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Newsletter - Summer 2011

Getting the VAT job done with the right tools

HMRC toolkits are issued to help taxpayers and agents to file accurate returns. They focus on common problem areas for both direct taxes and more recently VAT. VAT toolkits issued so far include such areas as Input VAT, Output VAT and Partial Exemption.

As well as covering specific technical areas the toolkits emphasise the need for better record keeping. This is critical as penalties may be incurred for filing incorrect returns (including VAT) particularly if documentation is not available to support the figures in the returns. The rest of this article examines some of the key issues outlined in the recently issued VAT toolkit on Output VAT. Further areas are considered in the toolkit itself.

Output VAT problems

Outputs are often incorrectly accounted for on occasional, miscellaneous and incidental transactions, including on deemed supplies. For example, deemed supply occurs when the business gives away gifts to one person costing more than £50, or a series of gifts to the same person, or puts goods or assets to non business use. Output VAT must be charged by the business to itself on the value of these transactions. This is commonly seen in the calculation of the fuel scale charge for supplies of fuel for private motoring, but many taxpayers seem unaware of the need to calculate the tax on other such supplies.

For businesses using the flat rate scheme, using incorrect percentages and incorrect turnover figures are common problem areas. This is especially going to be an issue for VAT returns spanning the change in the standard rate of VAT on 4 January 2011. The new flat rate percentages must be applied to turnover from 4 January 2011. Businesses must ensure they use their new flat rate percentage, rather than just adding 2.5% to their old flat rate percentage. A revised table has been issued for this purpose. This can be accessed at www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#sa

Other errors regarding output VAT include incorrect zero rating of exports outside of the EU and dispatches to other EU countries. These supplies can only be zero rated when supporting documentation to prove movement of goods is held. For EU dispatches, the customer’s VAT number must be obtained and quoted on the invoice for zero rating to apply.

So finally, if you would like any help in calculating output VAT or any other aspect of VAT please do not hesitate to contact us.

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