I am still insecure regarding VAT, about the correct recording of a supply of goods, or services by a non registered business, to a registered business.
I am now more convinced than before that these types of transaction should not be included on a VAT return but I will leave you to make your own decision.
At the end of the day I suspect that which ever way you decide, it will not result in any major problem, as it will not result in any underpayment of VAT
I have just found this in an HMRC manual VTAXPER21000, which to me says that all four conditions have to be met before a transaction falls within the scope of VAT, including the the status of the the person making the supply.
A transaction is therefore within the scope of UK VAT if the following four conditions are met.
It is a supply of goods or services.
It takes place in the UK.
It is made by a taxable person.
It is made in the course or furtherance of any business carried on or to be carried on by that person.
Are you thinking that supplies from a non registered business to a registered one is outside the scope of vat? I'm neither agreeing nor disagreeing - just curious.
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
I bought this up a long time ago on another thread where I had been told two different things by HMRC, one saying it was outside the scope, and the other saying it was inside.
Having had loads of great feed back, I decided that I would go with the majority advise but always felt "uneasy" about it. It was resurrected a couple of days ago when Louise (figerate) innocently mentioned that she treated these transaction as outside the scope, which raised that little seed of doubt again
I really only posted the extract as a reference for others to make their own decison, as i feel that there are two equally valid points of view (even HMRC can't seem to agree).
anything outside the scope of VAT like vehicle licences, MOT certificates and local authority rates
We're already comfortable with the surrounding examples yet it just brushes over (like i've been doing) the area where we'd like certainty. I have been slap-dash all this time and presumably every VAT Return I've ever completed has skewed C&E statistical risk analysis! If I alter my treatment now, the big black computer might ring alarms bells.
BOXES 6 + 7 It's probably changed now, but I was always taught these boxes were non-statutory (someone may confirm this). In the mid-nineties a VAT Officer once stamped her feet and walked out of a general store visit when she tried and failed to revise outputs based on my box 6. Didn't even say goodbye. lol
So, even though the guidance is inadequate a frustrated officer may try it on.
Glad I am not alone. I get the feeling that I am getting obsessive about this.
If only HMRC could be more helpful (I know, an oxymoron if ever there was one ) but they are only willing to put something in writing for specific cases, otherwise they just give you a helpsheet number, and say the answers there.
Edit: Just had a thought In the text is says MOT's are outside the scope, so no question that it is not included on return. If however a garage is not authorised and sublets an MOT, under certain circumstances the recharge to the end user/ customer can attract VAT. So here you have a situation where there is no input tax, and no entry of a purchase in box 7 for the supply of the MOT but there is output tax, and a sale for box 6.
Bill
-- Edited by Wella on Wednesday 27th of July 2011 11:22:02 AM
Ha! So were not necessarily comfortable with the surrounding examples either!
I'm thinking that best solution to this would be a new box called 7b
Aren't we lucky that following a review of policy in this area there is now
"a simplified treatment, based on normal disbursement principles was introduced with effect from 1 November 1996. From this date:
the charge for an MOT test provided direct by a test centre to its customers is outside the scope of VAT, provided it does not exceed the statutory maximum;
any discount given by a test centre to an unapproved garage should be treated as a normal trade discount and not as consideration for a taxable supply by the unapproved garage to the test centre;
provided the unapproved garage charges on the exact amount it has been charged by the test centre and shows this separately on the invoice to its customer, it may treat this element as a disbursement and also outside the scope of VAT (assuming, of course, that all the other conditions set out in VTAXPER39000 are met);
any amount charged by an unapproved garage to its customer over and above the amount charged by the test centre is consideration for its own service of arranging the test as agent of the customer and is taxable at the standard rate;
if the unapproved garage chooses not to treat the exact amount charged by the test centre as a disbursement, or otherwise does not satisfy all the conditions set out in VTAXPER39000, it must account for VAT on the full invoiced amount.
This policy was publicised by Business Brief 21/96 (dated 17 October 1996) and is supported by both the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation. Details were communicated to local VAT staff by a Dear Colleague Letter: DCL VAT 40/96.
In January 1999, it was upheld by the VAT tribunal in the case of M A Ward trading as Acorn Garage (MAN/98/507Y). However, in the latter, the law was not argued in any detail.
Subsequently, the tribunal upheld our policy on both the application of the disbursement rules and MOT test charges in Chandlers Garage Holdings Ltd (LON/99/271). Here the Chairman held that a payment cannot be treated as a disbursement unless it has been incurred in the capacity of agent, and here it was. Moreover, that an agent must not make a secret profit, and here he did. He took the view that the exclusivity agreement struck between the appellant and the approved test centre did not alter the situation. In dismissing the appeal, he held that the appellant was seeking to make a profit out of what was an agency transaction, and was not disclosing the amount of that profit to the customers.
