VAT Mind-bender! Challenge of the week!

VAT Mind-bender! Challenge of the week!

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A UK based firm, recently established and submitted its first VAT return after three months. The return merely included input tax paid on the property purchased (VAT reclaimed £25 000) as no sales were made in this initial setting up period.

It is now selling and faces some confusion over what (if any) VAT to charge and the possible knock on effect to the reclaim of the VAT paid on the property purchase.

The firm offers three services delivered in the UK to both UK and EU clients - English as a Foreign Language (EFL), professional (business) training (including arranging work placements) and management consultancy. Some of the time it acts as in an intermediary capacity sourcing deliverers of training on behalf of EU clients. Some of the suppliers of training are colleges of further education and educational charities and the purchasers in the EU are usually State Education authorities/schools who sometimes pay using a mix of European Funding (such as ESF) and national government funds.

The UK firm sometimes invoices the EU client for the costs of making the arrangements/commission and at other times invoices the actual deliverer of the training services (FE college or charity) which in turn invoices the EU client. To date the UK firm has not provided any management consultancy but expects to do so some of which may be government funded advice for small firms.

Any kind volunteers to untangle this one? Ideas greatly appreciated!!

Many thanks,

Malcolm
Malcolm Trotter

Replies (4)

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By AnonymousUser
08th May 2002 16:07

Clarification needed . . .
"They are now selling"

Do you mean that they a re now selling the property? Or that they are now trading?

If they are selling the property you first need to establish the VAT liability of the supply. Is it less than 3 years old?

If not the supply will be exmpt unless the option to tax is exercised.

Has the property actually been used for the purposes of making taxable supplies or is there a change of intention?

There may need tro be a clawback of VAT.

Need some clearer info really.

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By rkillington
01st May 2002 06:55

EFL, training and consultancy services
First the VAT treatment of the various services:

EFL - exempt under item 1, Grp 6, Sch 9, VATA94. See note 1(f) which includes profit making bodies in the exemption, but only for EFL.

Training - can be either exempt or taxable, depending on status of company. You haven't said that the company is precluded from distributing its profit, so the training is taxable.

Management Consultancy - taxable.

The devil is in the detail, as always. You mention that the work undertaken is for both EU and UK clients, and the place of supply needs to be established to ensure that the correct VAT rate is applied. Training provided in the UK is supplied where it is performed, so the UK rate applies.

The firm is almost certainly partly exempt, and it may need to adjust it's VAT recovery for the first period. It is possible that this can be done in the annual adjustment. It is also necessary to consider which method to use, as the standard method may not give a fair and reasonable result.

This may appear to be a cop out, but I think the firm needs to get a VAT specialist to go through all its activities to identify the correct VAT liability.

Best wishes

Robert Killington

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By cruickshankra
01st May 2002 07:49

Remember the property aspect
While I agree with the previous answer to what services are VAT rated, I would point out, as well, that in answer to your question on the sale of the property that each type of sale should be viewed in its own light when considering the VAT implications. For instance one assumes that the reason you had a claim for input VAT on the purchase of the property that it was bought with an 'opt for VAT' registered against it. If so then the sale of that asset would attract VAT at standard rates, unless you have changed the means of the asset and have the sanction from the HMC&E that the 'opt for VAT' is no longer appropriate.

As you intend to sell the property so soon after starting your business it would seem in, my opinion, that your sale would attract full standard rate VAT.

As suggested previously you would be advised to contact a VAT specialist in the matter, however I would also recomend that you contact the HMC&E Property division as I have found that they have a very helpful Customer Service section that would propbably give you advice on your case.

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By Abacjm
29th Apr 2002 22:16

Poser
I assume from your report that the compnay is now "trading" rather than "selling." the latter oudl be mis-interpreted as the company being sold.
Take a look at the VAT classification number on the intitial VAT Registration application for the category of business, whether partly exempt or otherwise. This should give a starting point for VAT treatment.
As for sales, any sales in the Uk between Uk Co's should bear VAT at standard rate, I should think. Similar for FE colleges and charities. EU billing can be zero-rated, I should think. If you want, you can operate 3 internal Slaes Accoutns in your nominal ledger if that would be more helpful for the day to day running of the business, Vatable UK, Non-Vatable Sales, EU Sales and Consultancy Fees.
Consultancy fees would in the main be vatable as would be any costs passed on by you to the end user. It is up to them to reclaim, if they are entitled to do so.
Who pays for the Sales is irrelevant - it is the supply of service that is taxable not the payment.

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