UK VAT, GST, and Sales Tax Guide

United Kingdom

London GMT

EY

1 More London Place

London SE1 2AF

England

Indirect tax contacts

Andrew Bailey

+44 (20) 7951-8565 abailey1@uk.ey.com

David Bearman +44 (20) 7951-2249 dbearman@uk.ey.com

David Latief +44 (20) 7951-5712 david.latief@uk.ey.com

Justin Whitehouse +44 (20) 7951-7810 justin.whitehouse@uk.ey.com

Kevin MacAuley +44 (20) 7951-5728 kmacauley@uk.ey.com

Jamie Ratcliffe +44 (121) 535-2255 jratcliffe@uk.ey.com

Ali Anderson +44 (20) 7951-5248 aanderson@uk.ey.com

Rosie Higgins +44 20 7980-9194 rhiggins@uk.ey.com

Aberdeen GMT

EY

Blenheim House

Fountainhall Road Aberdeen AB15 4DT Scotland

Indirect tax contact

Niall Blacklaw

+44 (1224) 653-293 nblacklaw@uk.ey.com

Belfast GMT

EY

Bedford House

16 Bedford Street Belfast BT2 7DT

Northern Ireland

Indirect tax contact

David Reaney +44 28 9044-1704 dreaney@uk.ey.com

Birmingham GMT

EY

1 Colmore Square Birmingham B4 6HQ England

Indirect tax contact

Carolyn Norfolk +44 12 2339-4646 carolyn.norfolk@uk.ey.com

Cambridge GMT

EY

1 Cambridge Business Park Cowley Road Cambridge CB4 0WZ England

Indirect tax contact

Carolyn Norfolk +44 12 2339-4646 carolyn.norfolk@uk.ey.com

Edinburgh GMT

EY

Atria One 144 Morrison Street Edinburgh EH3 8EX Scotland

Indirect tax contact

Stewart Mathieson

+44 (191) 247-2761 smathieson@uk.ey.com

Glasgow GMT

EY

G1 Building

5 George Square Glasgow G2 1DY Scotland

Indirect tax contact

Stewart Mathieson

+44 (191) 247-2761 smathieson@uk.ey.com

Leeds GMT EY

1 Bridgewater Place Water Lane Leeds LS11 5QR England

Indirect tax contact

Andy Jones +44 (113) 298-2344 andy.jones@uk.ey.com

EY

2 St Peter’s Square

Manchester M2 3DF England

Indirect tax contact

Mark Pickard +44 7880-780736 mpickard1@uk.ey.com

Newcastle GMT

EY

City Gate

St James’ Boulevard

Newcastle upon Tyne NE1 4JD England

Indirect tax contact

Stewart Mathieson +44 (191) 247-2761 smathieson@uk.ey.com

Reading GMT

EY

Apex Plaza

Forbury Road Reading RG1 1YE England

Indirect tax contact

Sarah Johnson +44 (1189) 281-363 sjohnson3@uk.ey.com

A. At a glance

Name of the tax

Value-added tax (VAT)

Local name Value-added tax (VAT)

Date introduced 1 April 1973

Trading bloc membership The UK left the European Union on 31 January 2020. The transition period came to an end on 31 December 2020 at 11:00 p.m. UK time.

The UK-EU Trade and Cooperation Agreement (TCA) governs the UK and EU’s economic and trading relationship now that the Brexit transition period has come to an end. The UK is free to adapt its own VAT rules going forward with the exception of Northern Ireland (NI), which will operate a “dual”/”mixed”

VAT regime and for the time being, follows EU VAT rules for goods and UK VAT rules for services.

Administered by HM Revenue & Customs (https://www.gov.uk/government/organisations/ hm-revenue-customs)

VAT rates

Standard 20%

Reduced 5%, 12.5%

Other

Zero-rated (0%) and exempt

VAT number format GB 999.9999.99

VAT return periods

Quarterly General rule

Monthly If requested by a business that receives regular repayments

Annual If requested by a small business (annual turnover less than GBP1.35 million excluding VAT)

Thresholds

Registration

Established GBP85,000 Non-established None

Deregistration GBP83,000

Distance selling GBP70,000

Not applicable in GB from 1 January 2021 onward. GBP70,000 threshold applicable in NI until 1 July 2021, after which a pan EU threshold of EUR10,000

Intra-Community acquisitions

GBP85,000

Not applicable in GB from 1 January 2021. Continues to be applicable in NI after 1 January 2021

Recovery of VAT by non-established businesses Yes

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods or services made in the United Kingdom (UK) by a taxable person

• The intra-Community acquisition of goods from another EU Member State by a taxable person (see the chapter on the EU). From 11:00 p.m. UK time, 31 December 2020, the concept of intraCommunity acquisitions no longer applies in GB but continues to apply in NI

• Reverse-charge services received by a taxable person in the UK

• The importation of goods from outside the EU, regardless of the status of the importer

HMRC had indicated in 2020 that early termination fees and other forms of compensation had changed VAT liability from outside the scope of VAT to subject to VAT at 20%. The change was originally due to take effect from 2 September 2020 or retrospectively for some businesses. However, in January 2021, HMRC decided to apply the updated VAT treatment from a future date. At the time of preparing this chapter, this has not been confirmed by HMRC.

Brexit — United Kingdom. For VAT purposes, the UK consists of Great Britain (GB) (England, Scotland and Wales) and Northern Ireland (NI). It does not include the Channel Islands or Gibraltar.

The UK left the European Union (EU) on 31 January 2020. However, the transition period came to an end on 31 December 2020 at 11:00 p.m. UK time. Thereafter, the UK-EU Trade and Cooperation Agreement (TCA) governs the UK and EU’s economic and trading relationship. The United Kingdom (UK) is free to adapt its own VAT rules going forward with the exception of Northern Ireland (NI), which will operate a “dual”/”mixed” VAT regime, and for the time being follows EU VAT rules for goods under the Northern Ireland Protocol and UK VAT rules for services.

At the time of preparing this chapter, HMRC continues to publish Brexit updates regularly. As a result, we recommend checking the latest HMRC guidance and/or seeking specialist advice.

Brexit — Great Britain. Movement of goods. From 31 December 2020 at 11:00 p.m. UK time, GB is a third country in relation to the remaining EU 27 Member States and will therefore no longer have the concepts of EU acquisitions or dispatches for goods. Goods leaving and entering the UK will be treated as imports and exports. Customs and excise duties and import VAT may apply.

Imports. To continue moving goods from EU countries into GB from 31 December 2020 at 11:00 p.m. UK time, GB businesses needed to complete a number of actions, including deciding how to make customs declarations, checking whether imported goods are eligible for staged import controls and obtaining an Economic Operator Registration Identification (EORI) number.

An EORI number is used by tax authorities to identify a business for customs purposes. Prior to 31 December 2020, only one EORI number was required whether goods were imported into the UK or one of the EU 27.

From 11:00 p.m. 31 December 2020, one EORI number is required to import goods into the EU 27 and covers imports across the whole of the EU 27. Businesses will require a GB EORI num ber (separate from its EU EORI number) to import into or export from GB and will require an EU EORI number (separate to its GB EORI number) to import into or export from the EU. An EORI number starting with XI will be required when moving goods between NI and non-EU countries or making a customs declaration in NI, for example, when moving goods from GB to NI. Between 1 January 2021 and 31 December 2021, businesses had an option to defer customs declarations for up to six months if the goods were imported from Europe into GB and: the goods were not on the controlled goods list; and the business did not have a poor compliance record. A declaration in the business’s records had to be made to do this. Full customs declarations and controls come into effect from 1 January 2022, i.e., the option to delay customs declarations for up to 175 days, without an authorization from HMRC ended.

Postponed import VAT accounting. Postponed import VAT accounting (PVA), where import VAT is accounted for on the VAT return, became available from 31 December 2020 at 11:00 p.m. UK time. Businesses can use PVA if goods are imported into GB from anywhere outside the UK or into NI from outside the UK and EU. PVA can also be used for goods moved between GB and NI that are declared into a customs special procedure, when they are removed from that special procedure.

If a business imported non-controlled goods into GB from the EU between 1 January 2021 and 31 December 2021, import VAT had to be accounted for using PVA if either the customs declara tion was delayed or a simplified customs declaration was used.

However, businesses cannot use PVA and must follow the normal rules for making an import declaration if either: the imported goods are controlled goods or HMRC has told the business to do so, for instance, because the business has a poor compliance record. After 31 December 2021, PVA is optional for all businesses.

Tax representatives. If a business is not established in the UK, a third party established in the UK must deal with any customs formalities on behalf of the business. Non-established taxable per sons can have their nominated intermediary account for import VAT on the intermediary’s VAT return.

In addition, a non-established taxable person can nominate an intermediary who will be able to account for the import VAT on its VAT return. Businesses do not need to be authorized to use postponed import VAT accounting.

In GB, appointing a fiscal representative for UK established entities is not a legal requirement; however, HMRC may request the use of one in special cases. Appointing an indirect tax fiscal representative for customs purposes may be necessary for non-UK established businesses to act as the importer of record in the UK.

Exports. To continue exporting goods to EU countries from 31 December 2020 at 11:00 p.m. UK time, GB businesses needed to complete a number of actions, including obtaining an EORI number.

Services. From a services perspective, from 31 December 2020 at 11:00 p.m. UK time, the UK will be a non-EU country and the application of use and enjoyment rules, which vary by Member State, will apply differently (see the use and enjoyment section for further details). In addition to use and enjoyment changes, certain supplies of services to nonbusiness customers outside the UK will see a shift in the place of supply to where the customer belongs. The services affected by the latter are: transfer and assignment of copyrights or patents, etc., (business-to-consumer (B2C) only); advertising services (B2C only); consultants, lawyers, accountants, engineers, etc., (B2C only); banking, financial and insurance (B2C only); the provision of access to, or transmission or distribution through a natural gas system; an electricity system or a network through which heat or cooling is supplied (B2C only); supply of staff (B2C only); and letting on hire of goods other than means of transport (B2C only).

