Four VAT myths debunked

Accountants will be familiar with the phrase commonly used by some clients “my friend down the pubs says…”

To save on time attempting to explain why the latest tax wheeze their mate has solemnly sworn works, won’t, here’s a digest of four common VAT myths and the explanations debunking them.

Gill Yates, head of VAT services at vat-penalties.co.uk gave a lowdown on myths at Accountex recently, based on ones that had been referred to her company as a specialist VAT firm.

#1 If you are selling to someone not UK based, you don’t need to charge VAT

As Yates explained, there are many nuances in this area.

For suppliers of goods to EU VAT registered businesses, supplies are zero rated. But this is subject to evidence of both customer status and the physical movement of goods.

Supplies to non-EU businesses are also zero rated, subject to evidence of physical movement of goods.

When it comes to supplying goods to non-UK private customers however, distance applies in the case of selling to those EU-based.

Once the distance selling threshold is met, you then need to register for VAT in that country. Sellers need to be aware that the rate varies by country, i.e. in Germany if you sell £100,000 worth of goods, you have to then charge the German rate of VAT.

#2 You don’t need to register for...

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Comments

VAT Madness    2 thanks

JPMLondon | | Permalink

I think myth #4 also shows why we have these 'mate at the pub' situations. Looking for obvious, straight-forward sense in whether gingerbread men have belts and whether a Mongolian goat has been involved in making a piece of children's clothing as a determinant of taxability is not a sensible endeavour...

daveforbes's picture

other oddities    2 thanks

daveforbes | | Permalink

Apple covered in chocolate  -  VAT at standard rate

Apple covered in chocolate, on a stick - exempt

 

Shortbread covered in chocolate      - VAT at standard rate

Shortbread covered in caramel and chocolate - exempt

 

... and dried cherries ... that depends on which aisle of the supermarket they are in.

#1 & #2 fuller guidance fyi    2 thanks

Justin Bryant | | Permalink

The VAT registration threshold of £81,000 (https://www.gov.uk/vat-registration-thresholds )  relates to the VAT exclusive value of VATable sales (turnover) of goods or services (supplies). That means sales on which VAT at Standard or Zero Rate VAT would normally apply. See extract below from HMRC’s website re overseas sales.

“You supply goods or services from the UK to other countries

If you supply goods and services both inside and outside the UK, then you may need to register for UK VAT if the value of your UK supplies alone exceeds the registration threshold.

You don't need to include supplies you make in other countries when calculating your VAT taxable turnover for registration purposes - so leave out of your calculation any goods and services you supply where the place of supply is another country rather than the UK.”

http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm

In determining the place of supply as the UK or another country (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000086&propertyType=document#P133_11300 ), there are different rules for sales of goods compared to the sale of services.

For services, generally your UK taxable turnover for VAT registration purposes only includes sales to UK customers, and to non-business customers in the rest of the EU ( http://www.hmrc.gov.uk/vat/managing/international/exports/services.htm ). Supplies of B2B services to non EU countries are always outside the scope of VAT and so do not affect the UK registration threshold and many B2C services to non EU countries are also outside the scope of VAT ( http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_PROD1_029955#P598_73908).

However, for sales of goods, you have to include all UK sales, all non-EU sales, and all EU sales except sales to any single EU country where you breach the distance selling threshold (and thus are required to register and account for VAT in that EU country, rather than the UK - the distance selling threshold only applies to sales to non-VAT registered customers. The threshold for having to register because of distance sales in each EU country is either €35,000 or €100,000 (http://www.hmrc.gov.uk/manuals/vatsmanual/vatsm3720.htm) depending which country.

JCresswellTax's picture

This has got to be one of the funniest things ever    5 thanks

JCresswellTax | | Permalink

"For example, with food, no VAT is charged on gingerbread men if it has two chocolate spots for eyes. However if any chocolate-based additions such as buttons or a belt mean VAT is payable."

No wonder I love working in tax ;)

Tim Robinson's picture

Surely this is a late April fool?

Tim Robinson | | Permalink

"but if they have a real fur content of more than 20% or the fur used it from Tibetan, Yemeni or Mongolian goats, they’re standard rated."

