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education and training vat treatment

VAT Treatment of Education, Training, Coaching, Counselling and Online Content

By Customs Duty news|VAT news, Uncategorized|VAT news

We are frequently asked to advise businesses on the VAT treatment of services involving education, training, coaching, counselling and online content.  Often our clients provide a combination of these services to both UK and overseas clients and to a mixture of B2B and B2C clients.  This can be a complex area of VAT as it is necessary to determine exactly what is being provided to whom – this is because there are a number of VAT rules that can apply, each potentially giving a different outcome when applied in terms of VAT treatment.   The position is made more complex with the addition of an overseas angle in the form of overseas customers or physical events taking place overseas.

During Covid many businesses providing educational or training type services face to face were forced to move their business online pretty much overnight, and this brought with it a change in the VAT rules applying to the activities.  Post pandemic many of these businesses have retained an online offering in addition to ramping up face to face offerings again.  Online offerings also mean that the business may have overseas clients for the first time.

In this article we will set out the VAT treatment applying to education, training and coaching services in addition to the provision of online content.   The rules set out are those applying in the UK and generally in the EU, although fine detail may vary within the various EU Member States.


B2B versus B2C

Before diving into the specific VAT rules applying to the type of service provided, you need to work out whether you have ‘business’ (B2B) or ‘private individual’ (B2C) clients:


Generally, where a customer can provide you with their VAT registration number, they are deemed to be in business provided the services are supplied for the purposes of their business rather than for private use.  Alternatively, if a customer cannot provide a VAT registration number, it is possible to accept alternative evidence of business status, for example, a certificate from a fiscal authority or other commercial document indicating the nature of the customer’s activities in their home country.  Where alternative evidence is relied upon, it is best practice to retain this evidence as part of your records to substantiate why UK VAT has not been charged on the supply – this can be a high risk area as education and training type services are frequently provided to organisations where the business status is not clear and the organisation falls into a grey area between the two categories.


Generally, B2C include supplies made to a:

  • Private individual;
  • Charity, government department or other body that has no business activities (eg it only has statutory/not for profit activities); or
  • Person (natural or legal) who receives a supply of services wholly for a private purpose.


VAT Treatment of Education, Training and Coaching

To determine the appropriate VAT treatment of the services you need to know:

  • The location of the trainer/teacher
  • The location of the ‘student’
  • Whether the session/event is live or recorded
  • Whether the session in physical or virtual


Live Online Sessions

Education and training courses or webinars where the session is delivered live by a teacher over the internet or an electronic network are subject to the ‘general VAT rule’ for services, meaning the following applies:

  • B2B services are subject to VAT where the business customer is located (so if they are in the same country as the business supplying the services eg UK, the supplier charges UK VAT. If they are overseas, the customer would typically self assess reverse charge VAT and the supplier does not charge UK VAT;
  • In the UK and EU, B2C services are subject to VAT where the supplier is established so they charge local VAT regardless of where the customer is located.


Pre-recorded Online Sessions

An online course consisting of pre-recorded videos and downloadable PDFs falls under the definition of a ‘digital service’.  Webinars that are not live, for example webinars that can be downloaded and delivered electronically with no human interaction, also fall within the definition of a digital service.  A key aspect of a digital service for VAT purposes is that it can be accessed without human interaction, for example where you click a link, and the content is automatically downloaded etc.

The VAT rules applying to digital services are slightly different to those above for ‘live’ events:

  • B2B services are subject to VAT where the business customer is located (so if they are in the same country as the business supplying the services eg UK, the supplier charged VAT. If they are overseas, they would typically self-assess reverse charge VAT and the supplier does not charge VAT;
  • B2C services are subject to VAT where the customer is located (usually the place of residence). However, this is overridden by the ‘use and enjoyment rules’ which mean e.g. if the supplier is in the UK and the customer is overseas, UK VAT is not charged unless the services are used and enjoyed in the UK (so if a session is downloaded and enjoyed when the customer is in the UK e.g. on holiday).  Crucially, where the services are provided to an overseas customer, the supplier may require an overseas VAT registration (see OSS rules below)

NB an online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor do not fall under the definition of a digital services and instead are taxed under the general VAT rule – the presence of the live tutor, available to answer questions etc changes the nature of the service, even if the live tutor would arguably be seen as being incidental to the overall online course content.


Physical Training Courses

Where a training session takes place face to face, it is a ‘general VAT rule’ service for B2B customers (so subject to VAT where the customer is established, with the supplier charging VAT if in the same country as the customer).  For B2C, the revenue is subject to VAT where the training is ‘performed’ so where it physically takes place.  The supplier may be required to register for VAT overseas in this case.


Live In-Person Events

Where a business runs events and charges delegates an entrance fee, VAT is due on this fee at the VAT rate applying where the event physically takes place.  This means an overseas VAT registration may be required in the country in question if the event takes place outside the supplier’s country.  The registration would also be used to declare VAT on other ad hoc charges subject to local VAT eg charges for gala dinners or specialist breakout sessions.  NB sponsorship would not be subject to overseas VAT but would be taxed where the business is established.  As above, if the event is run by a not for profit entity, VAT exemption may apply as set out below.


Coaching and Counselling Services

Where the sessions are aimed at improving working practices within a workplace or supporting an individual with a particular issue, rather than being an ‘off the shelf’ training session that is relatively generic in nature, they are regarded as being ‘advisory’ in nature and are therefore taxed as follows (regardless of whether face to face or online):

  • B2B – general VAT rule, so subject to VAT where the customer is established (with the supplier charging VAT if in the same country as the customer)
  • B2C – subject to VAT where the customer is resident (so no UK VAT if outside the UK)


VAT Exemption for Education

Certain educational services provided by an ‘eligible body’ are exempt from UK VAT, even if they would be subject to UK VAT based on the rules above (eg if supplier and customer are both in the UK).  However, to qualify as exempt the education services should either be provided by an eligible body (meaning they are a not-for-profit organisation eg a school, university etc), be provided by a self-employed teacher or coach, or fall under the English as a Foreign Language (“EFL”) provisions.    For the VAT exemption to apply, the subject being taught should be one ordinarily taught in a traditional educational setting (eg a school/college/university).  VAT exemption can also apply to large events/symposia run by eligible bodies if the content is geared towards educating/training the delegates.


UK VAT Treatment of Digital Publications

From May 2020, certain electronic publications are now eligible for the zero rate of VAT.  Examples include e-books, e-magazines, e-journals, and e-periodicals.  However, HMRC guidance stipulates that where more than half of an e-publication is devoted to advertising, audio or video content, it  will be standard rated for VAT purposes.  HMRC give the example of an auction house selling e-brochures containing information about lots in a forthcoming auction, stating that since the e-brochure is predominantly advertising, its sale is standard rated.  NB this VAT rate does not apply to online content databases generally, eg a subscription to an online resource with search functions where the information is not also available in hard copy printed format.


Single versus Multiple Supply

Where customers are provided with more than one service for the price they pay/a subscription, it is necessary to determine whether there is i) a ‘single supply’ with ancillary elements, or ii) a mixed supply where each element is of equal importance.   This is a fundamental test relevant in many areas of VAT and it is frequently seen with businesses providing online/live training events with the session being available online afterwards, so that customers can refer back to the content afterwards or so that anyone missing the live session can review the online copy.  In such a case, it is likely that this would be regarded as a ‘single supply’ of a live event (so subject to the general VAT rule as above), with an ancillary element (online pre-recorded content) which is a ‘digital service’.  This ancillary element effectively loses its own identity for VAT purposes and takes on that of the primary service, in this case the ‘live’ event.

If however there were options for the customer whereby they could for example simply subscribe for the online content, without being able to attend the live sessions, the revenue for this would be digital services revenue, taxed as set out above.


B2C Digital Services – Overseas VAT Registration Requirements

OSS Simplification

As set out above, if a business has B2C digital services revenue, it may be required to register for VAT overseas.  If the business supplies digital services to B2C customers in the EU they will be required to VAT register under the One Stop Shop ‘OSS’ system to account for VAT at the VAT rate applying in the country of the EU customer, eg 25% for Denmark etc.  OSS VAT returns are filed quarterly, and a single payment is made to the tax authority of the country owning the OSS VAT registration.  This EU country then passes on the VAT amounts to the relevant country.  Other non-EU countries have similar rules.  The VAT Consultancy can assist you by helping determine whether you need a VAT registration in a non-EU country.