VAT registration. Certain VAT registrations will no longer be available after 31 December 2020 at 11:00 p.m. UK time, including UK Mini One-Stop Shop registrations for UK businesses and UK distance selling registrations for GB businesses. Distance selling still operates in NI after 1 July 2021 when new rules were introduced, albeit with a change in threshold.

Input tax recovery. From 31 December 2020 at 11:00 p.m. UK time, businesses will (subject to the normal rules) be able to reclaim input VAT attributable to the export of certain financial services products to the EU (as is already the case for those exports to non-EU countries).

Case law. Post-31 December 2020 at 11:00 p.m. UK time, UK lower courts (First-tier Tribunal, Upper Tribunal and High Court) remain bound by European case law. However, the Court of Appeal of England and Wales, and equivalent courts and upward across the UK, have the power to depart from retained EU case law. The test for doing so is that currently applied by the Supreme Court as to whether to depart from one if its own judgments, namely whether it is right to do so. In practice, this power has been exercised very sparingly by the Supreme Court to date.

Brexit — Northern Ireland. On 14 October 2021, the European Commission proposed bespoke arrangements with a view to responding to ongoing difficulties in NI regarding the movement of goods from GB to NI under the Northern Ireland Protocol to reduce the number of checks at the border. At the time of preparing this chapter, negotiations between the EU and UK are ongoing and businesses should check the latest position.

VAT-registered businesses trading in NI or between NI and the EU will need to notify HMRC to:

• Be eligible to use VAT simplifications when trading with the EU

• Allow suppliers to zero-rate goods that they dispatch from the EU

• To ensure that trade with the EU will remain as “acquisitions and dispatches” when accounting for VAT

Goods sold between GB and NI. In most cases, VAT will continue to be accounted for as it was prior to Brexit on goods sold between GB and NI. This means that the seller of the goods will continue to charge its customers VAT and should show this on its invoices. The VAT charged will be accounted for as output VAT on the supplier’s VAT return in the same box as it is now. This VAT is import VAT even though it is charged by the supplier. Where the customer receives an

invoice from the seller showing that VAT has been charged, it may use this as evidence to reclaim the VAT as input tax, subject to the normal rules.

Where the movement of goods falls within one of these exceptions, the customer or importer will account for the VAT:

• Declared into a special customs procedure when they enter NI or GB

• Currently subject to domestic reverse-charge rules

• Subject to an onward supply procedure

• Sold by an overseas seller through an online marketplace

Businesses moving their own goods from GB to NI. The business will need to account for VAT on the movement. This should be included as output tax on the UK VAT return. The VAT may be reclaimed as input tax on the UK VAT return, subject to the normal rules. Where a business uses goods for exempt activities, or where the goods are put to a taxable use and exempt use, it may be required to make an adjustment to its partial exemption calculations, to ensure the appropriate recovery of VAT.

Businesses moving their own goods from NI to GB. A business will not be required to account for VAT when it moves its goods from NI to GB, unless these goods have been subject to a sale or supply to its customer.

VAT on goods sold from GB, transported via NI, to an EU Member State. For goods transported via NI to an EU Member State, the VAT treatment will depend on the specific circumstances or arrangements agreed between the seller and customer. Broadly, it will depend upon where the goods are situated at the point at which the transfer of rights to the goods takes place.

Goods sold between GB to NI and within NI by members of a UK VAT group. UK VAT groups will continue to operate largely as they do now. VAT groups will continue to be able to include members that are established in NI as well as members that are established in GB. However, there are a number of changes to the way in which a VAT group will operate when they move goods from GB to NI or where goods in NI are sold between members.

Goods sold onboard ferries between GB and NI. These will continue to be taxed domestically. UK VAT will be due and this will be accounted for on the seller’s UK VAT return.

Where goods are sold on journeys that visit GB and NI as part of a voyage to third countries, the supply will be treated as taking place outside the UK and so are outside the scope of UK VAT.

Where goods are sold on journeys between NI and an EU Member State, these will be taxed in the place of departure, as now.

Services. There are no special VAT rules for services between NI, GB and the EU. See the Services subsection above under the Brexit – Great Britain section above.

VAT registration. NI is, and remains, part of the UK’s VAT system. There will be no requirement for a new VAT registration for sales of goods in NI (as had been suggested prior to Brexit). However, businesses trading under the Northern Ireland Protocol will need to put an “XI” prefix in front of the UK VAT number when communicating with an EU customer or supplier (invoices will show an XI number ahead of the VAT number – for example, XI 123456789 – instead of GB); and complete an EC Sales List when selling goods from NI to VAT-registered customers in the EU. Businesses are considered to be trading under the Northern Ireland Protocol where:

• Goods are located in NI at the time of sale

• Goods are received in NI from VAT-registered EU businesses for business purposes

• Goods are sold or moved from NI to an EU Member State

Intra-EU simplifications. Simplifications, such as triangulation, will not be available for move ments of goods involving GB.

Such simplifications will be available for movements of goods involving EU Member States and NI or where the intermediary is identified as moving goods in, from or to NI in the course of its business.

Margin Scheme. In line with EU rules, margin schemes involving goods, such as the secondhand margin schemes, will not usually apply for sales in NI where the stock is purchased in GB (how ever, see below for an exception for cars). The VAT on these sales will be subject to the normal rules and must be accounted for on the full value of the supply.

Margin schemes will remain available for sales of goods that are purchased in NI or the EU, whether sold to customers in NI, GB or the EU.

Margin schemes will remain available for sellers in GB selling stock originally purchased in NI or GB, selling to those in GB.

A VAT margin scheme is available for cars imported and resold in NI. So, a dealer who sells motor vehicles in NI that were bought in GB, NI or the EU can benefit from the VAT secondhand margin scheme. It is also available for sales from NI to GB and NI to EU. For cars acquired in GB for sale in NI, a margin scheme is delivered via an interim arrangement that remains in place. A new scheme, the Secondhand Motor Vehicle Export Refund scheme, is being introduced in 2022 and will deliver the same benefit.

Quick Fixes. Pending introduction of a “definitive” system for the VAT treatment of intra-Com munity supplies of goods to taxable persons, the EU adopted Quick Fixes for intra-Community trade in goods. For an overview of the Quick Fix rules, see the chapter on the EU.

From 1 January 2020, four Quick Fixes aiming to simplify and harmonize EU VAT rules in rela tion to intra-Community supplies of goods were introduced across the EU. The Quick Fixes were implemented in the UK.

From 11:00 p.m. UK time 31 December 2020, NI retains the EU Quick Fixes, but for GB, they applied only from 1 January 2020 to 31 December 2020 11:00 p.m. UK time. However, see below for transitional rules on call-off stock for GB.

The four Quick Fixes are as follows :

• Uniform call-off stock simplification rules

• Uniform rules for the VAT treatment of chain transactions in terms of which party zero rates the supply

• Uniform evidence requirements for zero rating intra-EU supplies of goods

• Mandatory VAT registration number requirements to support the zero rating of intra-EU sup plies of goods

From a call-off stock perspective, the UK (relevant to NI and GB when the rules are in force) defines a “small loss” (whereby deemed acquisitions may be ignored) as 5% or less of the quan tity of “relevant goods” delivered into the UK warehouse in any (rolling) 12-month period. The loss can relate to goods that are destroyed, lost or stolen within that same 12 months. Only the goods destroyed, lost or stolen in excess of the 5% measure must be accounted for as a deemed acquisition into the UK.

GB transitional call off stock rules – where stock is already in GB at the end of the transition period. If, after a period of 12 months after the goods arrival in GB, the goods have not been called off to either the original customer or another customer(s), the supplier must register for VAT in GB and account for acquisition VAT on them. Any subsequent supply of the goods will be a domestic UK

supply if sold to a GB business. From 11:00 p.m. UK time 31 December 2020, the call-off stock simplification will no longer apply in GB. NI retains EU rules for goods so call-off stock will continue to apply.

Effective use and enjoyment. To avoid instances of nontaxation or double taxation, EU Member States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed. If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the service may be required to register for VAT in every Member State where it has customers that are not taxable persons. For the information regarding the rules relating to VAT registration, see the chapters on the respective countries of the EU.

In the UK, the following services that are subject to the use and enjoyment provisions:

• The letting on hire of goods (including means of transport)

• Electronically supplied services (business-to-business (B2B) only)

• Telecommunications services (B2B only)

• Repairs to goods under an insurance claim (B2B only)

• Radio and television broadcasting services

Effective use and enjoyment rules apply to the aforementioned services when they are either supplied by a UK supplier but consumed outside the EU or supplied by a non-EU supplier but consumed in the UK. Post-31 December 2020 at 11:00 p.m. UK time, the UK will be treated as a non-EU country for services. Use and enjoyment rules vary across the Member States, so, depending on local rules, it is possible that supplies between UK and EU Member States not previously subject to use and enjoyment rules will fall within the rules.

Other services affected by Brexit may include certain supplies of services to nonbusiness cus tomers outside the UK, who will see a shift in the place of supply to where the customer belongs. This is due to the effect of the term “which is not a Member State (other than the Isle of Man)” being substituted for “other than the United Kingdom or the Isle of Man” in Schedule 4A, Item 16, para (1)(b) VATA 1994. The services affected are as follows:

• Transfer and assignment of copyrights or patents, etc., (business-to-consumer (B2C) only)

• Advertising services (B2C only)

• Consultants, lawyers, accountants, engineers, etc., (B2C only)

• Banking, financial and insurance (B2C only)

• The provision of access to or transmission or distribution through a natural gas system

• An electricity system or a network through which heat or cooling is supplied (B2C only)

• Supply of staff (B2C only) and letting on hire of goods other than means of transport (B2C only)

Transfer of a going concern. Normally the sale of the assets of a VAT registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, a transfer of a business as a going concern (TOGC) is the sale of a business, including assets that must be treated as “neither a supply of goods nor a supply of services” by virtue of meeting certain conditions. Where the sale meets the conditions, the supply is mandatorily outside the scope of UK VAT.

