HMRC will be scrapping paper VAT registrations and mandating online only sign-ups next week
The new rules will come into effect from 13 November as part of HMRC’s Making Tax Digital (MTD) strategy.
Taxpayers will have to register for VAT through the online VAT Registration Service using their Government Gateway account. However, some types of business will not be able to use the service as the online service still needs to be expanded to cover businesses joining the agricultural flat rate scheme, overseas partnerships and entities without a unique tax reference (UTR) number.
It is important to note that if a taxpayer has a particular exemption, they will have to contact HMRC by phone to request a paper form which will then be posted to them for completion. Paper applications take up to 40 days to process.
Taxpayers will have to ask for a VAT1 form to get online exemption by calling the VAT Helpline on 0300 200 3700 and ‘they will have to justify why they are unable to register online’, HMRC said.
While 95% of firms are already registering for VAT online, next week’s change could be daunting for the 5% that have not completed it this way before.
Mariana Príncipe, head of VAT compliance at Ryan, said: ‘There are three key advantages to digital-only VAT registrations that will benefit both HMRC and businesses, including faster turnarounds for VAT numbers as there should be less of a wait to get VAT numbers, a reduction in the amount of paperwork and it will be a more secure process.
‘VAT registration in the UK requires highly sensitive information, including the passport details of the legal representative and the trade register. This information could be intercepted if sent by post, and emails can also be hacked easily. By completing the registration through HMRC’s secure online portal, the risk of private information falling into the wrong hands is reduced significantly.’
The move is part of HMRC’s plan to move all tax transactions online to cut costs and reduce use of call centre advisers by 30% by the end of 2024.
HMRC told stakeholders: ‘Supporting our customers is a priority for us and online applications for VAT registrations aligns with our ambition to increase the use of digital channels.
‘For customers that are unable to access and use our digital channels, we’ll always provide a service to meet their needs. We continue to offer support through non digital channels such as via telephone, including our extra support service.’
With the push to digital filing and reduction in phone support, HMRC will have to invest heavily in existing IT systems to ensure they can be used for specialist services.
Príncipe added: ‘HMRC is making fantastic strides on its MTD strategy, especially compared to other European countries. In Spain, for example, to perform a VAT registration, it still requires an individual to book a meeting at a tax office and physically bring in the paperwork.
‘Coming up next, all eyes should be on the Form VAT652. This is the form that you have to complete if you are making a correction to your VAT return. At the moment, you can complete this form online or via a paper form, but I am sure it won’t be long before the paper option will be removed.’
A director has lost a First Tier Tribunal (FTT) appeal over a VAT default penalty issued by HMRC for £20,000 for a payment that was only four days late
The appellant, Yiannakis Georgiou Polycarpou, appealed against a VAT default surcharge issued by HMRC for £20,165 issued to his company, Polyteck Building Services Ltd.
The due date for the VAT return and payment for the period 03/21 was 7 May 2021. Polycarpou paid VAT between 7 May 2021 and 11 May 2021, by full payment submission (FPS).
However, he later became liable to a penalty at 10% of the outstanding VAT due, as the payment was late.
The total outstanding VAT was £526,656.15 and the penalty charged was £52,665.61. HMRC conducted a review and found that £325,000 had been paid before the due date, so the surcharge was reduced to £20,165.61.
On 5 April 2022, Polycarpou took his dispute to the tax tribunal.
HMRC argued that by failing to pay VAT by the due date, Polycarpou failed to comply with the Value Added Tax Act (VATA) and the Value Added Tax Regulations 1995.
However, the appellant contended that a VAT notice of assessment and a surcharge liability notice of extension (SLNE) were not received about the 03/21 period. HMRC stated that their systems ‘demonstrate’ that the necessary documents were posted to him.
Polycarpou also argued that he had already been in discussions with HMRC debt management at the time that the VAT return and payment were due to request a time-to-pay (TTP) arrangement.
He added that his business, which provided building services, had suffered due to the pandemic and that it had affected cash flow. The payment of additional penalties for a minor default of four days had exacerbated the problem.
The time-to-pay arrangement was requested on 6 May 2021, according to HMRC, and was refused on 10 May 2021, as the appellant already had an arrangement in place for another period.
HMRC argued that the appellant’s ‘cash flow difficulties’ were neither new nor sudden, existing before the pandemic. Due diligence required Polycarpou to secure sufficient funds from different sources. It submitted that insufficient funds did not constitute a reasonable excuse.
As a director, Polycarpou’s duties included looking after staff, key clients and large accounts. He added that everything concerning the business’ finances came through him. In respect of cash flow, he added that he did his ‘utmost best’, but that the VAT payments were due at the same time as wages.