OSS – Impact on Pricing

As the OSS scheme requires you to account for VAT at the rate applying in your B2C customer’s country, depending on how your B2C website for content would show pricing (it is commonplace to have a single VAT inclusive price), you may want to consider the impact of the varying VAT rates within the EU on the price that is shown initially to the customer.  The VAT rates vary between 17% and 27% in the EU Member States.  If you add the VAT amount at website checkout, this could deter consumers from proceeding with the purchase.  If you show VAT inclusive pricing, you will need to consider which rate you use to arrive at the value – e.g. the average rate, the rate at which where you expect to generate most sales, the highest rate to maximise profits etc.    There is no requirement to provide a VAT invoice to customers who are consumers.



The VAT treatment of education, training, coaching, counselling and online content services is complex, so care must be taken to determine the appropriate VAT treatment of the activities, particularly where there are overseas attendees.  The following table summarises the above:

Service B2B Customer B2C Customer
Face to Face Training Session General VAT rule (where customer belongs) Where performed
Face to Face Event delegate entrance fee Where event takes place Where event takes place
Online Live Training General VAT rule (where customer belongs) General VAT rule (where supplier is established)
Pre-recorded webinar/training General VAT rule (where customer belongs) subject to use and enjoyment rule Electronic Services rules – where customer is resident but subject to use and enjoyment rule
Coaching/Counselling (face to face or online) General VAT rule (where customer belongs) Where customer is resident

If you are interested in talking to us about your Education or Training business please click the contact us button.

Get in contact

Ready to unlock the full potential of your education or training business? At The VAT Consultancy, we specialise in providing expert guidance and tailored solutions to optimise VAT efficiency and compliance.

Whether you’re an education or training business, your into coaching or counselling, our team of VAT experts is here to assist you every step of the way.  At the VAT Consultancy we have the knowledge and experience to meet your needs.

Don’t let VAT regulations hinder your property investment goals. Contact us today to learn how our consultancy services can help you unlock savings, mitigate risks, and achieve your financial objectives.

Click to email or call us on +44 203 2806902

Option to tax maximising OTT

Option to Tax: Maximising VAT Efficiency in the Commercial Property Sector

By Customs Duty news|VAT news, Uncategorized|VAT news, VAT news

When it comes to Value Added Tax (VAT) management, businesses often encounter complex regulations and mechanisms that impact their financial operations. One such crucial aspect is the Option to Tax (OTT), which offers businesses opportunities to optimise VAT recovery in many cases in relation to non-residential property transactions. At The VAT Consultancy, we recognise the importance of understanding and effectively navigating OTT regulations to maximise VAT efficiency for our clients but also to ensure the many pitfalls in this area are understood so that VAT does not form an unnecessary cost.   In this article, we will delve deep into the intricacies of the OTT, providing invaluable insights and strategies to help businesses navigate the complexities in this area.

What is the Option to Tax (OTT)?

The Option to Tax (OTT) (also known as an ‘election to waive exemption’) is a fundamental provision within VAT legislation that allows businesses to elect to charge VAT on the sale or rental of non-residential property provided certain exceptions don’t apply. By exercising this option, businesses can transform what would otherwise be a VAT-exempt transaction into a taxable one, thereby enhancing their ability to recover VAT on associated costs. This strategic move opens up new avenues for VAT recovery, enabling businesses to optimise their financial resources and bolster their bottom line.  There are various considerations however which are set out below.

Example of the Option to Tax (OTT) with a £1 Million Property Valuation

Let’s consider a scenario where a property developer acquires a non-residential property valued at £1 million with the intention of renting it out to generate income. Upon acquisition, assuming the vendor has also opted to tax the building, the Developer is automatically charged standard rate VAT on the purchase price, which amounts to £200,000 (assuming a standard VAT rate of 20%).

If The Developer decides to rent out the property without exercising the Option to Tax (OTT), the rental income would be exempt from VAT. Consequently, The Developer would not be able to reclaim the £200,000 VAT incurred on the property purchase.

However, by opting to tax the property, The Developer can change the VAT treatment of the rental income from exempt to taxable. Let’s explore how this decision impacts VAT recovery and overall financial outcomes:

  1. Opting to Tax (OTT):
    • The Developer decides to exercise the Option to Tax (OTT) on the property.
    • He rents out the property to a commercial tenant for £100,000 per year, plus VAT at the standard rate of 20%.
    • With the OTT in place, The Developer can reclaim the £200,000 VAT incurred on the property purchase as input tax, subject to normal VAT rules.
    • Therefore, The Developer’s VAT position improves, as he can recover VAT on associated costs, including professional fees, maintenance expenses, and future capital investments related to the property.

If the Developer does not opt to tax the property, he is unable to reclaim the VAT he has paid on the purchase of the building so this forms a cost.  It is worth noting however that SDLT is payable on the VAT inclusive value of a property so this will increase if the option to tax has been exercised.


Duration and Implications of OTT

Once a business elects to opt for OTT, the regulations remain in effect for a significant period, typically spanning 20 years. During this period, the business gains the flexibility to charge VAT on relevant transactions, thus maximising VAT recovery opportunities. However, it’s essential to recognise that revoking the OTT option requires careful consideration and adherence to specific conditions. Failure to navigate this process accurately can have far-reaching implications, underscoring the critical importance of seeking specialist VAT advice to ensure VAT compliance and mitigate risks effectively.


The Decision-Making Process

Determining whether to opt for OTT entails a comprehensive evaluation of various factors, tailored to the unique circumstances of each business. At The VAT Consultancy, our team of experts assists businesses in navigating this decision-making process, taking into account factors such as the nature of the property, VAT incurred on costs, potential tenant or purchaser VAT recovery, and implications under the Capital Goods Scheme. By conducting a thorough analysis and providing strategic guidance, we empower businesses to make informed decisions that align with their VAT objectives and financial goals.


Notification and Application Process

Once a decision has been made to opt to tax land/buildings, it is important the correct protocols are followed in determining whether there is a need to simply ‘notify’ HMRC that the business has opted to tax its interest in the building, due to the fact automatic permission is granted due to the fact pattern present (eg no previous exempt income received in relation to the property), or whether it must instead ‘apply’ to opt to tax (in which case HMRC will consider factors relating to income and costs incurred to date in relation to the land/property).  Property transactions can be de-railed and the eleventh hour if the relevant notifications and evidence relating to VAT and the OTT are not available to the solicitors working on the transaction.  It is therefore recommended that this area is considered way in advance of the final stages.


Disapplication of Option to Tax

Complexity can arise when a property that has been opted to tax is sold or leased to a party that will use it for a specific purpose that results in the OTT being disapplied.  This includes the following and specialist VAT advice is recommended to ensure that the VAT cost impact is fully understood so that the sale/lease valuation can be properly determined:

  • Buildings to be converted to dwellings
  • Land to be used to construct a dwelling
  • Buildings to be used for certain charitable purposes
  • Buildings to be used for relevant residential purposes eg as a nursing home


HMRC Acknowledgement Process

Recent changes in HMRC’s acknowledgment process for OTT notifications have introduced additional complexities and considerations for businesses. While acknowledgment no longer serves as a legal requirement, it remains a valuable aspect of property transactions, providing assurance to businesses and stakeholders involved. Our team at The VAT Consultancy stays abreast of these changes and guides businesses through the acknowledgment process, ensuring compliance and minimising potential risks associated with VAT management.


The Importance of Expert Advice

Option to tax or OTT demands expertise and precision. At The VAT Consultancy, we recognise the critical importance of specialist VAT advice in achieving optimal VAT efficiency and compliance. Our comprehensive approach encompasses strategic planning and risk mitigation, ensuring that businesses navigate OTT regulations effectively and maximise VAT recovery opportunities. By partnering with us, businesses can benefit from our deep understanding of VAT regulations and our commitment to delivering tailored solutions that align with their unique needs and objectives.


Summing up OTT

In conclusion, the Option to Tax (OTT) represents a pivotal mechanism for businesses seeking to optimise VAT recovery in non-residential property transactions. At The VAT Consultancy, we are committed to empowering businesses with the knowledge and expertise needed to navigate OTT regulations effectively and maximise VAT efficiency. By leveraging our comprehensive guidance and strategic insights, businesses can navigate the complexities of OTT with confidence, safeguarding their financial interests and ensuring compliance with VAT regulations. Trust us to be your partner in VAT optimisation and compliance, driving sustainable growth and success in non-residential property transactions.


Get in contact

Ready to unlock the full potential of your domestic and commercial property transactions through strategic VAT management? At The VAT Consultancy, we specialise in providing expert guidance and tailored solutions to optimise VAT efficiency and compliance.