For there to be a TOGC for VAT purposes in the UK, all of the following conditions must apply:

• The assets, such as stock-in-trade, machinery, goodwill, premises and fixtures and fittings, must be sold as part of the TOGC

• The buyer must intend to use the assets in carrying on the same kind of business as the seller

• Where the seller is a taxable person, the buyer must be a taxable person already or become one as the result of the transfer

• In respect of land or buildings that would be standard-rated if they were supplied, the buyer must notify HMRC that they have opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date

• Where only part of the business is sold it must be capable of operating separately

• There must not be a series of immediately consecutive transfers of the business

C. Who is liable

A “taxable person” is any entity or person that is required to be registered for VAT. The term includes any entity or individual that makes taxable supplies of goods or services, intra-Commu nity acquisitions or distance sales in the UK in the course of a business in excess of the relevant turnover thresholds.

The VAT registration threshold is GBP85,000, and the threshold will remain at this level until 31 March 2024. This VAT registration threshold only applies to businesses established in the UK. A nil registration threshold applies to businesses not established in the UK. As a result, any nonestablished business that makes a taxable supply (not covered by an existing VAT simplification) in the UK is required to register for VAT, regardless of the value of the supply. Non-established businesses involved only in distance sales of goods to NI private consumers who are not taxable persons are subject to the distance selling threshold (GBP70,000) up until 1 July 2021. After this date, the EU has introduced new rules that will apply to NI businesses selling goods B2C to the EU and vice versa. From 1 January 2021, the distance selling rules no longer apply for GB busi nesses. See the E-commerce subsection for the rules applicable to NI up until 1 July 2021.

Exemption from registration. A taxable person whose turnover is wholly or primarily zero-rated (see Section D) may request exemption from registration.

Voluntary registration and small businesses. A business may register for VAT voluntarily if its taxable turnover is below the VAT registration threshold. A business may also register for VAT voluntarily in advance of making taxable supplies. In this case, the business needs to demonstrate to the UK VAT authorities it has the firm intention to make taxable supplies.

Businesses with a taxable turnover of GBP150,000 or less (excluding VAT) may apply to HMRC to use the VAT Flat Rate scheme. Refer to the Special schemes section for further details.

Businesses with annual taxable turnover (excluding VAT) of less than GBP1.35 million may apply to complete an annual VAT return rather than quarterly returns. Refer to the Special schemes section for further details.

Group registration. VAT grouping is a facilitation measure by which two or more eligible persons can be treated as a single taxable person for VAT purposes. Eligible persons are bodies corporate, individuals, partnerships and Scottish partnerships. Bodies corporate includes companies of all types.

Corporate bodies and certain noncorporate entities that are under “common control” and are established or have a fixed establishment in the UK may apply to register as a VAT group.

The control condition is met where all members of the group are controlled either by one mem ber of the group, which can be a body corporate, an individual, a partnership or a Scottish partnership, or a single other “person” who is not one of the members of the group. Where control is exercised by a person that is a partnership, control must be exercised through the partnership and not by the partners as individuals. The company shares will normally be assets of the partner ship.

VAT group members share a single VAT number and submit a single VAT return. No VAT is charged on supplies made between group members. All members of a VAT group in the UK are jointly and severally liable for VAT debts and penal ties.

There is no minimum time period for the duration of a VAT group. Holding companies. A pure holding company can be included in a VAT group to the extent that it meets the eligibility crite ria. VAT recovery on costs will depend on whether any taxable supplies are made and either the direct link that exists between those costs and taxable supplies or the link from those costs to the business activities of the VAT group as a whole.

Cost-sharing exemption. The VAT cost-sharing exemption (in accordance with VAT Directive 2006/112/EEC Article 132(1)(f) has been implemented in the UK. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in accordance with specific requirements laid out in UK VAT law).

The cost-sharing exemption can be used when two or more organizations with exempt and/or nonbusiness activities join together to purchase services on a cooperative basis, and in doing so form a separate entity, a cost-sharing group (CSG), to supply themselves with qualifying services at cost.

There are two fundamental requirements that must be met to qualify for exemption:

• The CSG must consist only of operators carrying out an activity that is exempt from, or not subject to, VAT. The only businesses or organizations that can use the exemption are those that engage in exempt activities that fall within public interest exemptions, including postal ser vices, education, health and welfare, subscriptions to trade unions, professional and other qualifying bodies, sports, sports competitions and physical education, fund raising by charities and cultural services

• The group must not exist for the purposes of gain and must only charge its members for expenses incurred by it to meet their requirements

Fixed establishment. A fixed establishment is an establishment other than the business establish ment (a business establishment is usually a head office, headquarters or seat from which the business is run on a day-to-day basis and central administration takes place), which has the human and technical resources necessary for providing or receiving services. A business may have several fixed establishments, which may include a branch or agency. Where there are estab lishments in more than one country, it will be necessary to determine which one is most directly linked to a supply.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in the UK. A non-established business must register for VAT if it makes any of the following taxable supplies in the UK, regardless of the value of the supply:

• Goods located in the UK at the time of supply

• Services to which the reverse charge (see the subsection Reverse charge below) does not apply

• Supplies of telecommunications, broadcasting and electronic services (digital services) to non taxable customers in the UK (see subsection Digital economy below)

EU businesses not established in the UK must also register for VAT if they make distance sales in NI greater than the distance selling annual threshold. From 1 July 2021, the distance selling rules changed across the EU with a new pan European threshold applied on an EU basis, which is relevant for NI businesses. From 1 January 2021, the distance selling rules no longer apply in GB.

A non-established business that registers for VAT may normally do so from its place of business outside the UK. If not registering online, the application form (VAT 1) must be sent to the fol lowing address:

BT VAT

HM Revenue and Customs

BX9 1WR

Tax representatives. A non-established business may choose to appoint a tax representative or agent to act on its behalf in relation to UK VAT matters.

The UK VAT authorities may require that a non-established person appoint a tax representative. However, this condition may be imposed only if the business is established in a country outside the EU that has not agreed on mutual assistance provisions with the UK.

Reverse charge. If a non-established business supplies services to a UK taxable person but does not register for VAT, the taxable person may be required to account for the VAT due under reverse-charge accounting. This means that the taxable person charges itself VAT. The selfassessed VAT may be deducted as input tax (that is, VAT on allowable purchases) depending on the taxable person’s partial exemption status (see Section F). This measure does not apply in all circumstances. For example, it applies only if the place of supply of the services is in the UK.

Domestic reverse charge. Telecommunication services. Purchasers of wholesale supplies of tele communication services are required to account for VAT under a domestic reverse-charge accounting procedure rather than paying VAT to the supplier. The domestic reverse charge does not apply to supplies made to a member of a corporate group for onward supply within that corporate group, and where the corporate group members consume that supply. When making a supply to which the domestic reverse charge applies, the supplier must show all the information normally required to be shown on a VAT invoice. The supplier must also annotate the invoice to make it clear that the domestic reverse charge applies, and the customer is required to account for the VAT. No additional notification or reporting requirements apply to these transactions.

Domestic supplies of mobile phones and computer chips. Purchasers of certain designated goods (broadly, mobile phones and computer chips) must account for the VAT due under a domestic reverse-charge accounting procedure, rather than paying the VAT to the supplier. The domestic reverse charge applies for supplies greater than GBP5,000 (exclusive of VAT). When making a domestic sale to which reverse-charge accounting applies, the supplier must show all the information normally required to be shown on a VAT invoice. The supplier must also annotate the invoice to make it clear that the reverse charge applies, and that the customer is required to account for the VAT. Additional notification and reporting requirements also apply to these transactions until 1 July 2022.

Domestic supplies of emissions allowances. Purchasers of specified emissions allowances must account for VAT under a domestic reverse-charge accounting procedure, rather than paying VAT to the supplier. When making a domestic sale of emissions allowances to which reverse-charge accounting applies, the supplier must show all the information normally required to be shown on a VAT invoice. The supplier must also annotate the invoice to make it clear that the reverse charge applies, and that the customer is required to account for the VAT. No additional notification or reporting requirements apply to these transactions.

Domestic wholesale supplies of gas and electricity. Purchasers of wholesale supplies of gas and electricity are required to account for VAT under a domestic reverse-charge accounting proce dure, rather than paying VAT to the supplier. The domestic reverse charge does not apply to supplies of gas and electricity made under supply license or metered arrangements to residential and business premises (supplies for consumption). VAT-registered businesses that do not resell or trade the gas or electricity are not affected. When making a supply to which domestic reversecharge accounting applies, the supplier must show all the information normally required to be shown on a VAT invoice. The supplier must also annotate the invoice to make it clear that the domestic reverse charge applies, and that the customer is required to account for the VAT. No additional notification or reporting requirements apply to these transactions.

Domestic B2B supplies of construction services. From 1 March 2021, a domestic reverse charge became effective in the construction industry. The domestic reverse charge applies to standard

(20%) or reduced rate (5%) supplies where payments are required to be reported through the Construction Industry Scheme (CIS). Therefore, supplies between subcontractors and contrac tors (i.e., B2B supply), as defined by the CIS, will be subject to the reverse charge unless they are supplied to a contractor who is an end user

Digital economy. E-commerce changes. The UK introduced changes to the VAT rules relating to e-commerce sales effective 1 January 2021. These changes are similar to the EU e-commerce VAT changes, which were implemented from 1 July 2021, and also coincided with the end of the transition period of Brexit. For an overview of the EU e-commerce changes, see the chapter on the EU.

In GB, these changes came into effect from 1 January 2021, while the EU changes become effective from 1 July 2021. Although NI follows EU VAT rules for goods, it has released separate guid ance relating to e-commerce. As a result, we have highlighted the differences in the NI treatment where applicable. The UK changes coincide with the removal of the low-value consignment relief in the UK and the end of the Brexit transition period.

Import of low-value goods for sales to customers in GB and NI. From 1 January 2021, the lowvalue consignment relief (LVCR), which relieved import VAT on consignments of goods valued at GBP15 or less, was removed for goods imported from outside the UK. Further, the EU VAT dis tance selling regime no longer applies to the sale of goods to customers in GB from 1 January 2021.

