How I could save you money
VAT can be an intricate tax to understand. It's been particularly difficult recently because of the rate changes, both up and down, and if these aren't calculated in properly then you could be paying more than you should.
Jumping the Gun!
We all should be aware by now that the UK’s standard rate of VAT went up from 17.5% to 20% on the 4th of January. However, I was made aware by a local company last month that it had received an invoice, dated in December, from a well-known local football club on which the VAT was charged at 20%. Surely this could not be correct?
The company itself pays for a number of seats and lunches at the football club each season and the cost is spread over a number of months, with several invoices being raised during the season. The football club apparently stated that because the invoice was not due to be paid until after 4 January 2011, they had to charge VAT at the new rate of 20%. At this point I should mention that HM Revenue & Customs, the Government department that administers VAT in the UK, has issued certain guidelines for businesses supplying certain services after 4 January that ensure VAT is charged at 20%, irrespective of the date on the invoice [referred to as ‘Anti-forestalling legislation’ - see guidance notes issued by HMRC].
However, there are limited circumstances in which the anti-forestalling legislation applies and none of these applied to the company in question. The VAT should have been charged at 17.5% not 20% and (after a couple of telephone calls) the club concerned promised to re-issue the invoice. The majority of the VAT related to an expense on which VAT is normally not recoverable by the company so there was a definite saving for them.
If you are in business and have received any invoice issued before 4 January 2011 on which the VAT rate is 20%, you should check whether the anti-forestalling legislation applies. If not, you may be due a refund, or a credit note at least!
VAT Officer is not always right
An accountant rang me. His client had just had a VAT visit which was followed by a large assessment and a penalty of over £13,000. Could I help? Was the assessment correct?
There is a tendency in some businesses to accept that the VAT Officer is always right! Not necessarily so! In this situation there were actually two separate issues, both of which the VAT Officer had dealt with incorrectly.
An incomplete construction project was involved but the VAT Officer had determined it was complete. The assessment was incorrect as the project had not been completed, so the VAT assessment was cancelled along with the £13,000 penalty. The second issue was the VAT rate to be charged, which the VAT Officer had not addressed.
The current standard rate of VAT is 17.5% but much of the work was actually carried out during 2009 when the standard rate was temporarily only 15%. Thanks to a concession, HM Revenue & Customs will, under certain conditions, allow certain ongoing services which spanned the date the rate changed back to 17.5% (1 January 2010) to be charged at 15%.
So if the building firm concerned could identify when certain parts of the works were actually carried out they would be able to charge their customers less VAT!