Member Since: 1st Feb 2002
22nd Feb 2012
What about other taxes?
Using your reasoning perhaps we should suggest to all our clients that they register for VAT regardless that their turnover is below the registration threshold. After all we all have a duty to pay as much tax as we should, or perhaps not?
21st Feb 2012
Our clients engage tax advisors to advice them on how to ensure they pay the correct amount of tax. The correct amount of tax is the amount they are required to pay under the legislation that has been enacted. If there are tax efficient ways to structure their arrangements to reduce the amount of tax they have to pay under the existing legislation then it is our duty to advise our clients accordingly.
There is nothing morally or ethically wrong in doing so. It is very unprofessional of you to suggest otherwise.
Was your post tongue in cheek?
8th Feb 2012
See previous post
There was a post at the end of January that considered the tax advantages of a partnership. The conclusion was that there was nothing to prevent a wife being a sleeping partner, figuratively although she may well be literally as well. https://www.accountingweb.co.uk/anyanswers/question/sleeping-partners-how-many-you-are-exploiting.
This strategy neatly avoids the issue of the wife having to make any contribution to the running of the trade at all.
6th Jan 2012
Pragmatically it makes very little difference. If an overdraft had been granted to a micro business trading through a limited liability company the bank would probably have insisted on a personal guarantee from the director(s). In which case the guarantor would be personally liable.
A personal guarantee is often required from directors of some fairly sizable SMEs.
11th Dec 2011
Can you clarify
I don't follow the poor reasoning given in the tribunal decision. My interpretation of the legislation is that if the employee makes a contribution towards the cost of providing the benefit then the cash equivalent of the benefit is reduced by the payments made by the employee. Below is a copy of the relevant section of the legislation. Is the nuance that the payments made by the employees did not reduce the cash equivalent of the benefit in total and that there remained a small element of the cash equivalent that was taxable?
144 Deduction for payments for private use.
(2)If the amount paid by the employee in respect of that year is equal to or exceeds the provisional sum, the provisional sum is reduced so that the cash equivalent of the benefit of the car for that year is nil.
(4)In this section the reference to the car being available for the employee’s private use includes a reference to the car being available for the private use of a member of the employee’s family or household.
5th Nov 2011
HMRC have discretion
If you look at some Tribunal decisions the common thread is whether there has been a supply, and to whom was the supply made. Their reasoning is logical and generally full of common sense.
The VAT legislation allows for discretion to be exercised on what evidence may be accepted as proof that a supply has been made to the person claiming the input tax deduction. It is not merely a matter of whether the correct documentary procedure has been followed.
I find it reassuring that Tribunals do in fact look for substance over form. I accept that it may be difficult, inconvenient and expensive not to follow the conventional procedure and to make clients aware of the pitfalls they may encounter if they fail to follow it. Nevertheless I persist with my contention that a VAT invoice addressed to a third party does not invalidate a claim for input tax deduction.
The OP's question was prompted because the builder to whom the invoice was addressed was not VAT registered. This would preclude him from claiming the input tax deduction and re-invoicing the goods to his customer with a corresponding output tax. Provided the customer was able to reclaim the input tax himself then there has been no violation of the principles of VAT because an intermediate step had been omitted.
As always a deceptively simple question does not always have a straightforward answer.
5th Nov 2011
The question is "to whom was the supply made"
Have a look at this Tribunal decision quoted in the section of HMRC manual that I referred to :
"In the case of D & K Builders and Sons (Ampthill) Ltd (ref Lon/88/1046Z) an assessment disallowing input tax was upheld when the chairman concluded that despite payment being made and the possession of a tax invoice, a supply of construction services had not been made to D&K Builders. The trader constructed a house and sold it to a third party. The property subsequently required major remedial work for which D&K Builders were liable under the National House Building Council Certification Scheme. The work was carried out by a separate firm of builders at the request of the house purchaser. A tax invoice was issued to D&K builders, payment was made by them, and a claim for input tax was made. The Chairman upheld Customs’ view that the supply of construction services in these circumstances was to the purchaser of the house and not to D&K Builders. The second firm of builders was acting on the instructions of the property owner and the work was carried out to that property. The VAT incurred by D&K Builders was not input tax as the supply had not been made to them." The circumstances here are that a VAT invoice was made out to a builder but the tribunal decided that the supply was made to another party, not named on the valid VAT invoice. The guidance does not merely deal with incomplete or incorrect VAT invoices.
4th Nov 2011
For some reason only part of my reply is appearing. Please look at page 57 of HMRC V1-13 Input Tax Manual and the essential elements necessary to allow the deduction of input tax. The section ends with the sentence: It follows that input tax may be allowed only where the above conditions are
met, whether or not proper evidence is held.
4th Nov 2011
From the relevant section of HMRC Manual
Thankfully the basic principle is not entirely dependent on the documentation supporting the claim being precisely correct:
8.12 The basic “right to deduct” principles
In principle, taxable persons have a right to deduct VAT incurred on goods or services that form a cost component of their taxable supplies. A business will only have incurred input tax if all the following conditions are met:
there has actually been a supply of goods or services; the supply took place in the UK; the supply was taxable at a positive rate; the supplier was a taxable person at the time of the supply i.e. someone who was registered, or who was required to be registered, for VAT; the supply was made to the person claiming the deduction; the recipient was a taxable person at the time the tax was incurred or the tax was eligible for relief under Regulation 111; the recipient intends to use the goods or services for the purposes of his business.It follows that input tax may be allowed only where the above conditions aremet, whether or not proper evidence is held. Quoted from P57 of HMRC V1-13 Input tax manual, my emphasis on final statement. Regarding the doctrine of undisclosed principal I would contend that the agent is acting on behalf of the principal and that any transactions are deemed to be those of the principal. Is this not the purpose of the doctrine of undisclosed principal.
4th Nov 2011
Look at the Tribunal decisions
The law of agency provides a useful means to claim that the person who the invoice was made out to was acting for an undisclosed principal.
I still go back to first principles of accountancy. After all we are accountants not lawyers and one of our guiding principles is substance over form.