As a consequence of the above changes, VAT is chargeable on all imports into GB (including imports from EU) and NI. However, different VAT rules apply to import of goods in consignments valued at GBP135 or less and consignments valued at more than GBP135.

For non-excisable goods imported from outside GB and NI in consignments not exceeding GBP135 in value, the goods will no longer be subject to import VAT. Instead, VAT will be applied at the point of sale. These rules apply irrespective of the place of establishment of the supplier.

If the supplier making such imports is not registered for VAT in the UK, from 1 January 2021 they would be required to obtain UK VAT registration for such imports. If the supplier is making imports in NI, then they would also be eligible to use the Import One-Stop-Shop scheme to account for this VAT in NI.

Similar rules apply to both B2B and B2C transactions involving imports into GB and NI. However, if the customer provides the supplier with a UK VAT registration number, then the customer is required to self-assess VAT under the reverse-charge mechanism.

Import One-Stop Shop. From 1 July 2021, the Import One-Stop Shop (IOSS) may be used by non-EU businesses making consignments to customers in the EU and NI, less than EUR150.

Local VAT registrations may still be appropriate for consignments over EUR150 to facilitate returns and to avoid the need for the customer to act as importer.

Online marketplaces and platforms. There is a distinction for sales of goods to customers in GB and NI and specific rules for joint and several liability of vendors and online marketplaces. Sales of goods to GB customers through online marketplaces.

• Starting from 1 January 2021, if an online marketplace (OMP) facilitates the B2C sales of goods by sellers, the OMP is treated as the deemed supplier of the goods for VAT purposes under the following two scenarios:

Goods imported from outside GB into GB in consignments not exceeding GBP135 in value for sales to customers

Goods located in GB at the point of sale and are owned by a supplier established outside the UK

In the above scenarios, the OMP is liable to account for VAT as a deemed supplier regardless of its place of establishment. In the above cases, if the customer is VAT registered and it has

provided its UK VAT registration number to the OMP, then the OMP is not viewed as a deemed supplier.

The term OMP has been defined as “a website or any other means by which information is made available over the internet, which facilitates the sale of goods through the website or other means by persons other than the operator (whether or not the operator also sells goods through the marketplace).” The term “operator” is defined as “the person who controls access to, and the contents of, the online marketplace,” provided that the person is involved in all the following:

Determining any terms or conditions applicable to the sale of goods

Processing or facilitating the processing of payment for the goods The ordering or delivery or facilitating the ordering or delivery of the goods

• Sales of goods to NI customers through online marketplaces. Where an OMP facilitates the B2C sales of goods by sellers, the OMP is treated as a deemed supplier for VAT purposes, but only in the following three scenarios:

Where goods are imported from outside of the UK and EU into NI in consignments not exceeding GBP135

Where goods located in GB are supplied to NI and are owned by an overseas seller (i.e., based outside of the UK)

Or

Where goods located in NI are supplied to GB and they are owned by an overseas seller (i.e., based outside of the UK)

The only exception to the above rules is in circumstances where the customer is VAT registered, and it has provided its UK VAT registration number to the OMP. The OMP is not liable for UK VAT on the sale of goods that are in NI at the point of sale and that are sold domestically in NI. The seller is required to register for UK VAT (if not already registered) and account for UK sup ply VAT on the sales of the goods (at the appropriate rate). In all the above scenarios, the OMP is liable to account for VAT as a deemed supplier regardless of its place of establishment.

• Joint and several liability. Where an overseas trader who operates through a fulfillment house/ online marketplace is liable to be registered and account for UK VAT and they fail to do so, HMRC has powers in place to hold the online marketplace jointly and severally liable for any UK VAT due. In addition to the joint and several rules, if a business stores goods in the UK for sellers established outside the UK, the business may need to apply for the Fulfillment House Due Diligence scheme. However, if a business stores goods in NI for sellers established in the EU and GB only, the business will not be required to apply for the Fulfillment House Due Diligence scheme. Transitional arrangements are in place for some GB businesses who need to register for the Fulfillment House Due Diligence scheme from the end of the Brexit transition period (11:00 p.m. UK time 31 December 2020).

Vouchers. The EU Voucher Directive has been implemented into UK law and aims to make the rules for the tax treatment of vouchers consistent. These rules still apply under current UK law, even though the UK is no longer a Member State of the EU. The UK rules apply to vouchers issued on or after 1 January 2019 and refers only to single-purpose vouchers (SPV) and multi purpose vouchers (MPV).

A SPV is one where the place of supply of the underlying goods or services is known (i.e., the country in which the supply will take place) and the relevant goods or services have a single liability to VAT (i.e., standard rate, zero rate, reduced rate or exempt) at the time the voucher is issued and transferred (such that the applicable VAT rate is known at the time the voucher is issued/transferred). Both the issue of a SPV, and its subsequent transfer represent a supply of the underlying goods or services, and any VAT payable is due at this time. The consideration is the amount charged for the issue and transfer of the voucher.

Any voucher that is not a SPV will be a MPV. With a MPV, at the time the voucher is issued or transferred, the VAT rate of the underlying goods or services is not known (e.g., the place of sup ply and/or rate of the goods is unknown) and thus the underlying goods or services are only taxed when the voucher is redeemed. The issue or transfer of the voucher is disregarded (i.e., not a supply for UK VAT purposes).

Registration procedures. The UK VAT authorities have introduced an enhanced online service for UK VAT registration (and deregistration) applications and for notifying changes to registration details (such as a change of address). This provides an incentive for businesses to use online services by offering quicker and more accurate processing.

When registering online, a VAT online account (sometimes known as a “Government Gateway account”) must be created. Businesses should receive a VAT registration certificate within 30 working days, although it can take longer. Further details on how to register are available on the HMRC website (https://www.gov.uk/vat-registration).

Deregistration. A taxable person that ceases to be eligible for VAT registration must deregister. A taxable person may also request deregistration if its taxable turnover drops below the deregistration threshold (GBP83,000) or if its taxable turnover is wholly or primarily zero-rated (see Section D below). However, deregistration is not compulsory in these circumstances.

Changes to VAT registration details. A taxable person must keep its VAT registration details up to date. Details can be changed online (through a VAT online account), by post (using form VAT484), by webchat or phone.

The form VAT2 must be sent to the VAT Registration Service to report any changes to a partnership.

HMRC must be notified about any changes to the following within 30 days or a financial pen alty could be due:

• The name, trading name or main address of a business

• The accountant or agent who deals with VAT

• The members of a partnership, or the name or home address of any of the partners

HMRC must be told at least 14 days in advance if bank details are changing. HMRC must be told within 21 days if the VAT responsibilities have changed as a result of someone who has died or is ill. This can be done by sending form VAT484 in the post, including details of the date of death or the date the illness started.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 20%

• Reduced rates: 5%, 12.5% (this is a temporary reduced rate for hospitality and tourism from 1 October 2021 to 31 March 2022)

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for a reduced rate, the zero rate or an exemption.

In addition, some supplies are classified as “exempt-with-credit.” Exempt-with-credit supplies are known in the UK as zero-rated supplies. This means that no VAT is chargeable, but the sup plier may recover related input tax (subject to the usual input tax recovery rules). Exempt-withcredit supplies include services supplied to customers outside the EU.

Examples of goods and services taxable at 0%

• Books, newspapers and periodicals (from 1 May 2020, this also applies to digital formats of these publications)

• Certain foodstuffs

• Children’s clothing and footwear

• Drugs and medicines supplied by prescription

• New housing

• Transport services

• Exports of goods and related services

• Certain international services

• Intra-Community supplies of goods

• Services supplied to customers outside the EU (an exempt-with-credit supply)

• No import duty or import VAT was due in certain circumstances when importing protective equipment (PPE), relevant medical devices or equipment into the UK from non-EU countries from 30 January 2020 until 31 December 2020. PPE must have been imported for distribution free of charge to those affected by, at risk from or involved in combating COVID-19 and made available free of charge to those affected by, at risk from or involved in combating the coronavirus outbreak, while remaining the property of the organizations using them

• PPE equipment (from 1 May 2020 to 31 October 2020)

Examples of goods and services taxable at 5%

• Fuel and power supplied to domestic users and charities

• Installations of energy-saving materials in residential buildings where the cost of the materials does not exceed 60% of the total cost of installation (where the 60% threshold is exceeded, only the labor cost element qualifies for the reduced rate); installations of energy saving materials in residential accommodation for recipients who are aged 60 or over or receiving certain ben efits, for housing associations and where the residential accommodation is a building or part of a building used solely for a “relevant residential purpose.” The reduced rate does not apply to the installation of wind turbines and water turbines Building materials for certain residential conversions

• Sanitary protection products

• Children’s car seats

• Smoking cessation products

• Grant-funded installation of heating appliances and qualifying security goods

• Certain larger holiday caravans

• Small, cable-based passenger transport systems

• Hotel, tourism and accommodation (from 15 July 2020 to 30 September 2021)

Examples of goods and services taxable at 12.5%

• Hotel, tourism and accommodation (from 1 October 2021 to 31 March 2022)

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Betting and gaming

• Education

• Finance

• Insurance

• Land and buildings (in most cases)

• Postal services (in most cases)

• Human blood products

• Medical services

• Shared service arrangements in circumstances in which two or more organizations (whether businesses or otherwise) with exempt and/or nonbusiness activities join together on a coopera tive basis to form a separate, independent entity (a cost-sharing group), to supply themselves with certain services at cost (the VAT cost-sharing exemption applies only in very specific circumstances and does not cover all shared-service arrangements)

Option to tax for exempt supplies. The UK operates an option to tax in respect of land and build ings. However, certain supplies of land and buildings are not affected by an option to tax (gener ally buildings intended for residential use or a qualifying charitable use).

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The “basic” tax point under UK law is the point when the goods are either removed from the supplier’s premises or made available to the customer, or when the services are performed.

