View the related Tax Guidance about Output tax
Multiple supplies ― output tax apportionment
Multiple supplies ― output tax apportionmentThis guidance note should be read in conjunction with the Single or multiple supplies ― overview, Single or multiple supplies ― indicators that it is a single or multiple supply and Single or multiple supplies ― other considerations guidance notes.What is output tax apportionment?Output tax apportionment is relevant to businesses that sell goods or services with different VAT liabilities in a package or bundle for a single price. For example, a business may sell a zero-rated cold takeaway sandwich and a standard-rated drink for a single VAT-inclusive price. In such situations, it is necessary to calculate the amount of VAT to account for the supply on a fair and reasonable basis using an appropriate method of output tax apportionment. Output tax apportionment is particularly relevant to retailers and other businesses that sell items with different VAT liabilities to consumers. Such businesses may offer items for sale in a package or bundle, often at a price that is less than total price that would be charged if a customer bought all of the items separately. Apportionment can also be relevant to other businesses, for example, builders working on mixed use buildings. The apportionment that is relevant to building work is, however, different than the apportionment that this guidance note focuses on. The apportionment that is relevant to building work is relevant where there is a single supply with elements that are subject to different VAT rates. For more information, please refer to the following guidance
Reverse charge ― buying in services from outside the UK
Reverse charge ― buying in services from outside the UKThis guidance note covers the reverse charge that applies to services that have been bought in from outside the UK. For an overview of VAT and international services more broadly, see the International services ― overview guidance note. For in-depth commentary on the legislation and case law in relation to the reverse charge, see De Voil Indirect Tax Service V3.231.Reverse charge ― the basicsCertain services are subject to a reverse charge when they are bought in from outside the UK. This means that instead of the supplier being required to register and account for VAT on its supply of services as normal, the obligation to account for VAT on the services is actually shifted to the customer. The customer therefore treats the service as if it were supplied both to and by itself. In other words, the customer must ‘self-account’ for the VAT on its purchase. The customer is still able to recover the VAT that it charges to itself under the reverse charge subject to the normal VAT rules for input tax recovery. This means that if the customer is entitled to recover all of its VAT, the reverse charge ends up being a simple administrative entry on its VAT return. However, if the customer is not entitled to recover all of its VAT (for example because it is partly exempt), then the reverse charge will have the effect of increasing the amount of VAT due to HMRC. The
Input tax ― business, non-business and private use
Input tax ― business, non-business and private useThis guidance note looks at issues around whether expenditure is used for business, private or other non-business purposes in the context of VAT recovery and input tax.For an overview of input tax more broadly, see the Input tax ― overview guidance note.For in-depth commentary on the legislation and case law on input tax and business activities, see De Voil Indirect Tax Service V3.405A–V3.410.Business, non-business and private use ― the basicsA general rule is that it is not possible to recover VAT on costs incurred on non-business activities. There are, however, a number of significant exceptions to this general rule that are summarised towards the end of this guidance note. Only VAT on costs which is used for business purposes can properly be said to be ‘input tax’. VAT which is incurred for either private or non-business purposes is not input tax and cannot be recovered, other than in exceptional circumstances. HMRC policy regarding whether an activity is in the course or furtherance of a business has been influenced by Court decisions. The Court of Appeal decision in Wakefield College v HMRC is particularly relevant in this context and has resulted in HMRC referring to a two-stage test to determine whether an activity is a business activity, namely:•does the activity result in a supply of goods or services for consideration?•is the supply made for the purpose of obtaining income?Wakefield College v HMRC [2018] EWCA Civ 952Please refer to the General principles
VAT review ― registration and compliance
