Broking breakfast briefing

Transcription

1 Broking breakfast briefing VAT for broker accounts staff 18 June 2010

2 VAT for broker accounts staff Introduction to VAT basic principles Partial exemption Group registration The liability of insurance contracts, brokers commission and fees The reverse charge and place of supply issues Questions and answers

3 Overview of the VAT system VAT is a tax on consumer spending VAT registered businesses charge VAT on sales the consumer will pay the business the full sales price (including VAT) the business will remit the VAT amount to HMRC The final consumer will bear the cost of VAT

4 Overview of the VAT system VAT is paid over to HMRC on a regular basis Normally quarterly VAT collected from their customers is called Output VAT VAT paid by the business on its costs is referred to as Input VAT A VAT registered business will only pay the difference to HMRC Tax Payable = Output Tax Input Tax

5 VAT records and returns Records Each taxable person has an obligation to keep and preserve: business and accounting records copies of all tax invoices issued all tax invoices received documentation relating to imports/exports/eu acquisitions and dispatches credit notes, debit notes or similar documents issued/received a VAT account

6 The VAT account The VAT account divided into different VAT Return periods then subdivided into VAT payable and VAT allowable VAT payable Output tax on sales Output tax on EU acquisitions Output tax errors being corrected now Amendments to output tax due to changes in consideration Other adjustments VAT allowable Input tax on purchase Input tax on EU acquisitions Input tax errors being corrected now Amendments to input tax due to changes in consideration Other adjustments

7 Tax invoices 1. Identifying number 2. Date of supply 3. Date when tax invoice issued 4. Supplier s: name address VAT registration number 5. Recipient s name address if EU, VAT registration number

8 Tax invoices continued 6. Include unit price of countable goods or services 7. A description sufficient to identify the goods or services supplied 8. For each description on the invoice: quantity of goods or extent of services supplied rate of VAT applicable amount charged (net) in Sterling 9. Total amount charged 10. If a cash discount is offered, the rate of discount 11. Total amount of tax chargeable (Sterling) 12. Obligation to issue tax invoice within 30 days after the tax point

9 Less detailed tax invoice Supplier is a retailer Value of supply including VAT is < Supplier s: name address VAT registration number 2. Date of supply 3. A description sufficient to identify the goods or services supplied 4. Total payable including VAT 5. Rate of tax applicable

10 Liability of the supply Supply Taxable Exempt Outside the scope of VAT Standard Rate 17.5% Lower Rate 5% Zero Rate 0% Schedule 8 VATA 1994 Schedule 9 VATA 1994

11 Method of determining liability 1. Schedule 8 Zero Rated 2. Schedule 9 Exempt 3. Lower Rate Specific 4. Outside the Scope Specific 5. Standard Rated Zero rating takes priority over exemption

12 Exemptions Schedule 9, VATA 1994 provides a list of exempt items: Group 1 Group 2 Group 5 - Land - Insurance - Finance

13 Partial exemption - overview XYZ Limited is partially exempt as some of the company s turnover is standard rated and some is exempt. Input Tax Taxable Turnover 100,000 Exempt Turnover 398,000 15,000 25,000 60,000? Inputs are recoverable to the extent that they relate to a taxable supply (sale). Need to apportion residual input tax of 25,000 between taxable and exempt supplies to determine recoverability.

14 Partial exemption standard method Taxable Turnover 100,000 Exempt Turnover 398,000 Input Tax 15,000 25,000 60,000 The standard method of apportionment is: Taxable supplies (excluding VAT) Total supplies (excluding VAT) This fraction should be expressed as a % and rounded up to the next whole number. The percentage should then be applied to the residual input VAT. When calculating this fraction you should exclude supplies of land, capital goods or self supplies. You should aim to have a fraction reflecting normal trading activities and anything strange should be excluded.

15 Partial exemption standard method Taxable Turnover 100,000 Exempt Turnover 398,000 Input Tax 15,000 25,000 60,000 For example: 100,000 x 100 = 21% 100, ,000 Round up from 20.08%

16 Partial exemption standard method Input Tax Taxable turnover 100,000 Exempt Turnover 398,000 15,000 25,000 60,000 21% 79% = 5,250 = 19,750 The inputs that relate to taxable supplies are recoverable The inputs that relate to exempt supplies are irrecoverable

17 Partial exemption de minimis input VAT It is possible to reclaim the input VAT relating to exempt supplies if the amounts involved are below a certain limit. To be de minimis the total exempt input tax must be less than or equal to: 625 per month on average, and 50% of total input tax Must be both!

18 Partial exemption de minimis input VAT, example Quarter to 30 June Input Tax Taxable supplies 100,000 Exempt supplies 19,000 Directly attributable to taxable supplies 7,000 Directly attributable to exempt supplies 1,300 Residual 2,000 The trader can recover 10,300 1,700 T.S. 300 E.S. 100/119 X 100 = 85% Total exempt inputs of 1,600 are below 625 per month ( 1,875 per quarter) and are less than half of total inputs ( 10,300/2 = 5,150)

19 Partial exemption capital items In the quarter to 30 June, XYZ Ltd had the following: Taxable supplies (excluding VAT) 300,000 Exempt supplies 50,000 Input tax - Directly attributable to taxable 9,000 - Directly attributable to exempt 1,000 - Residual 4,000 Taxable supplies includes 5,000 (ex VAT) for the sale of equipment during the quarter The input tax recoverable is?

20 Partial exemption capital items, continued TOTAL Taxable Exempt Inputs Directly taxable 9,000 9,000 Directly exempt 1,000 1,000 Exclude Residual Capital items 4,000 3, ,000 12,440 1,560 W1 Taxable Supplies 300,000-5,000 = 295,000 W2 Fraction Taxable supplies (excluding VAT) x 100 = 295,000 / 345,000 x 100 = 86% Total supplies (excluding VAT) Round up from 85.5% De minimis

21 Partial exemption annual adjustment Partial exemption calculations are performed every quarter. Input tax is therefore reclaimed on a quarterly basis. These calculations are not final At the end of the VAT year the trader must perform an annual calculation using annual supplies and annual input tax figures. The de-minimis is then applied on an annual basis. The trader should calculate the correct reclaim for the year based on these figures. This will then be compared to the quarterly reclaims and any difference is known as the annual adjustment.

22 Partial exemption special methods Standard method applies by default Trader can agree a special method with Customs Methods can be based on: number of transactions floor area staff numbers inputs time Once a special method has been agreed with Customs, the trader must apply the method until both parties agree it is no longer appropriate. Approval or direction of Special Methods must be in writing. Fairer apportionment of residual VAT

23 Group of companies Group registration = single taxable person Eligibility: bodies corporate established in UK or established place of business in UK under common control Impact of a group registration

24 Liability of insurance services Exempt supplies Outside the scope with no recovery Outside the scope with recovery Where the recipient belongs for non-ec or EC business Where the supplier belongs for UK or EC non-business

25 Liability of insurance services Reinsurance MAT insurance Run-off (total service) Call centres & internet services

26 Intermediaries What are they? Liability of supplies Introductory Preparing / concluding contracts Administration e.g. claims handling Collecting premiums

27 Intermediaries - exclusions Marketing / promotional Valuation / inspection Loss adjusters / experts (unless claims handling) Services to insureds e.g. repairs Andersen Consulting

28 International services Place of supply 2010 Reverse charge Liability of imported services Apportionment Supplies to other EU member states

29 Specific issues Direct attribution Property relocation Current approved partial exemption method Up to date group registration Correct application of reverse charge

30 Questions and answers

31 This guide is prepared as a general guide. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher. Always seek professional advice before acting. Littlejohn