The basic tax point may be overridden by the creation of what is termed an “actual” tax point. An “actual” tax point occurs in the following circumstances:

• Before the basic tax point: if the supplier issues a VAT invoice or receives payment with respect to a supply, a tax point is created to the extent covered by the invoice or payment (whichever is earlier)

• After the basic tax point: if an invoice is issued within 14 days after the basic tax point, the date of the invoice becomes the tax point. Taxable persons may request permission to extend this 14-day invoicing tax point up to a maximum of 30 days after the basic tax point

When the amount of VAT to be charged on a supply goes up or down, UK law allows businesses to choose to charge VAT using the basic tax point (i.e., for discrete supplies the date at which the goods are removed or services performed) rather than the actual tax point (for discrete supplies the date payment has been received or a VAT invoice issued). If a tax invoice has been issued and a lower VAT rate is applied, a credit note must be issued within 45 days of the VAT rate change.

For continuous supplies, there is a tax point every time a VAT invoice is issued or a payment is received, whichever happens first, so opportunities for using the basic tax point when there is a VAT rate changes may be more limited.

Deposits and prepayments. The receipt of a deposit or prepayment normally creates an actual tax point if the amount is paid in the expectation that it will form part of the total payment for a particular supply. A tax point is created only to the extent of the payment received.

The unfulfilled supplies prepayment rules mean that all prepayments for goods and services are brought into the scope of VAT where customers have failed to collect what they have paid for and have not received a refund.

Continuous supplies of services. If services are supplied continuously and payment is made peri odically, a tax point is created each time a payment is made or a VAT invoice is issued, whichever occurs earlier.

Goods sent on approval or for sale or return. The tax point for goods sent on approval or sale or return is the earlier of the date on which the goods are accepted by the customer or 12 months after the removal of the goods from the supplier. However, if a VAT invoice is issued before these dates, the invoice creates an actual tax point, up to the amount invoiced.

Reverse-charge services. The tax point for reverse-charge services is governed primarily by when the service is performed, and a distinction is made between single and continuous supplies. For single supplies, the tax point is the earlier of the date of completion of the service or the date of payment for the service. For continuous supplies, the tax point is the end of each billing or

payment period (or the date of payment, if earlier). For continuous supplies that are not subject to billing or payment periods, the tax point is 31 December each year unless a payment has been made before that date, in which case the payment creates a tax point.

Leased assets. Under current UK VAT law, operational and finance asset leases are treated as continuous supplies of services (see above), provided that legal title to the goods does not pass to the recipient and there is no express contemplation that title will transfer at some point in the future. Goods supplied on terms that expressly contemplate that title will transfer at some point in the future (e.g., under hire-purchase or conditional sale agreements) are treated in the same way as a normal sale of goods where title passes at the outset. Unless a VAT invoice is issued, the time of supply will be linked to the basic tax point (see above). This means that the full amount of VAT will become payable up front, instead of being due as and when installment payments are made.

Imported goods. The time of supply for imported goods is the date of importation or the date on which the goods leave a duty suspension regime. Postponed import VAT accounting may apply from 31 December 2020 at 11:00 p.m. UK time for GB imports by UK VAT-registered businesses.

Intra-Community acquisitions. The time of supply for an intra-Community acquisition of goods in NI (applicable in GB only up to 11:00 p.m. UK time 31 December 2020) is the 15th day of the month following the month in which the goods are removed (that is, sent to, or taken away by, the customer). However, if the supplier issues an invoice before this date, the tax point is when the invoice is issued.

Intra-Community supplies of goods. For intra-Community supplies of goods in NI (applicable in GB only up to 11:00 p.m. UK time 31 December 2020), the time of supply is the earlier of the 15th day of the month following the month in which the goods are removed or the date of issu ance of a VAT invoice.

Distance sales. The time of supply for supplies of distance sales is the 15th day of the month following the month in which the goods are removed (that is, sent to, or taken away by, the cus tomer). However, if the supplier issues an invoice before this date, the tax point is when the invoice is issued.

The distance selling rules still apply in NI until 1 July 2021, after which a new pan European threshold will apply and an option to use the One-Stop Shop will be possible. From 1 January 2021, distance selling in GB no longer applies.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made. Where input tax exceeds output tax in any period, the taxable person will receive a refund.

Input tax includes VAT charged on goods and services supplied in the UK, VAT paid on imports of goods into the UK and VAT self-assessed on the intra-Community acquisition of goods (NI) and reverse-charge services (see the chapter on the EU).

A valid tax invoice or customs document must generally accompany a claim for input tax.

After 31 December 2020 at 11:00 p.m. UK time, in GB and NI, a monthly Postponed Import VAT Statement (MPIVS) will form the primary evidence for input tax recovery for imports (C79

of recoverable VAT is determined by making a pro rata calculation based on the respective values of taxable and exempt supplies made.

If the standard calculation method gives an unfair or distortive result, a special calculation method may be agreed with the UK VAT authorities. Approval from the tax authorities is not required to use the partial exemption standard method in the UK. A business must use the stan dard method, unless HMRC has given approval to operate a special method. However, in some cases, the UK VAT authorities may impose the use of a special calculation method.

Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input tax is deducted in the VAT year in which the goods are acquired. The amount of input tax deductible depends on the taxable person’s partial exemption recovery position in the VAT year of acquisition. However, the amount of input tax recovered for capital goods must then be adjusted over time if the taxable person’s partial exemption recovery percentage changes dur ing the adjustment period.

In the UK, the capital goods adjustment scheme applies to the following assets for the number of years indicated:

• Land and buildings and related property expenditure valued at GBP250,000 or more: adjusted over a period of 10 years

• Computer hardware valued at GBP50,000 or more: adjusted over a period of five years

• Ships and aircraft valued at GBP50,000 or more: adjusted over a period of five years

The adjustment is applied each year following the year of acquisition to a fraction of the total input tax incurred (1/10 for land and buildings and 1/5 for computer hardware, ships and aircraft). The adjustment may result in either an increase or a decrease of deductible input tax, depending on whether the ratio of taxable supplies to total supplies made by the business has increased or decreased compared with the year in which the capital goods were originally acquired.

In the UK, the capital goods adjustment does not apply to any services.

Refunds. If the amount of VAT recoverable exceeds the amount of VAT payable in a period, a refund may be claimed. This is done automatically by submitting the periodic VAT return. A tax able person that receives regular repayments of VAT may request permission to submit monthly returns to improve cash flow.

Pre-registration costs. Where a business buys goods or services before registering for VAT to support its taxable business activities, it can recover the VAT provided that certain conditions are met. In the case of goods, they must remain on hand at the date of registration and must be used in the newly registered business. These goods must also have been bought no more than four years before the date of registering for VAT. Different rules apply to capital goods within the capital goods adjustment scheme (see the subsection on Capital goods above). In the case of services, they must have been bought no more than six months before the date of registration.

Bad debts. Where a business has made supplies to its customers and has not been paid, it can claim relief for the VAT on bad debts provided a number of conditions are met. The main condi tions for claiming VAT bad debt relief are that the business must already have accounted for the VAT on the supplies and paid it to the UK VAT authorities, the business must have written off the debt in its VAT accounts, and the debt must have remained unpaid for a period of six months after the date of the supply and the date payment was due, whichever is later.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in the UK.

VAT incurred on purchases that are used partly for business purposes and partly for nonbusiness purposes must normally be apportioned between economic and noneconomic use before dealing with any partial exemption calculation.

Government bodies, local authorities and similar organizations can recover VAT incurred on certain costs relating to their nonbusiness activities under s41 and s33 of the VAT Act 1994.

G. Recovery of VAT by non-established businesses

The UK VAT authorities refund VAT incurred by businesses that are neither established nor reg istered for VAT in the UK. Non-established businesses may reclaim UK VAT to the same extent as VAT-registered businesses.

EU businesses. Businesses established in NI that incur VAT on goods in the EU, and EU busi nesses that incur VAT on goods in NI, will be able to recover this VAT through the electronic cross-border refund system. This enables a business to recover that VAT directly from that coun try (the UK or EU Member State of refund), provided that it is not established in the country of refund and makes no supplies there. For VAT incurred on services in NI, the rules for non-EU businesses making claims must be followed (see below). For EU established businesses incurring UK VAT in GB after 11:00 p.m. UK time on 31 December 2020 (i.e., after the end of the Brexit transition period), the rules for non-EU businesses making claims must be followed (see the NonEU businesses subsection below).

GB businesses no longer have access to the EU refund electronic portal. The deadline for claim ing VAT incurred on expenses in the EU on or before 31 December 2020 was 31 March 2021. GB businesses that have incurred VAT in the EU on or after 1 January 2021 can still claim refunds of VAT from the EU after the end of the transitional period but need to refer to the local EU Member State, as each EU Member State has its own process for refunding VAT to non-EU businesses. For full details, see the chapter on the EU.

Non-EU businesses. Businesses established outside the EU, need to follow these rules in the UK for VAT refunds, which are similar to the rules under the 13th Directive.

The UK does not generally exclude businesses from any country from eligibility.

Please find below specific rules for the UK:

• Refunds are based on a “prescribed year” running from 1 July to 30 June. Applications for a VAT refund based on the EU 13th Directive must be submitted within six months after the end of the prescribed year in which the VAT was incurred (that is, before 1 January).

• Claims must be submitted in English.

• The minimum claim period is three months, while the maximum claim period is one prescribed year. The minimum claim for a period of less than a year is GBP130. Where a claim covers the full 12 months of the prescribed year, the minimum VAT claim is GBP16.

• When submitting a claim, businesses must apply for a certificate of status showing that it is registered for business purposes in its own country and send this to HMRC before the relevant claim deadline. HMRC has agreed that it will allow overseas businesses more time to submit a valid certificate of status in specific exceptional circumstances, caused by a one-off, unavoid able event, for example a global pandemic, a national epidemic, a national emergency or a government shutdown. However, the certificate must be supplied within a reasonable time after it was issued, usually within 30 days. Businesses may need to give evidence of the delay and that the certificate was requested within a reasonable time. Such evidence may include infor mation from the official authority’s website. Businesses must still submit all other documents by the relevant deadline. HMRC will not make any payments until it receives a valid certificate of status.

