Happy Birthday, dear VAT…

OUR FAVOURITE TAX HIT ITS 50TH birthday on… you guessed it – April 1. For many businesses (and accountants for that matter), the humour in that date was not lost. Over the years VAT has always been a troublesome issue, because so many businesses are confused by the rules.

I have had a few months where VAT has not been far from my mind in my working life (not unusual for an accountant you say), but it seems to be popping up more and more as a problem. Not just in my general consultancy and accounting client advice work, but in enquiries from people who can’t get their own accountant to be brave enough to set a fixed model in place of what you can and can’t do.

Let me give you some examples: n People missing activities in their business that they should be charging VAT for but don’t n Businesses charging VAT on stuff they don’t need to be charging for eazitax.co.uk n Charging VAT on things that already attracted VAT through a supplier (to be fair this can be super complicated and not always straight forward, even with the best intentions) n Businesses and individuals avoiding registering by staying under the £85,000 threshold, or because they think they don’t turn over enough, but actually limiting the growth of their business or the chance to benefit from the VAT system.

So, for those of you not in the know, lets look at the basics and then see what this tax means to many people and businesses in our trade. I’m sorry, but just to be fair to all, I’m going to lay some real “Tax 101” basics on you. VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Businesses have to register for VAT if their VAT taxable turnover is more than £85,000. However, they can also choose to register if their turnover is less than £85,000.

It also comes with obligations. You must: n Include VAT in the price of all goods and services at the correct rate n Keep records of how much VAT you pay for things you buy for your business. n Report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) every quarter digitally (thanks to the obligations of Making Tax Digital).

There are also specialist VAT schemes which are suited to assorted sizes of businesses and trading styles such as Flat Rate, Cash Accounting, and so on, which can work to your advantage sometimes, even for sole traders.

And most obviously, you pay any VAT you owe to HMRC. The VAT you pay is usually the difference between any VAT you’ve paid to other businesses, and the VAT you’ve charged your customers.

If you’ve charged more VAT than you’ve paid, you must pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, The lovely people at the HMRC give you money.

All sounds super simple however in the passenger transport sector, we seem to be dealing with a lot of issues surrounding what “the service” is? I’ve written plenty of stuff about TFL and the Passenger Principal ruling so I’m not going there today, but we do have to understand what attracts VAT.

Is it the money that drivers are paid either directly or on behalf of the operator, or sometimes the operator is paid directly or on behalf of the driver?

Is it the commission or rent that drivers pay the operator, is it the money we charge passenger or operators charge corporate clients, or work received through aggregators and similar platforms? I haven’t even started with monies from clients or aggregators based outside of the UK!

Well, you will be pleased to know that the definitive answer is: Yes, No, sometimes and maybe (you didn’t think it would be that easy, did you!).

The government has an eye on VAT in the UK and has formed a working group to look at the passenger transport sector. The government says it is looking to simplify the system, which as you may have worked out would not be a bad thing. However, the working group’s brief also includes looking at VAT on fares and consideration of what “account work” actually means in our sector – and it would seem this means different things to different people.

Our job is to make sure that VAT doesn’t bring your business tumbling to the ground, and you aren’t used as The HMRC’s punchbag.

So, what can we take from this today:

1. You need to think about how your business deals with VAT

2. You should not be scared to take a close look at if you are doing it right (for HMRC and you)

3. Operators, you need to push your accountant to set a working model that you understand, and they can defend

4. Even if you are too small to be VAT registered, does it benefit you to do so.

I have to finish all this by saying this article cannot give you the specific advice you need because every business is different, but I hope it has got you thinking about your own situation.