Letting surplus space or a room, is most likely to be exempt for VAT (unless you have Opted to Tax), but that can depend what you supply with it. Are you supplying food and drink with it? What about service charges, telephone and utilities recharges? The treatment depends upon the specific circumstances and agreement, but it is easy to fall foul and get it wrong.
Often with property sales the value of transactions is high, and therefore the VAT, so getting the position right is really important and often it is not considered early enough in the transaction.
Do you supply delivered goods? Perhaps you make a separate charge for delivery, but what rate of VAT should apply? Ultimately that will depend upon the underlying goods being supplied and also the contractual position with your customer. It is probable that the delivery could be Standard Rated, but equally there are circumstances where it could be different and if your customer is a private consumer it could impact the price they pay.
If you have an agreement to recharge expenses you incur in fulfilling a contract, which includes train or air travel you have taken (zero rated), what rate do you charge to your customer? The trap to avoid is to automatically follow the VAT treatment of your costs. Just because you were not charged VAT, doesn’t mean that you should not charge VAT on your recharge. If it is effectively an additional charge for your services, then the VAT rate follows the main element of your supply.
What if I am supplying multiple things?
Perhaps you supply a vehicle for hire and insurance for its use, or food in a decorative container that is designed to be reused, or maybe a new caravan with some furniture in it. Where there are multiple items with potentially different VAT rates you must take care to ensure you charge the right VAT and this again is a complex area the subject of countless case law over the years.
Should I charge the Standard Rate of 20% VAT by default?
The onus is on the supplier to charge the correct amount of VAT. If one of the VAT exemptions or reduced rates (0% or 5%) apply then they override the Standard Rate, so whilst it may seem sensible to charge 20% VAT where you are unsure, that could be incorrect and the consequences can be significant.
VAT incorrectly charged is not technically VAT, HMRC have the powers to refuse your customer’s input VAT reclaim, but also could refuse to refund the supplier. Don’t forget HMRC can potentially charge penalties too, it’s like having their Jaffa Cake and eating it!
And finally, what about Brexit?
International matters cause greater complexity and compliance requirements for businesses. Brexit will not only change the ultimate jurisdiction of the tax, but subject to the deal agreed there is real concern about the potential significant additional administrative and financial burdens put on business, which are likely to mean the slow movement of goods across borders affecting supply chains, projects and serviceability of customers.
- When supplying multiple products take care as different VAT rates may apply
- The onus is on the supplier to charge the correct VAT
- If you are unsure about the VAT to charge – just ask!