Applications for refunds of UK VAT must be sent to the following address:

HM Revenue and Customs Compliance Centers

VAT Overseas Repayment Unit

Benton Park View Newcastle Upon Tyne

NE98 1YX

Late payment interest. For refunds of UK VAT for EU businesses incurred on or before 31 December 2020 or NI VAT incurred on goods by EU businesses, HMRC will communicate the date the application was received. Within four months of that date, the business will be told if the application is accepted; is partly or completely rejected; or needs more information. If more information is needed, this must be supplied within one month of the date on which the request is received. HMRC has eight months in which to tell a business of its decision about an EU crossborder refund claim (provided the supplier sends all the necessary information within that time). Unless an application has been rejected, payment should be made within 10 working days of HMRC’s decision. If payment is late, interest will be paid at the same rate applied to taxable persons within the UK from the date payment was due until the date it is made .

For refunds of VAT for non-EU businesses, the refund will be made within six months of receiv ing a satisfactory application. If the application is in order, the invoices showing that VAT has been paid will be returned as soon as the application is authorized for payment. Late payment interest may be due if payment is late.

H. Invoicing

VAT invoices. A UK taxable person must generally provide a VAT invoice for all taxable supplies made to other taxable persons, including exports and intra-Community supplies (see the chapter on the EU). Invoices are not automatically required for retail transactions, unless requested by the customer.

A VAT invoice is required to support a claim for input tax deduction.

Credit notes. A VAT credit note may be used to reduce the amount of VAT charged on a supply. The credit note must reflect a genuine mistake, an overcharge or an agreed reduction in the value of the original supply.

Where a change in consideration is agreed by a supplier and customer (e.g., faulty goods) after the original date of supply and VAT has been accounted for in an earlier period, a VAT adjustment can only be made where a credit/debit note is issued within 14 days and, in the case of a reduction in consideration, a “payment” has been made. Where a VAT invoice is not required to be issued in the first place (e.g., retail customer), a debit/credit note will not be required. The credit note should also refer to the number and date of the original VAT invoice.

Electronic invoicing. UK VAT law permits electronic invoicing in line with EU Directive 2010/45/ EU (see the chapter on the EU).

Simplified VAT invoices. There is no requirement to issue a VAT invoice for retail supplies to unregistered businesses. Retailers may assume that no VAT invoice is required unless a customer asks for one in which case, if the charge made for the individual supply is:

• GBP250 or less (including VAT), an invoice can be issued showing the retailer’s name, address and VAT registration number, the time of supply (tax point), a description that identifies the goods or services supplied, and for each VAT rate applicable; the total amount payable, includ ing VAT shown in GBP and the VAT rate charged. Exempt supplies must not be included on this type of VAT invoice

• More than GBP250, then either a full VAT invoice or a modified VAT invoice must be issued, showing VAT inclusive rather than VAT exclusive values

If the taxable person is not a retailer, and the total value of the supply does not exceed GBP250, the supplier may issue the customer with a simplified invoice. If the charge made for the indi vidual supply is:

• GBP250 or less (including VAT), an invoice showing the supplier’s name, address and VAT registration number, the time of supply (tax point), a description that identifies the goods or services supplied, and for each VAT rate applicable, the total amount payable, including VAT shown in GBP and the VAT rate charged. Exempt supplies must not be included on this type of VAT invoice

• More than GBP250, then either a full VAT invoice or a modified VAT invoice must be issued, showing VAT inclusive rather than VAT exclusive values

Self-billing. Self-billing is allowed in the UK. Self-billed invoices may only be issued by a cus tomer to a supplier if:

• The supplier has agreed to this method of accounting

• A self-billing agreement has been set up

• Certain rules have been followed including:

The raising of self-billed invoices for all transactions with the supplier named on the docu ment for the period of the agreement/contract

The completion of self-billed documents showing the supplier’s name, address and VAT registration number, together with all the other details that make up a full VAT invoice and should also be clearly marked with “Self-Billing.” HMRC following statement on each selfbilled invoice raised: “The VAT shown is your output tax due to HMRC”

The customer keeps the names, addresses and VAT registration numbers of the suppliers with whom a self-billing agreement is held

HMRC authorization is not required to operate self-billing as long as all the relevant conditions are met.

Proof of exports and intra-Community supplies. After the end of the transitional period, the UK will no longer be required to harmonize its VAT legislation with the EU VAT system. However, for NI a “dual”/“mixed” VAT regime will exist that follows EU VAT rules for goods and UK VAT rules for services as a result of the Northern Ireland Protocol. See the subsection above Northern Ireland for further details.

From 11:00 p.m. UK time 31 December 2020:

• From a GB perspective, all movements out of GB to any country other than NI will be treated as exports and follow export rules rather than intra-Community rules

• Movements out of NI to EU countries will continue to be treated as intra-Community supplies.

• Movements out of NI to non-EU countries will continue to follow export rules

• Supplies between GB and NI should be considered imports and exports from a VAT perspec tive. However, the UK is availing of flexibilities in the EU Directive to allow the supplier to charge and account for the import VAT in most cases. The recipient receives a VAT invoice and recovers the VAT, if appropriate

• Where own goods are moved from GB to NI, import VAT should be self-accounted for through the UK VAT return

• Where own goods are moved from NI to GB there are no reporting requirements

UK VAT is generally not chargeable on intra-Community supplies of goods, except distance sales (see chapter on EU). Distance sales no longer apply in GB from 1 January 2021. A new EU-wide distance selling threshold applies in NI (and across the EU) from 1 July 2021. From 1 January 2020, the VAT Quick Fixes came into effect across the EU and aim to harmonize certain require ments. From 11:00 p.m. UK time 31 December 2020, NI retains the EU Quick Fixes, but for GB, they will no longer be applicable, although, transitional rules on call-off stock for GB are in place (see above for more details).

The Quick Fixes introduce two material conditions that the supplier must comply with to zerorate the supply:

• The supplier must obtain the customer’s VAT number and include it on their invoices

• The supplier must include the supply of goods in its EC Sales List

The Quick Fixes also introduced rules on harmonizing the proof required for the intra-EU trans port of goods.

A business can either rely on the EU Quick Fixes proof of dispatch requirements or follow national rules on the proof of dispatch requirements if they preferred.

For intra-Community supplies, the UK proof of dispatch rules require a range of commercial documentation, such as customer orders, sales invoices, transport documentation and packing lists. The evidence must clearly identify the supplier, the customer, the goods, the mode of trans port and route of movement of the goods, and the destination. The evidence must be obtained within three months after the time of supply and be retained for at least six years.

The proof of dispatch conditions under the Quick Fixes requires the seller to hold two documents evidencing dispatch, this is enough to prove that the goods have been transported. The evidence must not be contradictory, and the tax authorities may still disapply the zero-rating if they find evidence to the contrary.

The evidence should be issued by two different parties that are independent of each other, as well as independent of the seller and the customer.

If the buyer arranges the transport, they will also need to provide the supplier with a written statement giving details of the transport and Member State of arrival. The buyer must provide this written statement to the supplier by the 10th day of the month following the supply.

For further information on the Quick Fixes, see the Quick Fixes subsection above.

Foreign currency invoices. If a VAT invoice is issued in a foreign currency, the domestic currency, which is British pound sterling (GBP), equivalent of the VAT amount must also be stated on the invoice. Suppliers may use any of the following acceptable exchange rates:

• The UK market selling rate at the time of the supply (rates published in UK national newspa pers are acceptable as evidence of the rates in force at the relevant time)

• The UK VAT authorities’ published period rates of exchange

• Any other acceptable rate that is used for commercial purposes (and not covered by the two alternatives above), subject to agreement in writing with the UK VAT authorities

Supplies to nontaxable persons. In the UK, a taxable person is not required to provide a VAT invoice for B2C (e.g., retail) supplies of goods and services. In practice, this will normally mean issuing a VAT invoice to any customers who ask for one.

Supplies of digital services to EU consumers are subject to VAT in the Member State where the customer belongs. Although the vast majority of EU Member States, including the UK, do not require VAT invoices to be issued for cross-border B2C supplies, UK taxable persons making B2C supplies of digital services to customers in other EU Member States should check invoicing requirements in the customer’s Member State. For further details of the VAT rules on digital ser vices in the EU, see the EU chapter.

Records. Taxable persons must hold the following VAT records:

• Copies of all invoices issued

• All invoices received (originals or electronic copies)

• Self-billing agreements

• Name, address and VAT number of any self-billing suppliers

• Debit or credit notes

• Import and export records

• Records of items VAT cannot be claimed on – for example business entertainment

• Records of goods given away or taken from stock for private use

• Records of all the zero-rated, reduced or VAT exempt items bought or sold

• A VAT account

General business records, such as bank statements, cash books, check stubs, paying-in slips and till rolls must also be kept.

HMRC practice is not to specify where the records must be kept, but they expect them to be accessible to them when required and follow Making Tax Digital (MTD) rules (see Digital tax administration subsection for further details).

Record retention period. VAT records must be kept for at least 6 years (or 10 years if you used the VAT Mini-One-Stop-Shop (MOSS) service pre-Brexit). Businesses signed up to the MTD regime must keep VAT records digitally, as well as a number of other digital records, including business name, address and VAT registration number, any VAT accounting schemes used, the time of supply, the net value of the supply and VAT on everything bought and sold. All transac tions must be added to the digital records, but paper records like invoices or receipts do not need to be scanned. Additional records must be kept if digital services are supplied in the EU and the VAT MOSS scheme was used.

Electronic archiving. Electronic archiving is allowed in the UK, but it is not mandatory. If records are kept digitally, for example, under MTD, these should be archived electronically. However, records not required to be kept digitally can be archived in paper format.

