April 2013

The fairly new VAT penalty regime based on behavioural tests appears to be causing much confusion amongst HMRC officers.  We have become aware over the past couple of months of a significant rise in the number of penalties being imposed by HMRC where it is at best questionable that the error a) was an error in the first place b) was ‘disclosed’ by HMRC (prompted) and c) was careless.   We are seeing this trend across all sectors and sizes of business, with penalties being imposed on those where there is a CRM large business relationship in place as well as on smaller businesses with no regular HMRC contact.

Perhaps more worryingly is the move towards imposing penalties where a refund claim has been filed and there is later an adjustment to the figures following discussions between both parties, even though no repayment of tax has actually been made.   This begs the question as to whether businesses will think twice before filing complex refund claims where historically a collaborative approach would have taken place to agreeing the final value.  This would clearly be unjust.

If you have been subjected to such a VAT penalty and you feel HMRC’s decision was not fair and reasonable, we would be happy to talk through the fact pattern with you.

You can call Julie Park on 01962 735350.

A number of the major established e-tailers now offer SMEs easy access to the global marketplace via their websites, which is great news for these smaller businesses, but it brings with it a great deal of complexity and overseas VAT obligations.

We have seen a significant increase in overseas tax authorities pursuing UK SMEs for local VAT on the basis they have been making B2C sales into their country in excess of the VAT distance selling threshold (Euros 100k or 35k per annum depending on the country).

Under the distance selling rules, B2C sales of goods from the UK to EU private individuals are taxed at the UK VAT rate until the threshold overseas is breached, at which point overseas VAT is due on the sales instead of UK VAT.  We are seeing a sharp increase in the number of cases where the SME has been contacted by an overseas tax authority seeking VAT on revenues and imposing significant penalties for non compliance.  The tax authorities review websites regularly to identify overseas vendors.

Historically an overseas tax authority would struggle to force a non resident business to comply with its local rules.  However in the past year we have seen wide use being made of the EU’s ‘mutual assistance’ provisions, which allow overseas tax authorities to seek the assistance of eg HMRC to collect VAT due on their behalf.    The business faces the prospect of owing additional VAT overseas – this can have an adverse impact on profits if the overseas rate is higher than the UK rate.

If you would like to better understand your VAT registration obligations overseas under the distance selling rules give us a call.  We also offer a low cost VAT registration and VAT return completion service and can advise on areas such as pricing strategy to take account of varying VAT rates, website terms and conditions, and what your website needs to be able to do to recognise the customers’ location.

You can call Julie Park on 01962 735350.