Whether you’re a property developer, investor, landlord, or tenant, our team of VAT experts is here to assist you every step of the way. From navigating the complexities of the Option to Tax (OTT) to maximising VAT recovery on property acquisitions, we have the knowledge and experience to meet your needs.

Don’t let VAT regulations hinder your property investment goals. Contact us today to learn how our consultancy services can help you unlock savings, mitigate risks, and achieve your financial objectives.

Click to email or call us on +44 203 2806902

vat training

Unlocking Success: The Indispensable Benefits of VAT Training for Businesses

By Customs Duty news|Featured|Uncategorized|VAT news, Customs Duty news|VAT news

Understanding the Complexity of VAT

VAT regulations can be intricate, with a myriad of rules, procedures, and controls that businesses need to navigate effectively to ensure the accurate and timely VAT treatment of transactions and filing of VAT returns. The complexities increase with the diversity of business activities, making it essential for employees to be equipped with the right skills and knowledge.  The transactional nature of VAT means it is not uncommon for staff outside the finance or tax team to be making VAT decisions, such as raising sales invoices, so it is important they are in a position to make the right decisions.


Tailored Training Solutions

One size does not fit all, especially when it comes to VAT and customs duty training. Generic VAT training courses are available, covering a range of issues, from giving a basic understanding of how VAT works and affects businesses, to more specific areas of VAT.  However, generic VAT training courses may not address the specific needs and challenges the business faces. This is where bespoke VAT training comes into play.  Companies like ‘The VAT Consultancy‘ offer customised workshops, tailoring sessions to the unique requirements and activities of the client.  This personalised approach allows for a more comprehensive understanding of the business’s VAT landscape.  Using specific commercial scenarios from the business means the technical VAT training is brought to life and is more readily understood.


Cost-Effectiveness of Bespoke Training

Investing in tailored VAT training is usually a cost-effective solution as you can invite as many people as you wish from the business and therefore don’t have multiple individual course fees to fund.  Off-the-shelf standard VAT training courses might not cover all the nuances of a particular business so attendees can leave the session still having a number of questions about the impact of VAT on their specific area of the business.  Bespoke training ensures that employees receive targeted education, potentially helping reduce VAT risk.  In our experience they are also more likely to ask questions throughout, aiding understanding.


Pre-Course Planning and Preparation

Before developing the training sessions, a planning call with the training provider helps establish the goals of the training, the level of VAT knowledge among attendees, and the specific areas to focus on. This preparation ensures that the training material, typically in the form of detailed PowerPoint slides, aligns with the unique needs of the business.   Crucially, the training should include real documents, such as invoices or import entries, to bring technical training to life, making the learning experience more practical and relevant.


Interactive Learning Environment

One of the key benefits of VAT training is the creation of an interactive learning environment. The VAT Consultancy actively encourages questions, comments, and real-life examples from delegates throughout the session. This not only enhances the effectiveness of the training but also increases the likelihood of delegates retaining the information. Interactive sessions make the learning experience more engaging and relevant to the day-to-day operations of the business.  Having a tailored session for the business rather than having staff attend generic training sessions with other businesses means they are more likely to raise questions and understand the logic of what they are being told rather than simply listening in a more passive way.  This means the business gets much more out of the investment in training.


Flexible Training Delivery

Modern businesses operate in dynamic environments, and flexibility with VAT training delivery is crucial. The VAT Consultancy, for instance, offers both on-site and remote training options (or a combination of the two). With the availability of remote sessions, businesses can ensure that their employees receive the necessary training regardless of their physical location. This adaptability is especially valuable in today’s global and decentralised business landscape and for teams operating a hybrid model of working post Covid.


Recent Training Courses

The variety of recent training courses conducted by The VAT Consultancy showcases the breadth of topics covered in VAT training. From ‘Customs Duty Essentials for Tax Teams’ to specific topics like ‘Accounts Payable and VAT Coding’, ‘Supply Chain VAT and Customs Duty’, ‘Tour Operators Margin Scheme (TOMS)’, and ‘VAT Accounting in the Travel Sector’, to the intricacies of ‘Property VAT’ training, businesses can tailor their training sessions to cover the areas most relevant to their operations.  We can also incorporate break out sessions into the training so that the session can be carved up to suit individual groups of attendees.  This means individual staff do not have to sit in on all elements of the session.


Benefits of VAT Training for Businesses

  1. Risk Mitigation:
  • VAT errors can lead to financial penalties and reputational damage. Training equips employees with the knowledge and skills to minimise errors, reducing the risk of inflated costs or accounting mistakes.  For larger businesses the tax authorities would expect staff making VAT decisions to be provided with appropriate support in the form of training to enable them to make accurate VAT decisions.
  1. Consistent Approach:
  • VAT processes often involve multiple employees across different areas of the business. Training ensures a consistent approach to VAT procedures, promoting uniformity across the organisation. This is crucial for SAO reporting processes, internal audits, and HMRC Business Risk Reviews.
  1. Evidence of Compliance:
  • VAT training can serve as tangible evidence that a business is taking reasonable care with its VAT responsibilities. In the event of errors, this evidence can work in the company’s favour, showcasing a commitment to compliance.
  1. Employee Confidence and Efficiency:
  • Well-trained employees are more confident in their roles, leading to increased efficiency. When employees understand VAT processes, they can carry out their responsibilities with assurance, reducing the likelihood of delays or mistakes.  This is particularly helpful for example in relation to the Accounts Payable team where a significant volume of VAT queries can arise in relation to the quality of invoices received from 3rd party suppliers.  Delays in resolving queries, either within the Accounts Payable team or as a result of them having to involve the finance/tax team to resolve, can result in delays with payments being made to suppliers.  The knock-on effect of this is an increase in queries from suppliers chasing payment, further impacting on resource.
  1. Adapting to Business Changes:
  • Businesses evolve, and so do their VAT requirements. VAT training ensures that employees are equipped to adapt to changes in business activities, acquisitions, or expansions, maintaining compliance and efficiency.
  1. On-Demand Access and Integration:
  • The availability of online, on-demand training modules allows businesses to integrate VAT training into their internal systems. Whether for onboarding new staff, annual training cycles, or addressing specific challenges, these modules provide flexibility and accessibility.


Summing up VAT Training

In conclusion, all VAT training can be beneficial to a business, but the approach taken by The VAT Consultancy offers more than a conventional training experience — our bespoke VAT and Customs Duty training combines the best of our technical knowledge and experience with your team’s specific commercial scenarios, meaning you have a training session that is truly relevant to your team.

This leaves your team with a clear understanding of the core processes that govern VAT determination. This isn’t just about meeting regulatory requirements; it’s about empowering your employees to navigate VAT processes with confidence, reducing the risk of errors and ensuring accuracy in VAT reporting.


Get in contact

Contact The VAT Consultancy today to start a consultation and explore our custom VAT training solutions. We specialise in delivering comprehensive training modules designed to enhance your team’s understanding of VAT processes.

Discover how our tailored VAT training can equip your employees with the knowledge and skills needed to navigate VAT regulations effectively.  Let The VAT Consultancy guide your team towards enhanced efficiency and compliance through our focused VAT training programmes.

Click to email or call us on +44 203 2806902


How to Prepare for an HMRC VAT Audit and What to Expect

By Customs Duty news|VAT news, VAT news

It is fair to say that having a VAT audit from HMRC for the first time can be a daunting prospect, so this article will walk you through what you can expect before and during the  VAT audit and offers an insight into how to best prepare so that the process is as painless as possible.

NB the article does not relate to VAT audits for large businesses that are part of HMRC’s Large Business programme as these businesses have a specific VAT audit framework in place for ongoing monitoring rather than ad hoc audits.


Types of VAT Audit

VAT audits in the UK can arise for a number of different reasons:

  • audits arising following the submission of a repayment VAT return which is of higher value than normal or the first VAT return submitted following registration showing a repayment. These are called ‘pre-creds’ (pre-repayment credibility checks);
  • standard VAT audits arising for a variety of reasons including the following:
    • the business has not been audited for a number of years;
    • it is complex from a VAT perspective in terms of the industry it operates in ;
    • due to the fact that HMRC are carrying out audits on specific types of business (eg following litigation on another business in the industry);
    • an HMRC officer auditing another business may identify an invoice from the business that looks odd and eg shows different VAT treatment to what they would expect. They can raise an internal reference to have another officer audit the business issuing the document in question

Generally speaking, having a VAT audit is not always a bad thing – they can serve us a reasonably effective VAT health check to give assurance that the business is accounting for VAT correctly.  However it is important to note that HMRC do not check all transactions or all VAT return periods and don’t give a ‘clean bill of health’ post audit.  In addition they are entitled to revisit any areas they have reviewed previously provided this is within the four year statute of limitations that applies for VAT.