I. Returns and payment

Periodic returns. VAT returns are generally submitted quarterly. VAT return quarters are staggered into three cycles to ease the UK VAT authorities’ administration. The following are the cycles:

• March, June, September and December

• February, May, August and November

• January, April, July and October

Each taxable person is notified at the time of registration of the return cycle it must use. However, the UK VAT authorities will consider a request to use VAT return periods that correspond with a taxable person’s financial year. In addition, a taxable person whose accounting dates are not based on calendar months may request permission to adopt nonstandard tax periods.

Taxable persons that receive regular repayments of VAT may request permission to submit monthly returns to improve cash flow.

VAT returns must generally be submitted by the last day of the month following the end of the return period. However, in most cases, taxable persons that submit their VAT returns electroni cally have an additional seven calendar days after the normal due date in which to file their returns and make payment. Businesses that use the annual accounting scheme or are required to make payments on account do not qualify for this seven-day extension.

Periodic payments. Payment must generally be made by the last day of the month following the end of the return period. However, in most cases, taxable persons that submit their VAT returns electronically have an additional seven calendar days after the normal due date in which to file their returns and make payment (businesses that use the annual accounting scheme or are required to make payments on account do not qualify for this seven-day extension and must make a number of payments throughout the period).

VAT returns must be completed in GBP but return liabilities may be paid in GBP or euros (EUR).

VAT Deferral New Payment Scheme. As a result of COVID-19, businesses were given an option to defer any VAT payments due between 20 March and 30 June 2020. Businesses who opted to defer payment did not have to notify HMRC.

Businesses that deferred VAT payments due between 20 March 2020 and 30 June 2020 were able to either pay in full by 31 March 2021; join the online VAT deferral new payment scheme by 21 June 2021 to spread payments of deferred VAT over smaller, interest-free installments; or contact HMRC to make an arrangement to pay by 30 June 2021.

Electronic filing. Electronic filing is mandatory in the UK for UK VAT-registered businesses with taxable turnover of GBP85,000 or more. Taxable persons are required to submit their VAT returns online (using the UK VAT authorities’ electronic VAT service) and pay any VAT due electroni cally under the MTD rules, which came into effect in 2019. From 1 April 2022, the MTD regime will also apply to any businesses that have taxable turnover under GBP85,000, with the exception of Government Information and National Health Trusts, which have been advised that MTD will not apply until April 2023 at the earliest. MTD requires that the nine-box VAT return is submitted using an application programming interface (API), i.e., MTD-compatible software (see the sub section on Digital tax administration below).VAT records may be archived electronically in any location, provided that the authenticity, integrity and legibility of the content of source docu ments (invoice data) is protected and any records can be produced in a readable form (within a reasonable period of time) upon request by the UK VAT authorities.

Payments on account. Taxable persons that have an annual VAT liability of greater than GBP2.3 million must make payments on account, which are interim payments made at the end of the second and third months of each VAT quarter. The VAT return is due at the normal time together with a balancing payment for the period. The level of the payments on account is generally cal culated as 1/24th of the taxable person’s VAT liability for the preceding 12 months. Electronic transfers must be used for all payments on account.

Special schemes. Cash accounting. Businesses with an annual taxable turnover (excluding VAT) of less than GBP1.35 million are eligible to use the cash accounting scheme, which allows VAT to be accounted for on the basis of cash or other consideration paid and received. However, if their annual taxable turnover (excluding VAT) subsequently exceeds GBP1.6 million, they must stop using the scheme.

Annual accounting. Businesses with annual taxable turnover (excluding VAT) of less than GBP1.35 million may apply to complete an annual VAT return. Businesses that use annual accounting must make either three quarterly or nine monthly interim VAT payments. Any balancing payment must be made with the annual return. The annual return is due on the last day of the second month following the end of the taxable person’s annual VAT accounting period. However, if their annual taxable turnover (excluding VAT) subsequently exceeds GBP1.6 million, they must stop using the scheme.

Special accounting. A special accounting scheme (known as the Flat Rate Scheme (FRS)) exists for small businesses with VAT-exclusive annual taxable turnover of up to GBP150,000. The busi ness must also not be eligible to be registered for VAT in the name of a group, registered for VAT in the name of a division or associated with another person. Under the FRS, eligible businesses calculate the amount of VAT due based on a fixed percentage of their total (VAT-inclusive) turn over. The percentages range from 4% to 16.5%, depending on the trade sector of the business. A business ceases to be eligible for the FRS if their annual taxable turnover (including VAT) exceeds GBP230,000 in the period of 12 months ending with the anniversary of their certification for the AFRS or is expected to in the next 12 months; or total income in the next 30 days alone is expected to be more than GBP230,000 (including VAT) at the end of a month; as well

as if the person becomes eligible to be registered for VAT in the name of a group, registered for VAT in the name of a division or associated with another person.

Retailers. A retail business with an annual VAT-exclusive turnover over GBP130 million must agree a bespoke scheme with HMRC. For other retail businesses there are five standard retail schemes available to choose from, provided conditions are met and HMRC has not disallowed its use:

• Point of Sale scheme – VAT due is calculated by identifying the correct VAT liability of sup plies at the time of sale, e.g., by using electronic tills

• Apportionment Scheme 1 – designed for small retail businesses with an annual VAT-exclusive turnover not exceeding GBP1 million. Each VAT period, the retailer must work out the value of purchases for resale at different rates of VAT and apply the proportions of those purchase values to sales

• Apportionment Scheme 2 – a retailer must calculate the expected selling prices of standardrated and reduced-rate goods received for retail sale. The retailer must then work out the ratio of these to the expected selling prices of all goods received for retail sale and apply this ratio to takings

• Direct Calculation Scheme 1 – for retailers with an annual VAT-exclusive turnover not exceed ing GBP1 million. To work the scheme, a retailer must calculate expected selling prices (ESPs) of goods for retail sale at one or more rates of VAT so that the proportion of takings on which VAT is due can be calculated

• Direct Calculation Scheme 2. This scheme works in exactly the same way as Direct Calculation Scheme 1 but requires an annual stock-take adjustment

Secondhand goods. To avoid double taxation on goods that have previously borne VAT when sold as new, a business can opt to charge VAT on the profit margin on supplies of works of art, antiques or collectors’ items; motor vehicles; secondhand goods; and goods through a person who acts as an agent, but in their own name, in relation to the supply.

The UK also offers a Global Accounting Scheme in the UK under which VAT is accounted for on the difference between the total purchases and sales of eligible goods in each VAT period rather than on an item-by-item basis.

Tour operators. The Tour Operators’ Margin Scheme (TOMS) is a special scheme for businesses that buy in and resell travel, accommodation and certain other services as principals or undis closed agents (i.e., that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every EU Member State in which the services and goods are enjoyed. The rules are complex.

From 11:00 p.m. 31 December 2020, the UK introduced a UK version of TOMS that applies in a similar way to EU TOMS, except the scope of the zero rate has been extended so the margin on all travel services enjoyed outside the UK will be zero-rated. This puts travel services enjoyed in EU Member States in the same position as travel services enjoyed in the rest of the world.

Other schemes. There are also special schemes for gold traders and farmers.

Annual returns. Annual returns are not required in the UK.

Supplementary filings. Intrastat. After the end of the Brexit transition period, i.e., from 31 December 2020 at 11:00 p.m. UK time, Intrastat declarations for goods exported from GB to the EU will no longer be required.

It is expected that the Intrastat exemption thresholds to apply for NI (subject to Parliamentary approval) from 1 January 2022 will be:

• GBP500,000 for arrivals (NI imports from EU)

• GBP250,000 for dispatches (NI exports to EU)

At the time of preparing this chapter, the thresholds have not yet been finalized.

An NI taxable person whose intra-Community trade in goods exceeds GBP24 million (for either Arrivals or Dispatches) must also provide additional information concerning the terms of deliv ery.

Intrastat declarations must be submitted electronically on a monthly basis and be filed in GBP. The deadline for the submission of Intrastat declarations is the 21st day of the month following the end of the reference period (normally a calendar month) to which they relate.

EU Sales Lists. After 11:00 p.m. UK time 31 December 2020, only VAT-registered businesses in the UK supplying goods from NI to VAT-registered customers in an EU Member State, must complete an EC Sales List to show:

• Details of EU customers

• The GBP value of the supplies made to them

• The customer’s country code

The ESL reporting period for intra-Community supplies of goods is a calendar month for sup plies over GBP35,000 (excluding VAT) per quarter.

The following are the deadlines for submitting ESLs to the UK VAT authorities, for all frequen cies of submission with respect to both goods and services:

• For paper ESLs: 14 days from the end of the reporting period

• For electronic ESL submissions: 21 days from the end of the reporting period

Businesses only making low-level supplies of goods from NI to VAT-registered customers in an EU country may not need to fill in the full EC Sales List. Businesses can contact HMRC to ask if to send in a simplified annual EC Sales List, if:

• The value of total taxable turnover in a year is not more than the VAT registration threshold, plus GBP25,500

• Supplies of goods from NI to VAT-registered customers in EU countries are not more than GBP11,000 a year

• Sales do not include new means of transport

Movements of call-off stock cannot be reported on a simplified annual EC sales list.

Correcting errors in previous returns. VAT errors can be adjusted on the next VAT return if the net value of the error on the VAT return for the period of discovery is GBP10,000 or less; or the error is up to 1% of the box 6 (net sales) figure (subject to a maximum of GBP50,000).

Taxable persons must separately disclose errors in writing to HMRC (i.e., they cannot be adjusted on the next VAT return) if they are above the reporting threshold (see above); or an error has been made deliberately.

To make a separate error correction in writing, form VAT652 must be completed and sent to the VAT Error Correction Team. Taxable persons must keep details about the inaccuracy, for exam ple, the date it was discovered, how it happened, the amount of VAT involved and the value of the inaccuracy.

Penalties and interest may be due if an error is due to careless or dishonest behavior (see Section J, Penalties below for further details).

