VAT UPDATE - IMPORTANT CHANGES

Penalties

A new framework for penalties came into effect on 1st April 2009. The scattered system of penalties across different taxes has now been consolidated into one common system, where no penalty will occur if it can be established that a simple mistake has been made. However, subject to mitigation, penalties apply if the mistake occurred due to a 'failure to take reasonable care' or a deliberate error. HMRC say that the taxpayer is expected to seek advice on their tax position from either HMRC or a 'competent adviser', and that the level of knowledge expected from a smaller business is less than from a larger business. Expect many disputes during the next few months over HMRC's definition of 'reasonable care'.

Time Limits

As announced in the 2008 Budget, the time limit for taxpayers' VAT claims or assessments by HMRC has been increased to four years from three. There is also a one year transitional period from 1st April 2009 with the new limits operating from 1st April 2010.

Hire of Staff

The staff hire concession, whereby a temporary staff agency is able to charge VAT only on its commission and not on the worker's wages, has now been removed. From 1st April 2009 such agencies are required to charge VAT on the full value of the staff hire, unless the worker is transferred onto the recipient's payroll. This increases the VAT cost considerably for charities and businesses in the financial, health and education sectors, to name but a few.

Back Claims for VAT

The window of opportunity for making back-claims for VAT pre-1997 has now closed. From now on, claims for un-recovered VAT will be limited to four years.

Online Filing

Online filing of VAT returns will become compulsory from 1st January 2010. We advise that your clients prepare for this now by ensuring their business systems are up and running early.

Cross-Border Invoicing

Following a 12 month transition period, the new rules for service when issuing invoices to customers in other EU member states have now come into force. Clients are now required to quote their customer's own VAT number on their sales invoice if they are registered for VAT. This is finally aligns the rules for services with those for goods. However, for services a statement on the invoice advising customers that the service may be subject to a reverse charge in their own VAT returns, must be included.

VAT Appeals

The current procedures for appealing against HMRC's decisions on VAT matters are being brought in-line with the consolidation of the Tribunals service for all taxes. New procedures and new facilities for internal reviews have been introduced, along with additional methods for appeal dependant on your clients circumstances. Unfortunately, the ability for successful appellants to claim costs for VAT appeals is being withdrawn unless clients opt-in for costs on both sides.

Who to Contact
Please contact Bruce Wilson on 0141 887 4141 for further information and advice.