He then proceeded to say that he had suffered a heart attack during the period in question and that his turnover had halved during the pandemic.
On top of this, despite having numerous clients, Brent Council had delayed making payment of an invoice. The income should have come in on the Friday before the default and, at one point, the Council owed him £1,000,000.
About the notice from HMRC for the period 03/21, he told the tribunal that he ‘opens all of the post’ and hands it over to his accountant, who dealt with it on his instructions.
Section 59(4) VATA provides that if a person defaults in respect of a period ending within a surcharge liability period and has outstanding VAT for the period, he becomes liable to a surcharge.
The FTT was satisfied that the appellant was in default of an obligation imposed by statute. When looking at whether Polycarpou had a reasonable excuse for the default, the tribunal stated that a ‘prudent and reasonable taxpayer exercising reasonable foresight and due diligence’ would have proper regard for their responsibilities when paying tax.
Judge Natsai Manyara said: ‘This is because the appellant failed to pay the VAT due by the statutory deadline. By failing to pay VAT, he failed to comply with the legislation. Subject to considerations of ‘reasonable excuse’, the surcharge imposed is due and has been calculated correctly.
‘Whilst we accept that the appellant’s turnover may have halved to what it was in 2020, Polycarpou’s evidence was that payment was being expected from a customer. We find that a client not paying an invoice immediately is a normal business circumstance.
‘We find that the underlying problem was cash flow. There is considerable force in HMRC’s submissions that these problems were neither sudden nor new. As to the cash flow problem, we are satisfied that the problems encountered by businesses are nothing more than the normal hazards and difficulties encountered by most traders. Problems such as slow payment from clients cannot provide shelter when such a situation occurs with reasonable regularity.
‘Whilst the coronavirus pandemic was an unforeseeable (or inescapable) event for all, we are satisfied that measures were put in place to assist taxpayers. While having every sympathy for the personal losses and illness suffered by Mr Polycarpou, it is the case that the appellant had never put forward illness or bereavement as a reason for the default in this appeal.’
For the reasons above, the tribunal was satisfied that the appellant had not established a reasonable excuse. The appeal was dismissed.
An overhaul of EU rules will affect Airbnb landlords and agents for villa owners across Europe as VAT will be chargeable on all rentals
The EU’s VAT in the Digital Age programme will have a profound impact on the travel and hospitality sectors, especially for platform operators who host rental apps ranging from accommodation providers like Airbnb and Booking.com, to taxi hailing apps including Uber, Freenow and Gett.
Any owners of overseas property who rent out their foreign houses and apartments on third party platforms from 2025 will be caught by the rules, regardless of where they are resident. In future, VAT charges will be passed on to owners by the platform operators so an average 20% VAT should be factored into running costs of rentals.
EU estimates indicates that up to 70% of accommodation suppliers using a platform are not registered for VAT. This means operators will have to collect the VAT registration details of all registered providers and notify authorities of VAT numbers where applicable. In addition, they will also have to notify details of all non-registered owners with tax authorities in individual member states.
‘Forthcoming EU legislation means intermediaries and agents operating platforms used to book accommodation or passenger transport in the EU will need to pay VAT on the underlying supplies,’ said Sue Rathmell, partner and indirect tax specialist at MHA. ‘The EU Commission hopes to bring these changes into force on 1 January 2025.
‘These changes won’t just apply to the likes of Airbnb, booking.com and Uber.
‘Businesses that act as agents for villa owners in Spain and operate an online booking system or airport transfer platforms like hoppa.com will also be caught in the net.’
The EU plans to introduce the rules to create more tax equality as hotels and standard taxi services are all charged VAT on sales, while due to the complexity of VAT registration for individual providers of accommodation and cab services there is normally no tax charge.
Going forward, the platform operator will be responsible for paying the VAT on behalf of third party providers as they are the underlying supplier.
This means that if the accommodation owner or transport supplier is not VAT registered in the country where the property is, or where the transport is provided, then the platform must pay the VAT on the supply direct to the tax authorities.
It is also important to note that simply not being registered for VAT will not give the provider a free pass.
‘If the underlying property owner or transport operator is VAT registered, then the intermediary is not off the hook,’ said Rathmell. ‘They must still provide the supplier’s information and details of the supplies to the tax authorities.
‘These changes will create extra work for platform operators, but it is hard to argue with them in principle as they are all about creating a level playing field. The EU Commission thinks the status quo is unfair on businesses like hotels or private taxi firms.
‘Companies like Airbnb compete directly with the hotel sector and Uber competes directly with private taxi firms. In the case of Airbnb and Uber VAT is often not collected on the underlying rentals and transport because the end suppliers aren’t registered for VAT.’
