All change in VATland
James Cowper’s VAT manager Ruth Corkin looks at the changing VAT landscape in 2011.
The New Year saw the standard rate of VAT increase from 17.5 per cent to 20 per cent and a rush to buy high ticket goods and services before the increase! Once the dust has settled on the increase, there will be other VAT issues to contend with, including the very real possibility of a new regime of fines for late or incorrect payment and further changes to the place of supply of international services.
Change in VAT Rate
January 4 saw the rate of VAT increase from 17.5 per cent to 20 and VAT registered businesses should by now have identified and invoiced any supplies at the lower rate.
Things become a little more complex with long term contracts that straddle the 4 January date. If the contract allows for regular payments or invoicing dates within the period of the contract the VAT rate to be used is the one in force at the date the invoice is raised or a payment received.
If the contract has no payment or invoicing schedule, then a tax point will only be created when an invoice is raised or a payment received.
Penalties for Late Returns and/or Payments
2011 may also herald the arrival of new penalties for late returns and payments, replacing the current Default Surcharge system.
It is proposed that the first late return will trigger an immediate penalty of £100 and a penalty period of 12 months. Subsequent late returns in that penalty period will increase by £100 per return (up to a maximum of £400) and each time the penalty period will be extended to 12 months from the latest period.
Failure to pay an amount of tax shown on a return will immediately trigger a 12 month penalty period. Penalties will be based on a percentage of up to four per cent of total tax due.
The penalties will not apply where there is a ‘time to pay’ agreement in place and there is the right of appeal if the taxpayer has a reasonable excuse for the lateness.
Penalties on errors
Whilst taxpayers are perfectly within their rights to adjust errors up to a maximum of £50,000 (depending on turnover) via the VAT returns, such adjustments are not immune from penalties. However, HMRC have recognised that it is not acceptable for its Officers to levy penalties on errors adjusted this way and is set to retrain its staff in what errors do attract penalties, so watch this space!
Place of Supply of Services
1 January 2010 saw the implementation of a simplification for the place of supply of services. However, it was not as simple as first thought and a number of issues have arisen in the last year. The biggest issue was the fact that claims for VAT in other EU member States could not be made uniformly using the new electronic filing system and so the deadline for filing was extended to 31 March 2011.
In addition, 2011 sees a change in the place of supply of admissions to educational, cultural and sporting events and also to the supplies relating to those events. The charge for admission to an event will take place in the country where the event is being held, even if that charge is raised in advance and in a different Member State to that where the event is being held. The supply of services relating to events comes under the new basic rule of where the recipient belongs.
Rumour has it that the only acceptable evidence that will be acceptable to prove that a person is a “relevant business person” in a Member State will be that of a VAT registration number, but this is yet to be confirmed.
Ruth Corkin is a VAT manager in the Oxford office of accountants and business advisers James Cowper. Ruth can be reached by email: rcorkin@jamescowper.co.uk. For more information visit www.jamescowper.co.uk.
10.01.11