Q
I have a question regarding our client, who sporadically exports physical and digital goods to EU and US.
In the past he sent a package over to Poland, and didn’t charge them VAT, as it was a B2B sale.
At the time the package reached Poland it was stopped by customs which resulted in our client received a VAT invoice (I guess polish import VAT) from UPS.
I have a few questions I hope you can help me with:
- Is the client doing OK by selling to the client outside the UK without charging VAT?
- Why was he charged that VAT?
- Can he claim it back on a tax return?
- Should he be registered for some sort of import VAT scheme so that this doesn’t happen again?
- What can we do to minimise packages being stopped and getting charged VAT (if anything)?
A
The place of supply of goods is where the goods are located when ownership title transfers.
Where the place of supply is the UK, the export of goods from the UK can be zero rated as per s3 of VAT on goods exported from the UK (VAT Notice 703) – GOV.UK (www.gov.uk).
Where the place of supply is another country then that countries VAT/taxation rules will apply.
Imports into the EU will be subject to EU import rules and related import VAT and duty. If your client is the importer of record into the EU it suggests that they have yet to transfer title to the goods (the importer of record is usually the owner of the goods). Delivered Duty Paid (DDP) terms usually lead to this.
If that is the case, and your client has effectively supplied goods when they are in Poland, then they will be liable to register for VAT in Poland and account for Polish VAT on the sale accordingly.
There are EU mechanisms that allow for simplification of accounting across EU Member States such as the Import One Stop Shop (IOSS) where all EU imports for sale can be reported in one place. There is no import VAT charged under the IOSS (the IOSS only relates to imports <150EURO)
Where Polish import VAT has been incurred it cannot be reclaimed via a UK VAT Return. It can be reclaimed on the Polish VAT Return subject to Polish input tax rules.
Q
The director and 30% owner has a privately owned vehicle – he was using it on a business trip and had an accident.
He has received insurance claim excess invoice- made out to the company with him named as insured.
£1,500 excess + £2,300 vat on repair Total – £3,800
Questions
- Company will pay the £3,800 and dealt with the claim – is the £3,800 a P11D benefit and added to salary for EE’s NI?
- Is the VAT claimable.
A
If the vehicle is used for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax as long as the business paid for the work. This is confirmed in the following HMRC manual:
VIT54500 – Motoring expenses: car repairs and other motoring expenses – HMRC internal manual – GOV.UK (www.gov.uk)
Regarding your second query, assuming the individual contracted with the insurance company, but the employer paid the bill direct to the insurance company, then you must:
- Report the cost on form P11D
- Add the full cost to the employee’s earnings and deduct Class 1 National Insurance (but not PAYE tax) through payroll
If the company contacted with the insurance company rather than the individual then the treatment might be slightly different, therefore please do let me know if this is the case.
Q
My client has built an extension which is a home office which will be exclusively used as a business.
My understanding is that the building cost cannot be claimed through the business and also we don’t want her to incur any issues with capital gains.
However, from what I have read the VAT element can be claimed as the cost is for business use.
Please can you advise whether or not she can claim the VAT back on the business costs.
A
Provided these are business expenses and the invoices are made out to the business and paid by the business, then the VAT can be reclaimed.
The rules relating to input tax are as follows:-
Input tax is VAT which:
(1) was incurred by a taxable person;
(2) comprises either:
(i) VAT incurred on the supply to him of any goods or services;
(ii) VAT paid or payable on the importation of goods; or
(iii) VAT incurred on the acquisition of goods from an EU member state in Northern Ireland*.
(3) provided that those goods or services are used or are to be used for the purposes of any business carried on or to be carried on by him.
The availability of CGT relief will depend on the use of the room. If it is used 100% of the time for business, then PPR would be affected.
Follow up Q
So even by the fact of the VAT being claimed it affects PPR (even though no capital allowance is claimed)?
Follow up A
For CGT purposes PPR relief is specifically restricted by TCGA 92 s.224(1) where a part of the dwelling is used “exclusively for the purpose of a trade or business, or of a profession or vocation”, therefore reclaiming the entirety of the VAT relating to a part of the house would likely trigger s.224(1) on that part, as this would effectively be declaring that that part of the house was being used exclusively for business purposes.
However, HMRC manual CG64663 confirms that s.224(1) only applies where the use is exclusive, therefore provided there is some residential use, the PPR claim is unlikely to be affected; the corollary to this is that there would be non-business use and so the VAT reclaim would need to be appropriately restricted.
Note also HMRC’s comments in paragraph four of CG64663 that ‘occasional and very minor residential use’ will generally be disregarded, leading to a restriction in the PPR claim, so the residential use does need to be tangible.
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