Now that the UK has left the EU, the rules will not be introduced here but it is likely that the Chancellor will look at the EU developments with interest, if only to create more tax parity.
‘Although the UK is no longer part of the EU where the underlying accommodation or transport is in the EU, these rules will apply. I also expect the UK to introduce its own version of this legislation in due course.”
HMRC’s new penalty regime for late filing and late payments of VAT will be fairer but more complex with interest being charged on all late payments
From 1 January 2023, HMRC will introduce a fixed rate, points based penalty system for VAT submissions. Initially HMRC has said there will be a ‘light touch’ approach to the new regime in the first year of operation.
Under the new rules, there will be a single penalty point for each late submission of a VAT return. When a business has exceeded the points threshold, a fixed rate penalty of £200 will be issued for each subsequent late return.
For businesses on standard quarterly returns the threshold is four points in any two-year period. For those on monthly returns, it will be five points and for those submitting annual VAT returns, just two points.
Points will be reset to zero when all returns have been filed and there has been a continuous period of good compliance (12 month for quarterly filings, six months for monthly filings and 24 months for annual filings).
Alan Pearce, VAT partner at Blick Rothenberg said: ‘The new regime will be fairer to businesses by penalising those that persistently file and pay late, rather than those that make the odd slip up.
‘It will replace the current default surcharge regime that has been widely criticised for levying significant penalties where payment is only one day late. However, unlike the current regime, there will be a more complex multi-tier penalties system with interest also being charged on all late payments.’
The new regime will effectively have four different types of charges:
- a fixed penalty amount for late filings based on a points system (a similar concept to totting up points for driving offences);
- an initial two-part fixed rate penalty for late payments of 2% and 4% (applying to the first 15 and 30 days);
- ongoing 4% daily interest-based penalty (applying after 30 days); and
- interest charged at 2.5% above the Bank of England base rate (applying from the outset).
‘The new penalty regime is more complicated than the current default surcharge regime. However, it appears to be fairer to those businesses that might occasionally pay late and rewards those that do their best to pay outstanding tax as early as possible,’ added Pearce.
‘Under the current rules businesses are often hit with large surcharges of between 2% and 15% for simply being one day late. This can often be caused by a one-off administration error or banking delay.
‘The change should therefore be welcomed and should avoid the need for many default surcharge appeals where the amount of the penalty is disproportionate to the amount and timing of the late payment.
‘For many defaulters, the new rules will result in a relatively small penalty and interest having to be paid. However, for businesses that persistently fail to submit their VAT returns on time and are frequently more than 30 days late in paying, they will suffer the highest level of penalties and interest. It seems that HMRC have struck a balance of penalising serial offenders more heavily while incentivising compliance and being more lenient on those that make the occasional slip up.’
Pearce expanded on the ‘light touch’ approach in year one.
He added: ‘HMRC has announced it will apply a “light touch” for the first year of operation. Specifically, where a business is doing its best to comply, HMRC will waive the first 2% fixed penalty for VAT periods up to the end of 2023.
‘This effectively means that provided payments is received within 30 days of the due date (or, during this period, an approach to HMRC has been made for a time to pay application) penalties can be avoided. However, even where agreement is reached with HMRC, interest will still apply.’
Penalty points threshold
|Penalty points threshold
|Period of compliance
The reduced rate VAT for hospitality venues is to end tomorrow with the VAT rate increasing from 12.5% back to the original 20%
The VAT reduction, which was introduced for businesses trading in the hospitality sector in June 2020, ends on 1 April with the VAT rate going back up to its original rate of 20%.
The reduction in VAT was given to VAT-registered businesses from the hospitality, hotel and holiday accommodation sectors to financially support them during the initial lockdown of the Covid-19 pandemic. VAT originally dropped to 5% in July 2020 with the rate increasing to 12.5% in October 2021.
The Federation of Small Businesses (FSB) stated that the increased VAT is just another hit to businesses still struggling to recover from the pandemic. In addition, 31 March is the final day that businesses can pay back in full deferred VAT covering the period to June 2020.
UKHospitality stated that the move ‘might prove fatal’ for business owners and that the removal of the lower rate lifeline ‘dashes the hopes that many businesses could begin to recoup some of the losses of the last two years’.
Kate Nicholls, chief executive, UKHospitalty said: ‘Locking in VAT at 12.5% would have given hospitality businesses a major boost and helped the sector in its ambition to lead the UK back to post-Covid prosperity.
‘As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.’