Pre-Credit VAT Audits

In addition to being triggered for the reasons above, a pre-cred check can be triggered if a business normally making payments to HMRC submits a repayment return, for example if they have made a large purchase in the period in question.

These audits normally takes the form of desk audits carried out by an HMRC officer in the pre credit team.  They will make contact with the business and explain what they would like to review in order to carry out a desktop audit of the VAT return that has triggered the audit.  This will typically include the top 10 purchase invoices by value, a selection of sales invoices if applicable, and they will also want a description of the business activities.

If you are filing a repayment VAT return in the circumstances set out above, it is worthwhile making sure you hold valid VAT invoices in the business’ name in order to support the VAT recovery on the VAT return.  This is obviously a basic requirement for reclaiming VAT in any event but it is still advisable to review the documents in question before submitting an unusual that return so that you can be responsive to the request for the documentation by HMRC.  If your review reveals that there are errors on the invoices from third party suppliers, such as it being addressed to the incorrect or incomplete entity, you should contact the supplier to seek an amended invoice prior to the VAT audit taking place.

Providing the information requested promptly means that HMRC will be able to review the  return and supporting documentation and sign off on the repayment as soon as possible.  Delays mean that the repayment due to the business will be delayed.

HMRC have relatively quick processing targets for pre-cred queries and if they have been provided with all of the information requested and have still not made a repayment within 30 days, the business should be entitled to interest.


Standard VAT Audits

HMRC will typically contact the business to explain that they wish to carry out a standard VAT audit at some point in the future, usually giving a few weeks notice.  It is perfectly acceptable to ask HMRC to postpone the audit if there is a commercial reason for doing so, eg if the planned audit were to take place during year end or during a period of staff absence.  There is not likely to be an objection to this provided the audit is not postponed more than once or twice.

Some VAT audits now take place as desktop audits and a similar process to that outlined above for pre-cred audits could take place. However post Covid HMRC are now undertaking more VAT  audits on site.  The reason they prefer to carry out site audits where possible is because the site visit will involve an all important walk around the premises/offices to get a sense of whether what they are seeing matches with what they see on the VAT return. This is particularly important for businesses trading in goods and they would likely want to walk around the warehouse etc to see if the size and scale of the business matches VAT return values.

They may also wish to speak to staff during the audit but this can be managed appropriately, for example by agreeing with HMRC beforehand which staff they would like to speak to and arranging time slots for them to come to see HMRC in a meeting room if preferable.


Information Requested by HMRC

During the process of making the appointment for the audit HMRC will specify which VAT returns they wish to see. They are able to review VAT returns and related documents going back up to four years and you will need to make a variety of documents available to HMRC during the audit or afterwards.  This will include copies of VAT returns the associated sales and purchase ledgers, underlying purchase invoices from suppliers and copy sales invoices, as well as bank statements and annual accounts.  These documents enable HMRC to trace an audit trail from the source documentation through to the VAT return.  It is important that whoever is leading the VAT audit with HMRC is familiar with and understands the audit trail within the documentation and is able to explain this clearly to HMRC.  This facilitates the progress of the VAT audit and it likely means HMRC will have fewer queries as they work through the documentation, ultimately meaning they can carry out their checks more efficiently.  Therefore if you have had staff changes and the member of staff leading the audit was not involved in preparing the VAT return figures for the earlier periods ie four years ago, it is advisable that a review is carried out internally before hand so that they can familiarise themselves with the audit trail.


Pre Audit Checks

It is worthwhile carrying out a VAT health check before any HMRC audit or having an external VAT advisor do this so that you are aware of any issues.  At the beginning of the VAT audit HMRC may ask if there are any VAT errors the business wishes to disclose before they begin their checks.  It is advisable to notify them of any such errors and if you have evidence that you were already working on disclosing a particular error before they contacted the business to inform it there would be a VAT audit,  it is possible that this will not be treated as an error ‘prompted’ by HMRC.  This would reduce any penalties applying.  Otherwise if you discover errors after becoming aware HMRC would be carrying out an audit it is likely they would in the first instance regard these errors as being ‘prompted’ by them which means higher penalties may apply.  It is therefore down to the business to evidence why the error was not discovered as a result of knowing a VAT audit would take place.


What happens during the Audit

HMRC will typically start the audit by having a walk around the premises and once they have done this they will meet with whoever is leading the audit and have a discussion about the business activities.  This is an opportunity to make it clear to HMRC what the various revenue streams of the business are, the customer base and the types of purchases that are made.  This will give them an idea of the types of transaction they can expect to see on the VAT return.  It is then helpful to walk them through the audit trail in the documentation that has been requested.  They can then be left in a meeting room to work through the documentation on their own.  Audits last one day and at the end of the day HMRC will regroup with the business to give an overview of their findings

The business should be given an opportunity afterwards to provide any documentation that was not available or to find out the answer to any questions of which they are uncertain.  Once HMRC have concluded their checks they will usually confirm this in writing but will not provide a ‘clean bill of health’ as set out above.


What if HMRC find Errors?

If they do discover VAT errors, they will raise an assessment after the audit and this will need to be paid within 30 days unless the business disputes the findings, in which case an appeal can be made.  If the business has B2B customers and has ‘VAT exclusive’ contracts with them, any VAT errors assessed by HMRC can be invoiced to the business customers (from a legal perspective – clearly the commercial relationship needs to be considered here).  However if the business has inadvertently omitted to charge VAT to a customer a ‘VAT only’ invoice can be raised to recover the VAT amount from the customer.  They will be able to recover this VAT on their VAT return subject to their normal VAT recovery profile. If the business deals with B2C customers and has not charged sufficient VAT, this will form a bottom line cost for the business as it will need to meet the cost of the additional VAT due from profits.


How The VAT Consultancy can help before, during and after a VAT audit

Many of our VAT consultants worked as HMRC VAT auditors early in their VAT careers and therefore this experience, coupled with our regular dealings with HMRC in relation to VAT audits for our clients, means we are well placed to hold your hand before, during and after a VAT audit.  This may take the form of a pre audit VAT health check to ensure any key areas of concern are identified and discussed before the audit, we can attend the audit with you (although HMRC tend to be less keen on this).  However it may be a good idea if you do not have members of staff who were close to the VAT return process during the earlier period.  Post audit we can help you determine whether any VAT assessment that HMRC are proposing to raise sound ‘fair and reasonable’ and we can also help you determine what corrective action should be taken in relation to your clients and suppliers.


The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the pre and post VAT audit. We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today or call us on +44 203 2806902

ERP Systems and Tax Engines Managing VAT Compliance

ERP Systems and Tax Engines  – Managing VAT Compliance

By Customs Duty news|VAT news, Uncategorized, VAT news

Regardless of whether your business uses a relatively straightforward accounting systems such as Xero/QuickBooks, or a more sophisticated ERP system such as Oracle/SAP, there are some basic principles that apply to the management of VAT compliance and creating an effective VAT determination process to ensure that you are managing VAT risk appropriately.   The benefit of this is that the tax or finance team has confidence the correct amount of VAT is being paid at the correct time, and the compliance burden is reduced if the VAT compliance tools and systems are being used effectively.

There is an increasing array of VAT analytical tools and automation software to manage VAT compliance but these are only effective if the underlying master data is accurate and comprehensive.  For example the underlying sales and purchase transactions need to be coded correctly for VAT purposes with an appropriate tax code, and the customer master data should flag their VAT registration/business status to ensure the appropriate VAT rules can be applied.  If not, any analysis of the data using a VAT analytical tool is likely to miss key areas of risk or throw up so many exceptions that the VAT compliance burden may feel as though it is increasing rather than decreasing.

In this article we will take a look at best practice in relation to VAT compliance to enable the business to reduce the amount of time spent in preparing VAT returns but also increase the level of comfort achieved for the tax or finance team in relation to the accuracy of the data being reported to the tax authorities using ERP Systems and Tax Engines.


What are ERP Systems and Tax Engines?

Enterprise Resource Planning (ERP) systems and Tax Engines are critical components of modern business operations, each serving distinct but interconnected functions within a company’s infrastructure. The integration of ERP systems and Tax Engines is crucial for maintaining accurate financial records, optimising tax planning, and ensuring compliance. Let’s look at each one in more detail.