Digital tax administration. Making Tax Digital for VAT. HMRC’s Making Tax Digital (MTD) program applies to VAT and other taxes. It came into effect for VAT from 1 April 2019 for busi nesses registered for VAT in the UK, with a taxable turnover above the VAT registration threshold limit (currently GBP85,000 ). From 1 April 2022, the regime is being extended to businesses with taxable turnover below the VAT registration threshold, with the exception of Government

Information and National Health Trusts (GIANT) users, who have until 1 April 2023 at the earli est before MTD becomes mandatory.

Businesses that fall within the MTD rules have to keep their records digitally (for VAT purposes only), evidence a digital journey from source systems through to submission of the VAT return and submit the VAT return to HMRC using MTD-compatible software. Businesses are required to have digital links between software programs in place from the first VAT return period starting on or after 1 April 2021.

J. Penalties

Penalties for late registration. A penalty is assessed for late VAT registration. This penalty is calculated as a percentage of the VAT due (output tax less input tax) for the “relevant period.” The “relevant period” begins on the date on which the business is required to be registered and ends on the date on which the UK VAT authorities became fully aware of this liability.

The penalty rate that applies may range from 30% (in most cases) to 100% (with respect to deliberate and concealed acts) of the VAT due. However, measures exist for the reduction of such penalties if the business voluntarily discloses the failure to register to the UK VAT authorities. The degree of mitigation of the penalties depends on the “quality” of the disclosure. No penalty arises where there is a “reasonable excuse” for the late registration.

Penalties for late payment and filings. If a VAT return or payment is late, the taxable person is in default and is issued a Surcharge Liability Notice. The notice specifies a period of 12 months from the last day of the VAT period under default, which is known as the “surcharge period.” Any further default within this period may trigger a penalty and extend the surcharge period. The penalty is calculated as a percentage of the “outstanding VAT.” A business has “outstanding VAT” for a period if some or all of the VAT due for that period remains unpaid as of the normal due date.

The following percentage penalty rates apply:

• For the first default in the surcharge period: a penalty of 2% of the outstanding VAT

• For the second default in the surcharge period: a penalty of 5% of the outstanding VAT

• For the third default in the surcharge period: a penalty of 10% of the outstanding VAT

• For the fourth and any subsequent defaults in the surcharge period: a penalty of 15% of the outstanding VAT (for each further default)

The UK VAT authorities do not impose a penalty at the 2% or 5% rates for an amount of less than GBP400. For the 10% and 15% rates, the minimum penalty is GBP30.

If a nil or repayment VAT return is submitted late or payment is made on time, but the return is submitted late, no penalty is imposed. However, a default is recorded and the surcharge period is extended.

There will be no default or liability to a penalty where a business has a “reasonable excuse” for failing to submit a VAT return or make payment of VAT on time.

The above rules are in effect until 31 March 2022. A new points-based penalty regime was expected to come into effect for VAT periods starting on or after 1 April 2022. However, at the time of preparing this chapter, the effective date has now been delayed by nine months until January 2023. The new regime will replace the existing default surcharge and interest regimes where VAT returns and/or payments are made late.

For late filing penalties on or after 1 April 2022. If a VAT return is submitted late, a point is incurred. The taxable person will be notified of its points by HMRC. A fixed financial penalty of GBP200 is incurred after the relevant points threshold is reached. The level of threshold points depends on the taxable person’s VAT return submission frequency: annual return submission is

two points; quarterly return submission is four points; and monthly return submission is five points.

Individual penalty points accrued will expire after 24 months, provided the taxable person remains above the relevant points threshold. After the relevant points threshold has been reached, all points will expire after the person has complied with their VAT return filing obligations for specified periods of time: annual VAT returns are 24 months; quarterly VAT returns are 12 months; and monthly VAT returns are 6 months.

If the taxable person continues to fail to submit VAT returns by the due date after the points threshold is reached and a penalty has been issued, a further fixed penalty will apply for each additional missed VAT return deadline, unless a reasonable excuse applies, in which case points and penalties can be appealed.

Late payment penalties on or after 1 April 2022. The new regime aims to introduce proportionate penalties according to how much and how late the payment is. To avoid a penalty, a taxable per son must either pay the VAT due or agree a time to pay arrangement (TTP).

No penalty will be chargeable on tax paid up to 15 days after the due date, a 2% penalty will be chargeable on tax paid between 16 and 30 days after the due date, which increases to 4% penalty chargeable on tax unpaid after 30 days, with a further 4% annualized penalty rate chargeable on outstanding VAT due from day 31.

Interest on or after 1 April 2022. From April 2022, the VAT interest rules will also change. When an amount of VAT is not paid by the due date, late payment interest will be charged to the taxable person from the date that payment was due up until the date the payment is received by HMRC. Late payment interest will apply to VAT returns, VAT amendments, assessments and payments on account.

Intrastat and ESL penalties. Penalties may be imposed if a taxable person’s Intrastat declarations (NI only) are persistently late, missing or inaccurate. The penalty regime is a criminal one and could result in proceedings in a magistrate’s court. This could lead to a maximum fine of GBP2,500 being imposed for each offense. There could be the opportunity to “compound” any proceedings that involve the offer of an administrative fine in lieu of any court proceedings.

Penalties may be assessed for the late submission of ESLs (NI only) and for material inaccuracies in ESLs. If an ESL is late, HMRC may serve a notice confirming that there is a default but will usually take no further action will be taken if the default is remedied within 14 days of the notice. The notice may also state that the person will become liable, without further notice, to penalties if any more defaults are committed before a period of 12 months has elapsed without there being a default. Where such a notice is served, the person will become liable to a penalty of the greater of GBP50 or GBP5 for each day the default continues after the 14-day period (up to a maximum of 100 days). In respect of any other ESL in relation to which there is a default, the last day for submission of which is after the service and before the expiry of the notice, a penalty of the greater of GBP50 or, GBP5, GBP10 or GBP15 for each day the default continues up to a maximum of 100 days. The daily fine is GBP5, GBP10 or GBP15 depending upon whether the ESL in question is the first, second or third or subsequent ESL.

Where a person has submitted an ESL containing a “material inaccuracy” and within six months of discovering that inaccuracy, HMRC has issued a written warning identifying the statement and stating that future inaccuracies might result in the service of a notice under these provisions, subsequent material inaccuracies could lead to a penalty of GBP100.

Penalties for errors. If a business makes an error on a VAT return despite taking “reasonable care,” it should not be liable to a penalty. Otherwise, the penalty rate depends on the behavior giving rise to the error (rather than the size of the error) and may range from 30% (for “careless”

errors) to 100% (for “deliberate and concealed” acts) of the VAT due. However, provisions exist for the reduction of such penalties if the business makes an unprompted (voluntary) disclosure to the UK VAT authorities. The degree of mitigation also depends on the “quality” of the disclosure.

For the failure to notify or late notification of changes to a taxable person’s VAT registration details, a range of potential penalties may apply. The amount would depend on the nature of any regulatory breach and the business’s compliance history.

Company officers may have to pay some or all of the company’s penalty if the penalty is due to their actions and one or more of the following applies:

• They have gained, or attempted to gain, personally from a deliberate inaccuracy

• The company is or considered to be about to become insolvent – even if the officer did not gain personally from the deliberate inaccuracy

If the company pays the penalty, HMRC will not ask the individual officers to pay. A company officer is a director, shadow director, company secretary or manager of a company, or a member of a limited liability partnership.

For further details, see the subsection above, Changes to VAT registration details.

Penalties for fraud. A penalty for participating in VAT fraud will be applied to businesses and company officers who “knew or should have known” that their transactions were connected with VAT fraud. The penalty is a fixed rate penalty of 30%.

Disclosure of tax avoidance schemes. Scheme promoters are primarily responsible for disclosing indirect tax avoidance schemes to HMRC. The scope of the current regime includes all indirect taxes and moves the responsibility for disclosing VAT avoidance schemes to HMRC from scheme users to scheme promoters. The measure affects those who promote schemes.

In addition to these rules, the corporate criminal offense of failing to prevent the facilitation of tax evasion, concerns when an “associate person,” such as an employee, agent, contractor or subsidiary, facilitates the evasion of tax of a third party while acting on behalf of the business. The intention of the legislation is to attribute criminal liability to businesses for the criminal acts of employees, agents or those that provide services for or on their behalf.

If that business (defined as “relevant body”) cannot evidence that it had reasonable preventative procedures in place to prevent the facilitation of tax evasion by persons acting on its behalf, then it could be subject to a corporate criminal conviction and an unlimited fine. While this is UK legislation, the impact is far reaching and could result in overseas businesses being prosecuted because the definition of a relevant body is “a body corporate or partnership (wherever incorpo rated or formed).”

Personal liability for company officers. If a company officer is nominated as a senior accounting officer (SAO) under the SAO regime (which covers VAT, as well as a number of other taxes), the SAO can be held personally liable for a penalty of up to GBP5,000 for failure to provide a certificate or providing a certificate that contains a careless or deliberate inaccuracy, if the SAO does not have a reasonable excuse. The SAO is responsible for taking reasonable steps to ensure that the company and each of its subsidiaries establishes and maintains appropriate tax account ing arrangements, takes reasonable steps to monitor these accounting arrangements and to identify any respects in which the arrangements are not appropriate.

In addition, in certain cases of tax evasion, if it appears to HMRC that conduct, in whole or part, is attributable to the dishonesty of a person who is (or at the material time was) a director or “managing officer” (the named officer) of the body corporate, HMRC may serve a notice on the named officer proposing to recover all or part of the penalty from them. The portion specified is

then assessable and recoverable as if the named officer were personally liable to that part of the penalty. The body corporate is then only assessed on the balance, if any, and is discharged from liability on the amount assessed on the named officer.

Statute of limitations. The statute of limitations in the UK is four years. The time limit for tax authorities and taxable persons in respect of careless errors or errors made despite taking reasonable care is:

• Four years from the end of the prescribed accounting period in which the error occurred in respect of underdeclared and overdeclared output tax and overclaimed input tax

• Four years from the due date of the return for the prescribed accounting period in which the error occurred in respect of underclaimed input tax

In cases of deliberate inaccuracies, the time limit is 20 years.