Surely not!  Who made that up???

Rachael_Power's picture

HMRC did!

Rachael_Power | | Permalink

Tim Robinson wrote:

"but if they have a real fur content of more than 20% or the fur used it from Tibetan, Yemeni or Mongolian goats, they’re standard rated."

Surely not!  Who made that up???

HMRC did, apparently... 

stepurhan's picture

Why those countries?

stepurhan | | Permalink

What is special about Tibet, the Yemen and Mongolia that makes their goat fur standard rated? Surely even HMRC did not pick those countries at random.

Too many people........Nothing to do..........

markabacus | | Permalink

This surely proves that there are too many civil servants with not enough to do and in order to justify their employment dream up new ways of 'simplifying' our tax laws!

If they didn't they would have to find a 'real' job and actually produce something useful and that would never do, would it? They'd loose that wonderful pension, the one the rest of pay for and can only dream of.

 

Sexism!

Manwithnoname | | Permalink

Rachael_Power wrote:

Tim Robinson wrote:

"but if they have a real fur content of more than 20% or the fur used it from Tibetan, Yemeni or Mongolian goats, they’re standard rated."

Surely not!  Who made that up???

HMRC did, apparently... 

From that page, a girls skirt up to 28" waist is ZR, but a boys skirt is SR!

 

daveforbes's picture

...

daveforbes | | Permalink

http://www.legislation.gov.uk/ukpga/1994/23/schedule/8

(3)“Fur skin” means any skin with fur, hair or wool attached except—

(a)rabbit skin;

(b)woolled sheep or lamb skin; and

(c)the skin, if neither tanned nor dressed, of bovine cattle (including buffalo), equine animals, goats or kids (other than Yemen, Mongolian and Tibetan goats or kids), swine (including peccary), chamois, gazelles, deer or dogs.

 

 

johnjenkins's picture

Selling to the EU?

johnjenkins | | Permalink

it's as easy as ABC or drawing a triangle.

I too thought this must be a

Anna P | | Permalink

I too thought this must be a joke when I first read it and we can all have a good laugh at how ridiculous these HMRC VAT rules are. But, really, do people at HMRC take this stuff seriously?

Maybe as well as the excellent comedy show W1A about behind the scenes at the BBC (which, apparently, is quite realistic - see the first episode here) we should have a similar show about behind the scenes at HMRC - sadly I just don't think it would be that funny.

What a shocking waste of public money these rules are...

johnjenkins's picture

@Anna P

johnjenkins | | Permalink

HMRC take anything seriously where they can extract money from the unsuspecting, gullible public.

Are we sure that it's HMRC

Cloudcounter | | Permalink

coming up with these rules?

Or do we see the heavy hand of EEC directives?

 

(Enthusiastically enforced, of course.

LOL!

njpandya | | Permalink

This subject is made far more confused and getting more complex than it should be. Very little attention is paid by our government

Tibetan Goats    1 thanks

thomas34 | | Permalink

I was only saying to a client last week that he must add 20% to his sales of kiddies' fur coats as I suspected that they did contain Tibetan goat fur. But upon further investigation it transpired that they came from goats reared across the border in Nepal. Because they live close to the border of the two countries I've asked him to confirm that there is no chance that they will stray across into Tibet and invalidate his VAT return.

This one just proves that the Brussels lunatics have taken over the Brussels asylum.

 

 

carnmores's picture

this is a perfect example

carnmores | | Permalink

of where the EU has gone completely wrong .

At least I've learned...    1 thanks

Diane | | Permalink

what a 'peccary' is!  (Q9 of the 'fur flowchart), so HMRC does have some use.

stepurhan's picture

EU bashing

stepurhan | | Permalink

Fun as it is to blame the EU for everything, does anyone actually know if the ruling comes from there? There are a huge number of "Brussels has said we must..." stories that are complete twaddle out there. (See this BBC article on 10 popular ones) Anyone able to provide an actual link for the reason why those goat furs are standard-rated, EU based or otherwise?

daveforbes's picture

Goat quality

daveforbes | | Permalink

Generic goat as a substitute for cashmere can result in a frosty Christmas. Who knew.