ERP Systems:

ERP systems are comprehensive software solutions designed to streamline and integrate business processes across various departments within an organisation. These systems provide a centralised platform for managing core functions such as finance, human resources, supply chain, manufacturing, sales, and customer relationship management.

Key features of ERP systems include:

Integration: ERP systems consolidate data from different departments into a single, unified database, facilitating seamless communication and collaboration across the organisation.

Automation: They automate routine tasks, reducing manual effort and minimising errors. This automation enhances efficiency and enables employees to focus on more strategic initiatives.

Data Analysis: ERP systems offer robust reporting and analytics capabilities, allowing businesses to gain insights into their operations, identify trends, and make informed decisions.

Scalability: ERP systems are scalable, meaning they can adapt to the evolving needs of businesses as they grow and expand into new markets or industries.

Tax Engines:

Tax Engines are specialised software solutions designed to manage and automate tax-related processes within an organisation. They ensure compliance with local, national, and international tax regulations while optimising tax strategies to minimise liabilities and maximise savings.

Key features of Tax Engines include:

Tax Calculation: Tax Engines accurately calculate taxes based on relevant regulations, including income tax, sales tax, value-added tax (VAT), and customs duties.

Compliance: They keep abreast of ever-changing tax laws and regulations, ensuring that businesses remain compliant with all applicable tax requirements.

Reporting: Tax Engines generate comprehensive reports and filings, simplifying the tax reporting process and providing visibility into tax liabilities and obligations.

Integration: Tax Engines seamlessly integrate with ERP systems and other financial software, enabling real-time data exchange and ensuring consistency across financial and tax-related processes.


Reconciled Numbers versus Accurate VAT Coding of Transactions

Preparing an accurate VAT return is not solely about whether the numbers add up and reconcile with the data in the wider financial systems – this can be a relatively easy achievement and in our experience, particularly in larger businesses, this part of the VAT compliance pipeline should ideally be completed by the finance team before the data is passed to the VAT team or whoever is responsible for reviewing and filing the return.  The route to having real certainty of the accuracy of VAT returns lies in ensuring the transactions are taxed correctly – there is little value for example in ensuring that the total value of zero rated sales being reported is accurate in terms of reconciled values, if the actual individual sales transactions do not qualify for zero rating.  This cannot be determined by a review of the values in isolation, and any robust VAT risk management framework should include a review of a sample of individual sales and purchase transactions to test accuracy.


Tax Codes

In our experience gained from being embedded within the tax and finance teams of large businesses, tax codes are the holy grail to making the life of the VAT/finance team easier in terms of VAT  compliance.  This is because they are a hugely effective mechanism to flag and categorise transactions into groups which describe the VAT treatment applied.  This sorting process facilitates the completion of the VAT return itself but more importantly enables a focused set of checks to be carried out on the transactions with each tax code on a VAT return.

The VAT Consultancy is often asked to advise on the optimum number of tax codes for a business.  This ultimately depends on the complexity of the purchase and sales transactions.  However as a minimum it is typically useful to have separate codes for purchases and sales.  In addition it is wise to have a range of codes that bear 0% VAT so that a distinction can be made between the following:

  • zero rated (separate code for goods and services if relevant to allow for specific checks to be made to each)
  • exempt
  • outside the scope (intra VAT group, on the high seas, salaries, tax)

Most accounting systems including the most straightforward ones have tax codes, and the key is to ensure that the description attached to each code is clear and readily understood by those using the codes outside of the VAT team.  Training should be provided in the use of the codes to reduce the risk that they are used incorrectly.  This applies regardless of whether a tax code is assigned automatically during the tax determination process, or manually when the default has to be overridden eg for a non-standard transaction with a customer/supplier.


Tax Rates

The system needs to have up to date tax rates for each jurisdiction and these should be locked down so that they cannot be manually amended for individual transactions and so that they cannot be amended without sign off by the tax team or a senior member of the finance team.


High Quality VAT Reports

It can be surprisingly difficult to obtain a high quality reports from the systems to assist the VAT team in producing an accurate VAT return.  This typically applies more often when the business has an ERP system in place as opposed to a more straightforward accounting system.   Where possible however the tax team would be well advised to work with the finance team to ensure it has a bespoke report that enables it to sort and filter data appropriately to prepare the VAT return as efficiently as possible whilst carrying out appropriate credibility checks.  A report showing the following data headings in addition to other fields should enable credibility checks to be carried out:

  • invoice date and tax point date (to ensure the transaction is reported in the correct period)
  • invoice number (to ID the transaction for a deeper review of the invoice)
  • customer and supplier full legal entity name including suffix eg GmbH, SA (this helps with high level sense checks on the VAT treatment)
  • customer and supplier country location (essential to test the correct VAT treatment)
  • customer and supplier VAT ID (the best indication of business status which impacts VAT treatment – for all customers, not just EU)
  • transaction value (net, VAT, total)
  • description of goods/services provided (to enable the correct Place of Supply VAT rule to be identified and checked)
  • tax code (to facilitate sorting for credibility checks)


Data Mining Tools

There are lots of data mining tools in the marketplace which aim to quickly identify transactions falling outside of programmed parameters with a view to identifying VAT errors.  These tools can be a very effective way of reviewing the accuracy of VAT returns provided they are used effectively and enable the team preparing the return to focus on the high risk transactions and high risk errors.  It is good practice when using such tools to monitor the amount of time taken to work through all of the exceptions generated and the resulting VAT adjustments that have been identified as a result.  Otherwise there is a risk that too much time is spent reviewing exceptions that do not materially alter the VAT or net sales values on the VAT return.  For example spending half a day reviewing variances in the net purchase value to re reported in box 7 of the UK VAT return does not add a significant amount of value compared to spending the same amount of time checking underlying source documents ie sales invoices or supplier invoices to test accuracy.

Follow up is also key here.  Exceptions leading to adjustments should be prioritised for remediation, otherwise the same issue will reappear next VAT return period. It is all too easy for busy finance and tax team members to de-prioritise this action but the short term pain in  resolving pays dividends.


Role of the VAT Team

The team responsible for reviewing and signing off the VAT return should focus on carrying out credibility checks on the data that has ideally been prepared by a separate finance team.  This is so that they can focus on determining whether the transactions have been taxed accurately as opposed to focusing on making sure that the data reconciles although clearly both are ultimately important.


VAT Credibility Checks

These should consist of a mix of generic VAT credibility checks that apply to all businesses and also a range that are specific to the VAT risk profile of the business in question.  In all cases the credibility checks should involve the reviewing of a sample of underlying source documents ie invoices, as even a small sample from the total typically generates queries and identifies errors if errors have been made.  It also provides an opportunity to reach into other areas of the business to check eg that proof of export evidence is available within the logistics team.  Such checks mimic the approach HMRC might take during a VAT audit.

One of the key points often overlooked in relation to VAT return review and the credibility checks is that there is no segregation in relation to the specific checks carried out by the various people in the VAT return review chain.  Assuming there is more than one person involved, this means that checks can be duplicated or not carried out at all.

Equally important is documenting the findings of the checks carried out to evidence that they have been carried out.  Documented evidence within the VAT return workbook helps evidence to the tax authority that checks have been carried out.  This can be helpful where an error has been made and HMRC are deliberating over whether to apply a ‘careless behaviour’ penalty.  Evidencing a robust control environment with appropriate credibility checks can assist in demonstrating ‘reasonable care’ with VAT risk management


Tax Engines and ERP Systems

Tax engines are bolt on software which runs alongside the ERP system.  It is fair to say they are  typically of most value in the US where the sales tax system is extremely complex and has multiple layers of different taxes and rates within the same state.  In a VAT jurisdiction this is less critical and ERP systems such as SAP and Oracle already automate the VAT calculation in the same way.   It is fair to say that the primary benefit of the actual tax engine itself lies in the fact that the provider of the tax engine will be responsible for updating the VAT rates rates if these change.  Therefore the risk of a rate change being missed diminishes.  Nowadays of course tax engines include lots of other VAT diagnostic tools which can be useful in helping manage VAT risk as outlined above.


Summing up Tax Engines and ERP Systems 

The monthly or quarterly completion of VAT returns can consume a significant amount of resource in the finance and tax team but the variety of automation tools available can ease this burden, provided the customer and supplier and other master data is in good shape before they are implemented.  The VAT Consultancy has a great deal of experience of working with businesses to streamline VAT processes and ensure that VAT risk is being effectively managed by the ERP or other VAT accounting system.


