The VAT Weblog

VATease has issued a VAT newsflash this week highlighting the opportunity for many VAT registered businesses to submit claims for VAT overpaid or underclaimed in periods prior to April 1997.

In the Business Brief HMRC invites claims for VAT overpaid or underclaimed for periods up to December 1996 (for output VAT overpaid or amounts improperly paid as VAT) and April 1997 (for input VAT unclaimed). Claims should be made with an accompanying claim for simple interest.

Any businesses making such a claim must undertake to repay the money paid with interest if the House of Lords should overturn the ruling. Alternatively, businesses can wait until litigation has ceased before making claims.

When you fly (or sail) back into the UK from an overseas trip, one of the first sights that greets you is the Customs “Something to Declare” and “Nothing to Declare” lane choice. Most will walk straight through the “Nothing to Declare” lane without a thought but with limits set at a relatively low value, a very many people should be paying VAT and Duty on purchases they have made abroad.

Keira Knightley has recently found to her cost that the UK Tax Authorities require UK VAT and Duty to be paid on all goods brought back from overseas if the total value exceeds just £145. The Sunday Mail reports Keira was required to pay over £1,000 on items she was given for free at a charity event in the US.

A guide to what travellers should consider when returning to the UK can be found on HMRC’s website.

A press release issued by HMRC yesterday and picked up by most UK news outlets details the largest operation ever undertaken by HMRC to target criminals perpetrating missing trader and carousel frauds.

22 people have today been detained across the UK in HM Revenue & Customs (HMRC)’s biggest ever operation targeting multi-million pound VAT frauds. The detentions are linked to suspected carousel fraud, a sophisticated organised criminal attack on the EU VAT system involving large scale, contrived and complex trading activity across and beyond the EU.

Over 400 HMRC criminal investigators, supported by 100 officers from Strathclyde Police, Greater Manchester Police and the Metropolitan Police Service, executed over 60 search warrants nationwide at business and domestic addresses in the early hours of this morning.

These figures demonstrate the difficulties HMRC is facing in tackling the problem of VAT fraud. Unofficial estimates place the number of people perpetrating the fraud in the region of 9,000. If these series of raids required 500 people to arrest just 22 suspects HMRC would require a staff of of 200,000 officers to tackle the problem in full.

Incidentally, a similar raid back in 2002 resulted in the arrest of 22 people at a time when the total number of staff dedicated to tackling the problem of missing trader fraud was less than the number of officers deployed in a single raid yesterday.

Computing.co.uk reports rumours that the levels of missing trader and carousel fraud has doubled during the period April to June 2006.

According to figures released last week by the Office for National Statistics (ONS), the UK government has missed out on reclaiming VAT from an estimated £10bn worth of fraudulent exports in the second quarter of 2006, compared with £6.5bn in Q1. Last year the Q2 figure stood at £2.3bn.

Many legitimate dealers in mobile phones who are due money back from HMRC have had repayments withheld since April 2006 with little or no explanation. Some have expressed the opinion that HMRC, unable to tackle fraudsters directly, are targeting legitimate traders with strong arm tactics.

The Evening Times has an article reminding those who are about to build or convert their own houses of the DIY Builders’ Scheme.

Most people are unaware of the DIY VAT scheme which means house builders can claim back the lion’s share of their VAT.

One of the most common questions we get asked here at VATease is whether VAT must be charged on expenses. Here’s a typical question received via our query form and our answer.

> Sent: 09 August 2006 09:34
> Subject: VAT Question Submitted from VATease.co.uk
>
> The following was submitted on August 9th, 2006 at 09:34AM (BST).
> Subject: VAT Question Submitted from VATease.co.uk
> question: Our clients are VAT registered limited company
> contractors and they often re-bill expenses e.g. travel,
> hotels etc to their customers. Do they need to charge VAT on
> these expenses?

Unless it is a genuine disbursement, a recharge of expenses is not a separate supply to the main supply. It is, instead, a way of calculating the price charged for the main supply. The liability of the expenses recharge will therefore follow the liability of the main supply. If your clients are supplying standard rated goods or services then VAT must be added to the expenses.

Disbursements are costs incurred directly as agents of the customer. Input VAT cannot be reclaimed on them and they must be shown separately on the invoice. They can be invoiced without VAT. This is only usually applicable to items such as land search fees and MOT fees. Travel and subsistence costs cannot be treated as disbursements.

I hope that helps.

Please accept this advice as a free example of the services VATease can provide. If you would like further advice on this other matters you can engage VATease to provide VAT advice services. If you require I can send out a letter of engagement. This does not oblige you to use our services but will give a basis on which we can work if you do. VATease charges for its services on the basis of time spent at a rate of £125 per hour calculated in 6 minute intervals plus VAT and expenses.

Regards

Paul Taylor
http://www.vatease.co.uk/

Times Online reports that the Advocate General’s opinion in the 3G VAT case is due to be issued on 7 September.

The operators argue that the £22.5 billion that they spent in total on 3G licences in 2000 included VAT. Since most businesses can deduct the VAT that they pay from the VAT that they charge customers, they should be eligible for a repayment, they argue. The Government says that it auctioned the licences in its role as a public body and so the auction was not within the scope of VAT.

Taxware, a leading provider of global transaction tax calculation and compliance solutions, has released its ‘Five Most Unusual International VAT Laws for 2006’. In reverse order, the top 5 are:

5. In Morocco, the operation of Turkish-style baths and public showers are exempt from VAT but if you want to emerge clean as well as relaxed, then a tax of 7% is payable on any soap that’s used.

4. Belgians that collect and store manure pay VAT at the standard rate of 21%. However, spreading manure around is viewed as an agricultural service and taxed at a lower rate of 6%.

3. Icelanders take the preservation of the Icelandic language, which has changed little since the 13th Century, very seriously. Keen to keep matters this way, the government taxes books written in Icelandic at just 14%, rather than the standard 24.5% for those printed in other languages.

2. In the horse racing-mad Republic of Ireland, it might come as some surprise to find that shodding your trusty steed attracts a levy of 21% whilst equine dentistry is taxed at just 13.5%.

1. In the UK, individual chocolate flakes are taxed at the standard 17.5% rate but buy a catering box of at least 144 and a zero rating will be applicable, provided that the pack is clearly labelled ‘for use as cake decorations only: not for retail sale’.

About Taxware

Taxware, a First Data Company, is an industry leader focused exclusively on global commercial tax compliance systems. For more than 25 years, Taxware’s products have simplified the tax calculation and compliance process with solutions for sales, use, value added and other consumption taxes for businesses around the globe. By combining expert knowledge of the most current transaction tax laws, rules and regulations with the best available automated processes, Taxware has developed comprehensive solutions that facilitate compliance with Sarbanes-Oxley, serving as the control for corporate transaction tax operations. To learn more about Taxware, please visit: www.taxware.com.

Sir David Varney, Chairman of HM Revenue & Customs, will quit his role on 1 September.

The former Chairman of MM02 has been in the role just 2 years. and his resignation has drawn some criticism with HMRC facing difficulties in the Tax Credits system, VAT fraud and still wrestling with the effects of its recent formation from the merger of the Inland Revenue and HM Customs & Excise.

Sir David will continue to advise the Treasury on the Transformational Government Strategy, as announced in the 2006 Budget, until he leaves the Civil Service at the end of the Year.

via HMRC Press Release

The BBC news website reports that the introduction of the reverse charge to combat missing trader fraud could come in October.

New rules to combat carousel fraud may be introduced as early as October 2006.

…

The change should remove the chance for criminals to charge retailers VAT on imported items only to deliberately fail to hand the tax over to HMRC.