Before 1 November 1996, there had been a number of not very well co-ordinated (and some inexplicably unpublicised) changes to our policy. At one time, we allowed unapproved garages to treat the MOT test charge as a disbursement but, depending on the contractual situation, we saw any discount obtained from the test centre as consideration for a supply to the test centre of introducing a customer. This policy was based on the assumption that test centres would normally charge the statutory MOT fee and charge a lower amount only where the unapproved garage delivered a customers vehicle for testing. However, commercial practices have now changed and many test centres offer discounts to all customers. The reduction offered to unapproved garages may therefore be little more than a normal trade discount and in the interests of simplification we have abandoned the concept of seeing a supply back to the test centre.
Other policy changes in 1991 departed from the normal disbursement procedures and allowed any onward charge raised by the unapproved garage for the MOT test to be treated as outside the scope of VAT provided it did not exceed the statutory fee. Further changes when this guidance was issued provided that unapproved garages should only treat their charge as outside the scope if it passed on the exact statutory amount to the customer.
None of these changes were publicised and no information on the treatment of MOT test fees generally was widely available to businesses until this guidance on the subject was copied to the trade representative bodies in 1995. As a result, garages adopted different procedures and our own confused and conflicting policy led to assessments being raised on an inconsistent basis. Control staff visiting garages involved with MOT test fees need not look into how tax was accounted for before 1 November 1996 and should confine their action to ensuring that the trader is aware of and has been correctly applying the new policy from that date.
For operational reasons, an approved MOT test centre may need to subcontract the test to another approved MOT test centre. Reasons my include staff shortage, equipment failure etc. Where this happens, the supply of the MOT to the customer will remain outside the scope of VAT , provided it does not exceed the statutory maximum, regardless of any discount that may be given by the subcontracted test centre. This is because the first test centre is still making a supply of an MOT test (the charge for which is outside the scope of VAT) whether from its in-house resources or not.
The third condition at VTAXPER21000 "it is made by a taxable person". This isn't the same thing as a VAT Registered person.
Someone may be a taxable person but happens to be under the threshold in a particular member state. All four conditions can be met even where VAT hasn't been paid on a supply.
So on a VAT Return there may be no claim at box 4 yet a value in box 7.
At the top it describes ".... taxable persons (i.e., VAT-registered businesses)"
and one screen down gives this definition
What is a taxable person?
For VAT purposes, a taxable person is any individual, partnership, company or whatever which supplies taxable goods and services in the course of business.
However, if the annual turnover of this person is less than a certain limit (the threshold), which differs according to the Member State, the person does not have to charge VAT on their sales.
I'll follow that until we get a clear HMRC interpretation.
best regards,
Tim
PS For purposes of zzzzzzzzz's, you might like to read the actual Council Directive at 77/388EEC
I was told by several VAT inspectors that your totals of supplies and sales on the VAT return should more or less match the figures that go into the SA returns, and if the don't, they will want to know why. I know a client of mine was pulled on this as he wasn't supplying me with the full sales dockets. Even though there was no VAT liability due (his sales were zero rated), they still wanted a written explanation as to why they did not match the end of year accounts.
Me too Sheila. That didn't stop the VAT officer from attempting to re-hash a three year period based on 6 and 7 though. It was a small store that sold everything; food, alcohol and tobacco and babies nappies springs to mind, but I forget exactly what the 'error' was now.
Julie, I always ask for a copy of the VAT Returns if the clients are doing their own. I lost a client once because his books always showed more sales than his 4 VAT Returns. He was under-declaring his VAT yet handing me adequate sales for accounts/income tax purposes because he'd just under-gone a tax investigation.
Just to add to this thread that I find this question weirdly fascinating despite it making no practical difference to me whatsoever - unless you count a difference of circa £90 in the figure I write in Box 7 as being a practical difference.
Basically I am rather shocked that HMRC do not provide unambiguous guidance on a question that must arise hundreds of times every day for businesses across the UK.
"Anything outside the scope of VAT like vehicle licences, MOT certificates and local authority rates", forsooth! As Don Tax implies, this is just passing the onus on deciding what is outside the scope of VAT back to the people who have come seeking guidance.
Er, HMRC, aren't you the ones who are supposed to know?
Basically I am rather shocked that HMRC do not provide unambiguous guidance on a question that must arise hundreds of times every day for businesses across the UK
Falls off chair laughing. You're right though, it is time we had unambiguous guidance, but I suspect C&E rather like the idea that they can use that ambiguity when they need a scare tactic.
Upon reading the commentary, the VAT Act 1994 and Notice 700, it occured to me that the meaning of the phrase 'taxable person" is slowly evolving into "VAT Registered Person"; whilst the original wording of the 6th Directive is, of course, unchanged.
There were a bit shocked that contradictory advice has been given and the particular example that's being discussed wasn't outside the scope. They gave the usual examples of wages, "taxes on taxes" etc.
__________________
Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
) but they are only willing to put something in writing for specific cases, otherwise they just give you a helpsheet number, and say the answers there.
In the text is says MOT's are outside the scope, so no question that it is not included on return. If however a garage is not authorised and sublets an MOT, under certain circumstances the recharge to the end user/ customer can attract VAT. So here you have a situation where there is no input tax, and no entry of a purchase in box 7 for the supply of the MOT but there is output tax, and a sale for box 6.