Described by the FSB as the ‘April flashpoint’ from 1 April the national living wage rate for over 23s goes up to £9.50, the 66% business rates discount comes to an end, and the requirement for businesses to make their VAT returns Making Tax Digital (MTD) compliant is also introduced.
From 3 April, Statutory Sick Pay (SSP) is also set to rise to £99.35, and from 6 April the 1.25% increase to National Insurance contributions (NICs) hits employees, employers, and sole traders, as well as a rise in the dividend rate.
The FSB highlights that according to statistics from the Office of National Statistics (ONS) Covid-19 infection rates are rising with one in seven business not currently trading at full capacity due to infection rates.
The current cost of living crisis, rising Covid cases, and the rapidly increasing inflation and energy costs, are causing ‘huge anxiety’ for businesses across the UK with 5%, which is around 250,000 businesses, fearing ‘imminent collapse’, FSB warned.
Martin McTague, national chair, FSB, said: ‘There’s no use hiding from the facts though: this April flashpoint will push some firms to the brink.
‘The spiralling energy costs are causing huge anxiety for small firms trying to navigate the energy market remaining sandwiched between domestic consumers protected by a price cap, and big corporates, which have the leverage to secure the best deals.
‘With so many business owners and employees now forced to isolate as Covid infection rates soar, we and the TUC are urging the government to launch a permanent a sick pay rebate that covers all absences to protect livelihoods.’
Since the beginning of 2022, the Treasury has collected nearly £4m extra a day in fuel VAT due to the increasing price of petrol which totals an extra £270m so far this year
The data, compiled by former Office National Statistics (ONS) statistician Jamie Jenkin and provided by RAC, shows that as the average price of petrol has increased to 161.06p per litre since the beginning of 2022.
Jenkin highlighted in a Twitter thread that over half of what is paid at petrol pumps goes to the UK government in tax with 57.98p being fixed for every litre and 20% of the setting price being taken in VAT. If this price goes up by 10p then the government gets an additional 2p.
Jenkin stated that due to the fact that petrol prices have increased by 14p since the beginning of January and that 133m litres of petrol are purchased each day, the current fixed rate and VAT means that the Treasury is estimated to be taking at least an extra £3.7m each day. This means that over the 73 days so far this year, the Treasury has brought in an extra £270m in VAT from fuel.
According to data released by the Department for Business, Energy, and Industrial Strategy (BEIS) shows that the increase between 28 February and 7 March was the sharpest in 18 years, with the average price of a litre of petrol rising from 149.2p to 153.0p, the average diesel price rose from 153.4p to 158.6p.
With the ongoing crisis in Ukraine, the cost of fuel is expected to continue to rise significantly over the coming few weeks.
Jenkins told Accountancy Daily: ‘As fuel prices rise, the Treasury receives an extra £3.7m a day since the beginning of January.
‘The VAT take for fuel is rising and with the added cost for families, this is an area where the Chancellor could temporarily cut back next week. There are a few areas he can also look to help out families with the cost of living.
‘A temporary cut in fuel duty, or a suspension of the green levy on household energy bills would be a welcome boost with costs soaring. With extra money coming in through VAT on these increased fuel bills, he has some room for manoeuvre.’
Many are urging Rishi Sunak to act on the increased cost of living in next week’s Spring Statement, with the RAC calling on the Chancellor to cut VAT on fuel and to reduce fuel duty.
A spokesperson from the RAC said: ‘Prices at the pumps have been breaking records on a daily basis and to make matters worse the price increases have been seriously steep recently. We believe the Chancellor must take immediate action by cutting VAT on fuel to at least 15% to give drivers some instant respite and to protect them from future increases.
‘The Chancellor could also temporarily reduce fuel duty, which is currently levied at 58p per litre, reducing this would help both businesses and consumers.’
Last week, the RAC promoted a petition which has gathered increased momentum due to the impact the Russian invasion of Ukraine has had on the price of fuel.
According to the petition: ‘The government should reduce the cost of fuel through a reduction of 40% in fuel duty and VAT for two years. This can effectively offset the rise in fuel prices since 2020.
‘We believe people may understand to a degree the need for tax following the pandemic however prices of £1.50 or more per litre will cancel out any understanding. The government has the ability to sacrifice some revenue to appease the British public.’
Businesses that deferred VAT payments last year have less than a month left to join online and pay in monthly instalments under the VAT Deferral New Payment Scheme, HMRC has warned.
The online portal for the new payment scheme will close on 21 June 2021.
Over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Businesses had until 31 March 2021 to pay this deferred VAT or, if they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost.
Jim Harra, HMRC’s Chief Executive, said:
‘Businesses that deferred paying their VAT last spring have until 21 June to join the VAT Deferral New Payment Scheme online. They should act now to avoid missing out on this opportunity to spread payment of their deferred VAT across monthly, interest-free, instalments.