Get in contact

At The VAT Consultancy we support in the design, implementation and testing of ERP and accounting systems used to report VAT. Stripping away the complexity of the ERP system down to the core processes impacting VAT determination.

Contact us today to schedule a consultation and discover how we can tailor our expertise to suit the unique needs of your business. Let The VAT Consultancy be your ERP system partner, guiding you towards efficiency, compliance, and sustainable growth.

VAT and Selling Services Cross Border

VAT and Selling Services Cross Border – a Guide

By Customs Duty news|Featured|Uncategorized|VAT news, Customs Duty news|VAT news, VAT news

Selling services cross-border brings with it a number of complex VAT considerations for a business.   Understanding these complexities is critical as this enables you to ensure the business is paying the correct VAT in the correct location.  This means the business is compliant and reduces the risk of errors and penalties from the tax authorities as well as reducing the number of queries from B2B or B2C customers about the amount or type of VAT charged.  Being compliant is critical when due diligence is being carried out in the event of the business looking to sell or to seek additional funding – depending on the circumstances, an unidentified under-declaration of VAT overseas can derail this process.

Being VAT registered in the right place is important to the bottom line as it means the business is able to recover the VAT credits it is entitled to and so that it is able to declare VAT on sales where appropriate, regardless of whether the customers are businesses, not for profit organisations or consumers.

The VAT rules for sales to businesses and consumers differ and these are set out below.  The VAT rules in this article are based on UK and EU principles but are broadly relevant and give an overview of key risk areas further afield although local rules should be checked.


VAT Rules for Services – an Overview

The complexity with VAT and services in the first instance lies in two areas and these differ from the VAT rules for goods.

Place of Establishment

Whereas the VAT rules for sales of goods are based on the physical location of the goods when sold, the rules for services are essentially based on the location of the business when providing the services in question.   This may or may not be clear.  Where the business only has offices, staff, technology/equipment and management in a single country, the position is clear.  Where this level of resource is present in a number of countries, it is necessary to look to the establishment that is ‘most closely connected’ to the services being provided.   In the first instance this basically means determining where the staff and technology etc is located that enables the businesses to provide the services in question.   Establishments could be permanent or fixed establishments and for VAT purposes, either is capable of being an establishment for VAT purposes meaning the business effectively has a ‘footprint’ in a particular country, creating a potential need to VAT register.  Hiring staff from an agency or having staff working virtually from home in a particular country can also constitute an establishment for VAT purposes.  Post Covid in some industries it is less common for staff to be working permanently from a fixed office space and therefore this area has become more complex.

Type of Service

The UK and EU VAT rules distinguish between different types of service, with different VAT rules applying to each category.  There is a ‘general VAT rule’ applying to the majority of services but a number of important exceptions to these rules that can change the location in which the VAT is due.

B2B or B2C Customer? the VAT rules for services also differ depending on whether the customer is B2B or B2C.   For VAT and services, the test as to whether a customer is acting in a B2B or B2C basis is based on whether they are receiving the services ‘for business purposes’.  This will normally be clear and the best evidence of business status is to seek the VAT registration number.  If the organisation does not have a VAT registration number, alternative evidence of this status can be accepted.  Businesses should put a process in place when onboarding new customers to ensure they capture relevant information or evidence to support the VAT status.  This is particularly important when operating in an area where not for profit organisations are customers.  Where the customer is a not for profit organisation that might have a mix of business and non business (eg charitable) income, they can be treated as a business.  Using services for private purposes also counts as ‘non business’.


VAT General Rule

If a service does not fit into one of the exception categories below, it will be subject to VAT under the ‘general VAT rules’.   These state the following:

  • Where the customer is B2B based on the B2B VAT rules set out above, local VAT would be charged to business customers established in the same country. Where the business customer is overseas, no VAT would be charged, and instead it is likely the business customer would be required to self assess local VAT under the reverse charge (see below).  This would apply in the EU and UK and in the majority of other countries worldwide that have VAT/GST type systems although local rules should be checked.  The logic behind this VAT rules which was introduced in 2010 in the EU/UK, is that is means local VAT is not charged to a business overseas that would otherwise be able to obtain a refund of such VAT through the overseas refund mechanisms.    Generally speaking VAT should not form a cost on a B2B level so having the customer self assess VAT removes the need for overseas refund claims to be filed on this type of service;
  • Where the customer is B2C, the supplier of the services should charge local VAT regardless of the location of the customer. This VAT will form a cost as B2C customers cannot reclaim VAT.


Exceptions to the General VAT Rule

If the business is providing services that fit into one of the categories set out below, they are subject to these rules rather than the general VAT rules set out above:


Land Related Services

Rather than accounting for VAT based on where the business is established, if the services fall into the ‘land related’ category, they will be subject to VAT where the land in question is located.  This means the business is likely to have to VAT register in this location so that local VAT can be charged and accounted for.  Generally speaking, if the customers is a business customer, they may be required to self assess the VAT under the reverse charge mechanism rather than the overseas supplier VAT registering.   For B2C customers who cannot self assess local VAT, the overseas business would need to VAT register and charge local VAT.

The complexity in this area lies in defining what are land related services (this can differ slightly from country to country) and in determining the VAT rate applicable as there are exemptions and reduced rate VAT reliefs that might apply to land related services.   In broad terms, land related services are those which relate directly to a specific piece of land, property or installed equipment as opposed to generally relating to land.  Land related services include the following:

  • Surveying, valuing or assessing property (onsite or remotely)
  • Construction (or demolition), repair, agricultural services
  • Providing accommodation (hotels, campsites, apartments etc)
  • Property management
  • Estate agency services (including land)
  • Drafting plans for a building, obtaining planning permission
  • On site security
  • Installation of equipment/machinery that becomes permanently fixed to the building
  • Granting the right to use a specific area of land

Once the services do not relate to a specific piece of land/property, and instead are more general (eg general lease related contractual advice, design work for multiple locations), they are not land related and will either be subject to the general VAT rule or one of the other exceptions below.

Services Subject to VAT where Performed

For B2B customers, the services falling into this exception are limited to charges for admission/entrance to an event including services ancillary to this.  This includes seminars, workshops, trade shows, sporting events and ancillary services would include eg charges for the use of cloakroom facilities.  It does not include agency arrangements for such events.

For B2C sales, more services are included, namely those falling within the area of cultural, artistic, sporting and entertainment services.  This includes entertainers performing at events, tours, entrance fees for sporting competitions.  It also includes repair /valuation work on goods

Restaurant services fall under this rule for B2B and B2C customers.

Hire of Means of Transport

The first step here is to be sure whether what is being hired out is a means of transport.  However for the purposes of simplicity here we will assume cars, yachts, bikes, aircraft, and lorries.

The next step is to work out the duration of the hiring agreement – for VAT this is carved up into short or long term.  For most modes of transport short term means 30 days or less, with long term being more than 30 days.  For vessels, this rule changes and short term means 90 days or less.

The rule for B2B and B2C is the same where the hire is short term – it is subject to VAT where the transport is located when it is handed over to the customer.

For long term hire for B2B customers, the services are subject to VAT under the general VAT rule above ie where the customer is established, regardless of where the vehicle is provided to the customer.  However this rule is subject to the ‘use and enjoyment rule’ below.

Passenger and Freight Transport

Passenger transport is defined as services where the customer is transported from A to B in a mode of transport ie they are not required to drive themselves.  Similarly freight transport is defined as services where goods/packages/mail is transported from A to B in a mode of transport ie the customer is not required to drive the vehicle themselves in order to transport the goods.  If they are, this would be the hire of a means of transport rather than passenger/freight transport – see above.

For B2B sales, these are subject to VAT under the general VAT rule above.  However from a UK perspective, UK VAT would not apply if the services are used outside the UK (overseas VAT would likely apply instead so a VAT registration may be needed in the overseas location).

For B2C sales, VAT is due where the transport takes place in accordance with the distance travelled if cross border.  Overseas VAT registration liabilities may therefore arise.

Zero and reduced VAT rates apply to passenger and freight transport in many countries so advice should be taken to ensure the correct rate is applied.


Professional/Technical/Financial and Intellectual Services

These services include consultancy, accountancy, software, financial services and advice, legal services when provided to B2C customers (B2B sales of such services are subject to the general VAT rule).  From a UK perspective, sales to UK B2C customers would be subject to UK VAT whilst those to overseas customers would not be subject to UK VAT (such sales to EU customers would be subject to EU VAT under the OSS mechanism).  For EU established businesses supplying these services, such sales to EU customers would be subject to the rate of VAT applying in the EU supplier location, whilst sales to non EU customers would not be subject to VAT.