VAT review ― registration and complianceThis guidance note is intended to provide more detail on areas to consider during a VAT review which relate to general compliance. This document should be used in conjunction with the Checklist ― VAT review when undertaking the actual review in order to ensure that all relevant items have been covered.Whilst this guidance and associated checklist have been prepared to seek to cover the common issues and risks which might arise, care should be taken to ensure that any specific business or sector issues are considered as part of a comprehensive review.VAT returns and compliance ― return and payment deadlinesA typical starting point when undertaking a VAT review or due diligence exercise is to confirm whether all VAT returns and payments have been made on time. The VAT return and any payment due must reach HMRC by the due date stated on the return. For a normal return, this will be:•no later than one month after the end of the VAT return period, and•no later than one month after the effective date for cancellation of registration (or, in the case of a business that had failed to register, one month after the date when liability to be registered ceases)Businesses can check the payment deadline using the payment deadline calculator provided by HMRC.If during the course of a VAT review it is identified that returns or payments have been made late, the next step will be to confirm whether the business has
Flat rate scheme (FRS) — operating the scheme
Flat rate scheme (FRS) - operating the schemeThis guidance note sets out how to operate the flat rate scheme (FRS). For an overview of the FRS more broadly, see the Flat rate scheme (FRS) - overview guidance note.See also De Voil Indirect Tax Service V2.199B and V2.199C.Operating the FRS - the basicsA business operating the flat rate scheme (FRS) must choose, from a prescribed list of sectors, the sector which most closely describes its type of business. A set ‘flat rate percentage’ is applicable to each sector.In simple terms, this flat rate percentage is applied to the VAT inclusive turnover of the business to calculate VAT due to HMRC for a period. This means that the business is not required to keep detailed input tax records to work out exactly how much VAT can be reclaimed on costs. Instead, a notional amount of VAT recovery is built into the flat rate percentage.For example, an accountant operating the FRS is likely to choose ‘accountancy or book-keeping’ as its type of business. The applicable flat rate percentage is 14.5%. If the accountant has a VAT inclusive turnover of £120,000, VAT due will be £17,400 (£120,000 x 14.5%).Various factors can complicate the basic operation of the FRS. For example, when choosing an appropriate sector there may be multiple possibilities or a business may have more than one kind of business activity. There are also special ‘limited cost trader’ rules which mean that businesses with low levels of costs must use a higher
Cancelling a VAT registration number
Cancelling a VAT registration numberThis guidance note provides:•guidance regarding when a person must deregister from VAT on a compulsory basis•guidance regarding when a person can deregister from VAT on a voluntary basis•practical points to consider in relation to the cancellation of a VAT registrationFor in-depth commentary on VAT deregistration please refer to De Voil Indirect Tax Service V2.151 to V2.155.When must a person deregister from VAT on a compulsory basis?The VAT registration ― voluntary guidance note explains when a person is entitled to be registered for VAT. A person who is registered for VAT and ceases to be entitled to be registered must notify HMRC within 30 days from the date they ceased to be entitled to be registered. HMRC can cancel the registration of a person who has ceased to be entitled to be registered for VAT, even if the person has not notified HMRC. A failure to notify HMRC may result in a penalty. If the reason the person is no longer entitled to be registered is because they have transferred their business as a going concern the VAT registration number may, subject to the agreement of the person acquiring the business and HMRC, be transferred to the person acquiring the business. The request for the VAT registration number to be transferred should be submitted to HMRC using the form VAT68. In all other circumstances the VAT registration number must be cancelled, although HMRC may agree to a request for the deregistration to be
Business promotion schemes ― cashbacks, linked goods concession and multi-save
Business promotion schemes ― cashbacks, linked goods concession and multi-saveThis guidance note provides an overview of the VAT treatment of cashbacks, linked goods concession and multi-save promotions.Businesses involved in other types of promotion schemes should see the Business promotion schemes ― overview guidance note for more information.For more detailed commentary, see De Voil Indirect Tax Service V3.158.What is the VAT treatment of cashbacks?According to HMRC, ‘cashbacks’ are payments made by the manufacturer either directly or via a recovery agency, to a customer of a wholesaler or retailer. These can also be referred to as discount schemes, volume bonuses, etc. Payments are often made to trade customers as a reward for the volume of purchases made and payments to customers are normally made in respect of specific product promotions. These payments are made outside of the normal supply chain so the business cannot issue credit notes to reflect the reduction in the value of the original supply, so special VAT rules apply to these types of arrangements. The current VAT treatment is as a result of the CJEU decision in Elida Gibbs and Commission v Germany where the court issued a judgement regarding the correct VAT treatment of these payments. Manufacturers that give cashbacks are entitled to reduce the VAT previously accounted for on the original supply. If a VAT registered business receives a cashback, it must reduce the value of the original payment by the amount of cashback and reduce the amount of input VAT previously recovered as well.
