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Getting it right on VAT first time

VAT is regularly in the news, whether it’s planning for Brexit or postponing the reverse charge for construction services just weeks before its start date. Businesses are responsible for ensuring their returns are accurate, but regular tribunal cases prove how difficult this can be.

Even if you are not currently VAT registered, the freezing of the registration threshold of £85,000 until April 2022 means that you must keep a careful check on your turnover. You need to do this monthly, not annually, and, if you register late, you will have to back-date VAT to when you should have registered.
Type of supply
Tribunal decisions on whether a supply is standard rated, zero-rated or exempt can be confusing. Food is especially contentious. For example, VAT is not charged on plain biscuits or cakes, as determined in the Jaffacake case, but a chocolate-covered biscuit is standard-rated.

Building materials can be similarly difficult. A recent tribunal case, for example, decided that mirrored cabinets did not qualify as building materials, so the self-employed builder involved could not recover the VAT on the £3,415 cost. The cabinets could easily be removed from the wall, so they were not considered to be fixed to the building.

Even the 5% reduced rate of VAT can cause difficulties, with changes introduced from 1 October. There is now a complicated definition of when the supply of energy-saving materials can qualify for the reduced rate.

HMRC also does not look kindly on schemes aimed at avoiding VAT by splitting a business into separate parts – known as disaggregation – so that some, or all, of the parts are below the registration threshold.

A tribunal decision from 2018 decided that there was only one business where a husband was a self-employed plasterer, but was also running a floor-screeding business in partnership with his wife. It didn’t help that both businesses had originally been run together and were just separated into two parts to avoid charging VAT on the plastering work.

Reverse charge
The reverse charge for construction services was supposed to start on 1 October, but has been put off for a year. Businesses that had changed their systems to meet the new requirements now need to revert to the existing system for the next 12 months.

The penalties for getting VAT wrong can be onerous, so make sure you seek guidance through the complexities if you have any questions.

HMRC also does not look kindly on schemes aimed at avoiding VAT by splitting a business into separate parts.



Founded in 1934, Bright Grahame Murray is Kensington’s leading Chartered Accountancy firm. At BGM we address the specific objectives of each client and draw together the specialist skills and expertise of the most appropriate Partners and staff to help our clients achieve their goals. We do this by providing a comprehensive range of services including accountancy, tax, corporate finance and business advisory. Our clients range from private individuals to multinational corporations. We ensure our clients benefit from a personal and expert service whatever their size or sector.

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