‘The new payment scheme is part of the Government package of support worth over £350 billion to help protect millions of jobs and businesses during the pandemic and as we emerge on the path to recovery.
‘HMRC will continue to do all we can to help businesses as they reopen and rebuild.’
HMRC has announced that businesses that deferred VAT payments last year can now join the new online VAT Deferral New Payment Scheme to pay it in smaller monthly instalments.
To take advantage of the new payment scheme businesses will need to have deferred VAT payments between March and June 2020, under the VAT Payment Deferral Scheme. They will now be given the option to pay their deferred VAT in equal consecutive monthly instalments from March 2021.
Businesses will need to opt-in to the VAT Deferral New Payment Scheme. They can do this via the online service that opened on 23 February and closes on 21 June 2021.
Jesse Norman, Financial Secretary to the Treasury, said:
‘The Government has provided a package of support worth over £280bn during the pandemic to help protect millions of jobs and businesses.
‘This now includes the VAT Deferral New Payment Scheme, which will help provide businesses with the breathing space they may need to manage their cashflows in the weeks and months ahead.’
HMRC has issued some guidance to taxpayers that deferred their VAT payments between 20 March and 30 June 2020 and still have payments to make.
HMRC is advising taxpayers who deferred their VAT payments to:
- pay the deferred VAT in full on or before 31 March 2021
- or opt in to the VAT deferral new payment scheme when it launches in 2021
- or to contact HMRC if they need more help to pay.
Taxpayers can pay their deferred VAT in full by 31 March 2021. There is no need to contact HMRC. However, if taxpayers want to use the new payment scheme they will need to opt in. The new online opt in process will be available in early 2021. Taxpayers will need to opt in themselves as this cannot be carried out by tax agents.
Where taxpayers opt in to the VAT deferral new payment scheme instead of paying the full amount by the end of March 2021, they can make up to 11 smaller monthly instalments which are interest free. All instalments of the outstanding amount must be paid by the end of March 2022.
In order for taxpayers to use the scheme they must:
- still have deferred VAT to pay
- be up to date with their VAT returns
- opt in before the end of March 2021
- pay the first instalment before the end of March 2021
- be able to pay the deferred VAT by Direct Debit.
Taxpayers must prepare to opt in by:
- creating their own Government Gateway account if they do not already have one
- submitting any outstanding VAT returns from the last four years. You will not be able to join the scheme if you have not done so
- correcting errors on their VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in their deferred VAT balance
- ensuring they know how much they owe, including the amount they originally deferred and how much they may have already paid.
Internet link: GOV.UK guidance
Cialis instructions d’utilisation Cialis tadalafil est un médicament moderne et efficace pour le traitement de l’impuissance. Cialis Générique Australie. cialispascherfr24.com Acheter En Ligne Cialis Discount.
HMRC has issued detailed guidance on the domestic reverse charge changes scheduled for 1 March 2021.
The reverse charge represents part of a government clampdown on VAT fraud. Large amounts of VAT are lost through ‘missing trader’ fraud. As part of this type of fraud, VAT is charged by a supplier, who then disappears, along with the output tax. The VAT is thus lost to HMRC. Construction is considered a particularly high-risk sector because of the potential to make supplies with minimal input tax but considerable output tax.
The reverse charge does not change the VAT liability: it changes the way that VAT is accounted for. From 1 March 2021 the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. This is called a ‘reverse charge’.
The reverse charge is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be used through the CIS supply chain, up to the point where the recipient is no longer a business making supplies of specified construction services. The rules refer to this as the ‘end user’.
Broadly then, the reverse charge means that a contractor receiving a supply of specified construction services has to account for the output VAT due – rather than the subcontractor supplying the services. The contractor then also has to deduct the VAT due on the supply as input VAT, subject to the normal rules. In most cases, no net tax on the transaction will be payable to HMRC.
The charge affects only supplies at standard or reduced rates where payments are required to be reported via CIS and not to:
- zero-rated supplies;
- services supplied to ‘end users’ or ‘intermediary suppliers’.
Under the scheme a VAT-registered business, receiving a supply of specified services from another VAT-registered business, for onward sale, on or after 1 March 2021:
- should account for the output VAT on supplies received through its VAT return
- does not pay the output VAT to its supplier on supplies received from them
- can reclaim the VAT on supplies received as input tax, subject to normal VAT rules.
The supplier should issue a VAT invoice, indicating the supplies are subject to the reverse charge.
An end user should notify its end user status, so the supplier can charge VAT in the usual way.