Liability ― food and catering
Liability ― food and cateringThis guidance note examines the liability of supplies of food and catering.For an overview of the concept of VAT liability generally, see the Liability ― overview guidance note.For in-depth commentary on the legislation and case law on supplies of food and catering, see De Voil Indirect Tax Service V4.217–V4.225.Liability of food ― the basicsWhen considering the liability of supplies of food, the starting point is that there is a broad zero rate for all food. However, this broad zero-rating for food is subject to a number of important exceptions. These exceptions are taken out of the scope of zero-rating and therefore will generally be standard-rated.The exceptions can be conveniently divided into the following categories:•catering•ice cream and other frozen products•confectionery•alcoholic and other drinks•savoury snacks•pet food•home brew kitsAs well as the liability of food supplied in isolation, questions frequently arise over single and multiple / mixed supplies. Commonly, these questions arise where businesses supply a mixture of zero-rated and standard-rated food or a mixture of zero-rated food and other items.What is food?Food (which includes drink) is very broadly defined for VAT purposes and encompasses all of the following:•food for human consumption•animal food•seeds, plants, etc for human or animal food•live animals generally used for making human foodVATA 1994, Sch 8, Pt II, Group 1, General Items, note 1Food for human consumption ― generalHMRC generally takes the view that an item of food is for human consumption if
Sector summary ― retail
Sector summary ― retailIntroduction to the sectorThe retail industry includes any businesses involved with selling products directly to consumers for use or consumption, rather than for resale. Traditionally, the retail sector encompassed shops, department stores and supermarkets. However, online retail is a prolific and growing segment of the market. This guidance note covers the key areas of consideration within VAT and indirect taxes for the retail sector. This guidance note acts as a useful starting point for advisers preparing for a meeting with a retail client, as well as in-house VAT teams.Key considerationsTopicOverviewCommon issuesLinks to further guidanceVAT liability of productsEnsuring that the correct VAT rate is applied to each product can be a significant challenge for retailers. Regular VAT liability reviews should be performed and product files updated to reflect any changes in the applicable VAT rate. This will be a particular focus for retailers selling:– food– pharmaceutical products (including contraceptives and smoking cessation products) – children’s clothes or safety equipment– books / magazines– women’s sanitary products– ensuring the correct VAT rate is applied to new products (it is not sufficient to rely on the VAT rate applied by the manufacturer) – monitoring changes to VAT rates – single vs multiple supplies. For example, applying the correct VAT rate to meal deals or products which are bundled (eg a free toy with a magazine)VAT rates applicable to goods and services ― overview; Single or multiple supplies ― overviewRetail
Trading as a partnership
Trading as a partnershipThis guidance note provides an overview of the VAT implications affecting businesses that trade as a partnership.IntroductionThe Partnership Act 1890, s 1(1) provides the following definition of a partnership:1)“Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.2)But the relation between members of any company or association which is ―a)registered under the Companies Act 2006, orb)Formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charteris not a partnership within the meaning of this Act.â€De Voil Indirect Tax Service V2.110A partnership is an unincorporated association in which the agreement between the parties is such that the relationship between themselves and third parties is governed by the Partnership Act. The existence of a partnership is a matter of fact and usually has the following elements:•there must be a business•the business must be carried on by two or more persons carrying on a business in common with a view to making a profit•the persons share any net profits and losses arising from the business activities•the parties have the power individually, by actions or words, to legally bind other members of the firm in relation to its dealing with third partiesIn Scotland a partnership is a legal person distinct from the partners who compose it. See VATDSAG04350 for more information on Scottish partnerships.From a VAT perspective the partnership itself will be treated as the
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