Outside the scope of Value Added Tax

Outside the scope of Value Added Tax

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I have a client trading from UK, but the business he conducts in is outside the scope of VAT.

For e.g. the client buys goods from the US and sells in Canada, the goods he buys and sells do not enter the UK or EC/EU.

I have an enquiry from HMRC asking to view records involving import and export and VAT issues. Do they have a right to view records in regards to VAT even though goods are not entering the UK, EC/EU. They have been notified with a deal log of the transactions.

The client does not charge VAT or get charged for VAT for transactions abroad, the only thing they write on their VAT form is expenses and supplies for the daily running of the business.

It just begs the questions that if it hasn’t got anything to do with them can, are they still allowed to request documentation.

Kindest regards.

Anon

Replies (5)

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By theaardvark
21st Jun 2007 17:11

HMRC need to verify entitlement to input VAT
Your Client is recovering input VAT on costs in the UK. HMRC are entitled to review records sufficient to confirm entitlement to that input VAT (Interleasing Ltd [2002] VTD 17819). Regardless of where the transactions occur, only review of those transactions would confirm the entitlement to input VAT.

HMRC can request productions of the records at the principle place of business or at such other place as may be reasonably required. Can you perhaps argue that it is not reasonable to produce the records at HMRC's offices?

I do see your point about the information being requested being irrelevant. As the goods are outside the UK, what does it matter if delivery details are not held?

However, HMRC are paying very close attention to anything that is different from the norm due to the large levels of Missing Trader Fraud. If your Client tries to be awkward he risks being suspected of involvement in this fraud and will become subject to some very close attention.

Regards,

Paul Taylor
Senior VAT Consultant
Dains

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By Richard Willis
19th Jun 2007 09:00

I'm a bit rusty on the finer points
Hi Anon

My immediate reaction would be that if the business's entire turnover and COGS are outside the scope, then are they entitled to claim on their business expenses? I would assume the same rules apply as for exempt outputs.

If I'm wrong I am sure somebody who is more up to date will put me right

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By User deleted
19th Jun 2007 09:57

HMRC have the right to inspect records
I'm assuming the client is VAT registered as you state they complete a VAT return.

1. Should they even be registered if they don't charge VAT on their services and therefore cannot recover any VAT?. Seems a pointless administrative expense to me. HMRC may seek to de-register client.

2. HMRC may wish to ensure the 'import/export' activities are legitimate and correctly handled. You ask why HMRC are asking and indeed if they have jurisdiction to ask. As long as the client is VAT registered, HMRC can ask to inspect any or all records relating to the VAT transactions of the business, whether the VAT account is wrong or right.

3. Is this a place of supply query?. What does your client 'do' exactly. If he is offering a service of mediation/negotation, etc, HMRC may seek to argue that the client is providing a service in the UK and therefore VAT should be charged on his services, regardless of where the client is (ie, if UK business designs a website in the UK for a USA company to use, invoice will have VAT on it as services were performed in the UK)

Even if client is not VAT registered, HMRC have been known to visit businesses to check to see if they should be registered for VAT (either by being over the £64k threshold or split business, etc) - all part of their checks to ensure business are not avoiding VAT.

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By User deleted
21st Jun 2007 13:53

it just get tedious
Hi

Its not that it is a problem, its just that its tedious and time consuming, they want originals and when told by our client that they can come and view at our clients premises they insist on not there but want it at their offices. Client once went on a HMRC import and export seminar, asked an officer about a situation where he sells goods in the middle east, the officer replied, as long as the goods don’t come to the UK/EU/EC then its non of our business/not customs problem. Client wishes he recorded that conversation.

Client is getting sick of random stupid questions. For e.g. in their deal files they have tracking numbers which clearly shows the courier and tracking number, but the officer insists that they should get confirmation of the delivery details. I assume HMRC have internet access, and I’m sure they could view the delivery details them selves.

I just want to find out what I should tell my client because he insists to me that he is sick of the hassle.

His overall turnover far exceeds the threshold, therefore even if he deregisters it would be a problem.

What does the VAT law states, out of VAT scope etc.

That you for your responses to date.

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By theaardvark
19th Jun 2007 15:36

In response to the previous respondents...
Provided the company is entitled to register for VAT, it is entitled to recover VAT incurred in relation to supplies made overseas that would be taxable if made in the UK.

A person or company is entitled to register for VAT in the UK in relation to supplies made overseas if he/she/it is resident in the UK.

In response to the initial question, I'm not certain to the answer as it would require some time on research. However, I don't understand why providing the information would be a problem.

Regards,

Paul Taylor
Senior VAT Consultant
Dains

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