Intermediary Services

This category includes disclosed agents /brokers ie businesses bringing together someone selling services or goods and a customer.   The agent’s revenue stream is typically a commission or fee for arranging the underlying sale (and is often but not always based on a % of the value of this sale).  B2B sales are subject to the general VAT rule set out above whilst B2C intermediary services are subject to VAT where the underlying sale being arranged takes place.  For example if a fee is charged to a B2C consumer for arranging an overseas hotel in the EU, the fee would be subject to overseas VAT.

Electronic Services

These services include the following:

  • images or text eg photos, screensavers, e-books and other digitised documents, for example, PDF files
  • music, films and games downloads
  • online magazines
  • website supply or web hosting services
  • distance maintenance of programmes and equipment
  • supplies of software and software updates
  • advertising space on a website

For B2B sales the services are subject to the general VAT rule set out above but subject to the use and enjoyment rule set out below.   For B2C sales, from a UK supplier perspective they are subject to UK VAT if supplied to a UK customer and are VAT free otherwise but EU VAT would be due on such sales to EU customers at the rate in the customer country under the non Union OSS scheme  For EU suppliers of electronic services, EU VAT is due on sales to EU customers at the rate applying in the customer’s country, and no VAT is due on sales to non EU customers.


Use and Enjoyment VAT Rule

 This is a rule that applies to certain services and scenarios and overrides the VAT treatment set out above.  The purpose of this rule is to ensure the services are subject to VAT where they are actually used/consumed ie where the services are enjoyed.  From a UK VAT perspective, the location test is UK versus non UK use, whereas for EU based suppliers, the test is EU versus non EU use.  This can create overseas VAT registration obligations for a supplier.   The services subject to this rule in the UK are as follows:

  • Hire of means of transport
  • Hire of goods
  • Telecoms Services (B2B only)
  • Electronic Services (B2B only)
  • Radio and Broadcast TV Services
  • Repairs to goods under insurance claim (B2B only)

Within the EU the use and enjoyment rule is in some countries applied to a broader range of services eg marketing, so local rules should be checked.


Reverse Charge

The reverse charge is a system whereby the B2B customer is responsible for self assessing local VAT when they purchase services from overseas.  This applies to most services unless they are exempt or zero rated when purchased from a domestic supplier or unless they are already taxed by the supplier on the basis they fall into one of the exceptions above (eg land related).  NB it is possible that a double taxation scenario could arise if a country taxes a services under the use and enjoyment rules and a reverse charge is also due in the customer country on a different basis.  This arose historically in Spain where marketing services are taxed under the use and enjoyment rule but were also subject to the reverse charge in the UK under the basic reverse charge rule applying to marketing services.   The customer is liable to self assess the VAT and can recover this VAT on the same VAT return following the normal VAT rules for deducting VAT on costs – ie if they are ‘fully taxable’ and can recover VAT on business costs in full, they can recover the reverse charge VAT.  For businesses that are partly exempt, they will only recover the relevant proportion of the reverse charge VAT.

It is important to note that reverse charge VAT can also be due on intercompany charges cross border.  If a business has a branch structure rather than subsidiaries overseas, complexity arises in terms of when/how the reverse charge is due so specialist VAT advice should be taken in this case.  This is particularly important for partly exempt businesses as the reverse charge VAT forms a cost and is therefore presents a high VAT risk if overlooked.


Specialist VAT Advice

This article demonstrates the broad range of VAT rules applying to sales of services cross border and it is important that businesses are able to apply these accurately to ensure their VAT position is accurate and optimised.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.

charity vat guide

Charity VAT – a Myriad of Complex Rules

By Customs Duty news|Featured|Uncategorized|VAT news, Customs Duty news|VAT news, VAT news

Charities face some of the most complex rules whilst trying to adhere to the principle of minimising staff and professional advisory costs.  This means they often do not have the knowledge needed in-house to understand the VAT charity rules impacting them

This article aims to provide a comprehensive overview of VAT and its impact on charities.


VAT Basics – Context for Charities

VAT operates on the principle of taxing the value added to a product or service at each stage of the supply chain and generally speaking businesses pay VAT on revenues and reclaim VAT on business costs.  Consumers on the other hand pay VAT on goods and services they purchase but cannot get a credit for this VAT and therefore bear the burden of VAT.  Not-for-profit organisations such as charities sit somewhere in between the two and in relation to most of their activities also bear the cost of VAT – this is because they generally aren’t required to account for VAT on their revenues as a result of applicable VAT reliefs for charities.  For example  they typically receive donations and funding.  The downside of this is that a proportion of the VAT they incur on costs cannot be recovered.  In this article we will set out some of the key VAT charity considerations.


Charity VAT Exemptions and Reliefs

Charities often benefit from VAT exemptions or reliefs on certain goods and services, both in terms of their revenues and the costs they incur.  The logic here is that charities provide a  benefit to society and as a result are granted relief from paying VAT on specific activities.  However it is important to bear in mind that there is no blanket VAT relief for charities – the charity VAT reliefs are activity/cost specific, and therefore it is vital that charities understand the reliefs available to them and the eligibility criteria.


Charity VAT Reliefs – Eligibility Criteria

The conditions attached to VAT exemptions or reliefs vary and can be complex.  In terms of basic conditions, these would include being a registered charitable organisation and using funds for charitable purposes to qualify for these reliefs.  Beyond this the criteria are specific to the activity.  For example there are conditions attached to VAT exempt fund raising events – a charity can only run 15 such events per financial year in the same location so as to prevent distortion of competition with commercial organisations.  If there are more than 15 events in the same location, all of the events become subject to VAT rather than just the 16th and further events.  Even within this prescriptive rule there are nuances to be understood.  Smaller scale fundraising events such as coffee mornings can be exempt from the ‘15’ rule if they raise less than £1000 per week.

Business Activities

In addition to having charitable fund raising activities charities will also frequently have commercial activities such as selling goods and services (for example entrance to premises/gardens or the sale of Christmas cards). Where these are similar to goods and services offered by commercial organisations, the VAT treatment of these activities depends upon the nature of the goods or services provided.  Having commercial activities may mean that the charity has to account for VAT on revenues but the upside is increased VAT recovery on costs.  Charities often establish a trading subsidiary to carry out these activities as they may not be permitted to have such activities running through the charity under the terms of their charitable status.   This adds a further layer of VAT complexity as the charity is then managing 2 separate organisations from a VAT perspective, although it may be possible to apply to have a VAT group so there is only one VAT registration, and more importantly VAT is not charged on charges between the two for staff or back office costs.

Fundraising Events

Charities undertake a range of fund raising activities with differing VAT treatments such as ticket sales for fundraising events, donations and other related revenue streams.  As set out above, it is vital that the conditions attached to the VAT reliefs are understood by the charity so they can ensure that they take advantage of these wherever possible.

Donations and  VAT

Donations are outside the scope of VAT (ie no VAT needs be accounted for on them) provided they are ‘freely given’.  This means the donor does not receive anything from the charity in return for the donation. It is important that any publicity material/website narrative and associated processes are accurate in making it clear the donation is voluntary.  For example for a charity fundraising event, if a charity chooses to request a voluntary donation rather than charge a fixed fee for entrance, the donation amount can still be treated as VAT free provided it is genuinely freely given.  This means the donor is still able to gain entrance to the event regardless of whether they do in fact make a donation.    If the process for obtaining entrance is by ticket and this is arranged online, it is important that the website allows the ‘donor’ to progress to obtaining a ticket even if they do not donate or if they only donate a nominal amount. This applies even if an appropriate donation value is suggested.

International Operations

Charities operating internationally may encounter additional challenges related to VAT as each country may have its own rules and regulations.  Cross-border transactions can trigger VAT obligations and charities need to navigate these complexities carefully so as to minimise the cost of VAT and of overseas VAT registrations


VAT and Charities – Best practice

Record Keeping

Maintaining accurate records of income and expenses transactions is essential for proper VAT compliance.  Valid VAT invoices in the name of the charity should be retained to support any VAT recovery permitted .  In addition any supporting evidence relating to reliefs should be retained.   Robust record keeping helps minimise the risk of errors being made in relation to VAT and also helps reduce challenges during HMRC VAT audits

Partial Exemption

Given the range of activities, charities need a way of determining how much VAT they can recover on costs.  In simple terms, depending on the precise nature of the activities, this will likely involve firstly carrying out a ‘business/non-business’ calculation to determine how VAT recovery on cost is to be disallowed on the basis it relates to non business income such as donations.  The remaining VAT is then carried forward to the partial exemption calculation where recoverable VAT is calculated based on the ratio of taxable to exempt revenues.  This is a complex area.

