Money Matters - Summer 2009

VAT roundup

Photo of meeting With many businesses suffering during the current recession, every chance to enhance cash flow needs to be explored. Taking advantage of a variety of VAT measures could be one way of achieving this and avoiding VAT penalties. Some useful areas to explore are VAT on management charges, the 50% rule on leased cars and sales to non-EU customers.

VAT on management charges
If you trade through more than one company, you can move profit from one company to another by making management charges. This may save you money if profits are moved from a company paying tax at a higher rate to one paying tax at a lower rate. For example, if you are re-charging between companies for the use of staff, this will normally be liable to VAT unless the staff have joint contracts of employment.

Consider forming a VAT group, because it could help you to avoid such problems. Transactions within the group are ignored for VAT purposes so you do not need to remember to charge VAT.

The 50% rule on leased cars
If you are thinking of buying a company car, which will have less than 50% business use, then from a VAT point of view it may make sense to lease it instead. As a general rule, VAT recovery on cars is blocked, but you may be able to recover 50% of the VAT your leasing company charges you.

If you are leasing already, but haven’t yet claimed the 50% of the VAT on your VAT return, you may be entitled to go back up to 36 months to recover it.

Non-EU customers
When filling in your VAT return, you should be entering the amount of your turnover (excluding VAT) in Box 6. However, if you "make supplies outside the scope of VAT" (eg sales to non-EU based customers) where do you include these?

If you do include them, the comparison with the VAT on sales figure in Box 1 may look out of balance and so lead to enquiries from HM Revenue & Customs (HMRC). The advice given on the HMRC website differs depending on which page you are on. To avoid the unwanted attention of HMRC, you should exclude your "out-of-the-scope-of-VAT" sales figures from Box 6.

Clearly, it is always better to take advantage of VAT opportunities from the outset and avoid mistakes that could later prove costly in terms of VAT penalties.

If you need advice on accounting for VAT, completing your VAT returns or correcting or disclosing errors, we are happy to help.