Professional Advice

Given the complexity of VAT rules for charities, seeking professional advice from VAT specialists can be invaluable for charities.  Specialists with expertise in both VAT and the charity sector can provide tailored guidance and help ensure the VAT position of the charity is optimised, ultimately benefiting the amount of benefit the charity can generate for good causes.  The VAT Consultancy can partner with charities on this journey and we are well placed to simplify the complexity for you.



Navigating the crossover between VAT and charitable activities requires a detailed understanding of VAT rules and also the associated compliance obligations.  Charities must proactively manage their VAT responsibilities to ensure the efficient use of resources by staying informed, seeking professional VAT advice and implementing effective processes to manage VAT risk.  Charities can then optimise their position and continue to make a positive impact on society without VAT negatively impacting their charitable aims.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.










when do I need help with my vat

When should I bring in additional resource to help with my VAT?

By Customs Duty news|Featured|Uncategorized|VAT news, Customs Duty news|VAT news, VAT news

Managing Value Added Tax (VAT) is a crucial aspect of financial operations for businesses, and knowing when to bring in additional VAT resources can be key to ensuring compliance and efficiency.

Navigating the intricacies of Value Added Tax (VAT) can be a formidable challenge, especially during pivotal moments in your business journey. Whether you’re experiencing rapid growth, expanding internationally, or grappling with changes in VAT legislation, recognising the need for additional support is the first step towards ensuring seamless compliance and strategic financial management.

At The VAT Consultancy, we understand that different business scenarios demand different solutions. If your business is on the brink of expansion, encountering complex transactions, or facing industry-specific challenges, our team of specialists is ready to provide the precise, timely, and customised assistance you require.

We offer more than just expertise; we offer peace of mind. Our consultants bring a wealth of knowledge in UK and international VAT regulations, empowering your business to make informed decisions that align with compliance standards and strategic objectives. Whether you’re considering part-time, interim, or additional VAT support, our services are designed to adapt to your unique circumstances.

Here are some scenarios where it might be prudent to consider additional help:

When to Bring in Additional Help for VAT:

  1. Business Growth:
    • If your business is experiencing growth, expanding into new markets, or seeing increased sales, the complexity of VAT compliance may also grow. Additional resources become essential to manage the expanding scope of VAT obligations.
  2. International Expansion:
    • Venturing into international markets introduces new challenges with different VAT regulations. Bringing in experts with global VAT knowledge can help navigate the complexities of cross-border transactions and ensure compliance.
  3. Complex Transactions:
    • Engaging in complex transactions like mergers or acquisitions can significantly impact VAT obligations. Professionals can provide valuable insights to navigate the complexities, ensure compliance and remove any unnecessary VAT cost during these critical periods.
  4. Changes in VAT Legislation:
    • VAT regulations are subject to change. When there are significant updates or reforms, additional resources, such as tax consultants, can help your business understand and adapt to the new requirements.
  5. Audit or Compliance Issues:
    • Facing a VAT audit or discovering a VAT accounting error is a clear signal to seek professional assistance. Experts can guide you through the audit process, address concerns, and implement corrective measures to avoid future issues.
  6. Technology Upgrades:
    • Implementing new accounting or ERP systems requires expertise to configure them correctly for VAT compliance. Bringing in additional resources ensures a smooth transition and minimises the risk of errors.
  7. Volume of Transactions:
    • High transaction volumes can strain in-house resources. Adding extra help, either through hiring or consulting, can manage the workload and reduce the risk of errors in VAT-related tasks.
  8. Specialised Industry Requirements:
    • Certain industries have specific VAT requirements. Hiring professionals with industry-specific knowledge ensures accurate compliance with sector-specific regulations.
  9. Customs and Import/Export Transactions:
    • Businesses involved in international trade, especially with customs and import/export transactions, may require additional expertise to navigate the complexities of VAT and customs duty in cross-border scenarios.
  10. Seasonal Variations:
    • Seasonal fluctuations in business activity may require adjusting resources. Temporary staff or external consultants can help manage increased VAT-related tasks during peak times.


Benefits of Bringing in Additional Help for VAT:

  1. Expertise and Knowledge:
  2. Risk Mitigation:
  3. Time Savings:
    • Additional resources free up your in-house team to focus on core business activities, improving overall efficiency.
  4. Efficiency and Accuracy:
    • VAT professionals ensure precise processing of tasks, reducing the likelihood of errors and the need for time-consuming corrections.
  5. Adaptation to Changes:
    • Professionals keep your business informed about legislative updates, enabling timely adaptation to new VAT requirements.
  6. Customised Solutions:
    • Experts provide tailored solutions based on your business’s unique needs, addressing industry-specific challenges.
  7. International Compliance:
    • Professionals with international VAT expertise guide your business through the complexities of global VAT compliance.
  8. Audit Preparedness:
    • In the event of an audit, experts assist in preparing documentation and navigating the process effectively.
  9. Strategic Planning:
    • VAT professionals contribute to strategic planning by offering insights into optimising structures and identifying cost-saving opportunities.
  10. Peace of Mind:
    • Knowing that VAT obligations are handled by experts provides peace of mind, allowing you to focus on core business operations.
  11. Cost-Efficiency:
    • While there is an initial investment, efficient VAT management can lead to long-term cost savings through reduced errors and penalties.
  12. Scalability:
    • Resources with VAT expertise allow for scalable solutions, adapting to the evolving needs of your business as it expands.


In Conclusion

The VAT Consultancy stands as your trusted business partner in the complex realm of Value Added Tax. Whether you’re contemplating the need for additional resources due to growth, international expansion, or evolving legislative landscapes, our team is committed to providing the expertise and support your business requires.

Our consultancy is more than a service; it’s a partnership built on trust, precision, and a commitment to your financial success. With a deep understanding of both UK and international VAT regulations, we offer customised solutions to meet the unique challenges your business may face. Whether you opt for part-time, interim, or additional support, our services are designed to seamlessly integrate with your operations.

As your dedicated VAT specialists, we aspire to go beyond mere compliance, offering peace of mind and strategic insights that contribute to your business’s sustainability and growth. We invite you to experience the benefits of having a team of experts who understand the nuances of VAT and are ready to guide you through every stage of your business journey.

Thank you for considering The VAT Consultancy as your trusted partner. We look forward to the opportunity to contribute to your business’s success by providing unparalleled support for your VAT needs. We can navigate the complexities, optimise your strategies, and build a future where your business thrives in the ever-evolving landscape of tax regulations.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.

managing cross-border transactions between the UK and EU

How to manage cross-border transactions between the UK and the European Union

By Customs Duty news|VAT news, VAT news

The United Kingdom’s departure from the European Union, often referred to as Brexit, has had profound implications for businesses engaged in cross-border transactions between the UK and the EU. Among the numerous aspects to consider, Value Added Tax (VAT) is a central element that requires careful management. In this in-depth guide, we will explore the intricacies of managing VAT in cross-border trade post-Brexit, offering detailed insights into the challenges faced by businesses and providing comprehensive solutions to address these challenges effectively.

VAT in the EU and the UK

The UK’s exit from the EU reshaped the landscape of VAT in cross-border transactions. Prior to Brexit, the UK was a member of the EU’s Single Market, which facilitated frictionless trade with minimal customs and VAT formalities. However, post-Brexit, the UK transitioned to a third-country status in VAT matters. This transition brought forth significant changes and complexities for businesses involved in cross-border trade between the UK and the EU.

VAT for Exports and Imports

Exports from the UK to the EU:

In the case of businesses exporting goods from the UK to the EU, VAT is no longer levied at the point of export. However, customs duties and import VAT come into play upon entry into the EU. This means that the recipient of the goods in the EU is responsible for paying the import VAT, which must be declared and paid at the point of entry into the EU.

Imports into the UK from the EU:

Conversely, when goods are imported into the UK from the EU, they become subject to import VAT and customs duties. To facilitate trade and cash flow, businesses can make use of the postponed VAT accounting (PVA) system, which allows them to declare and recover import VAT in their VAT returns.

Challenges in Managing Cross-Border VAT

Effectively managing VAT in cross-border transactions between the UK and the EU presents several challenges, which businesses need to navigate carefully. These challenges encompass the following areas:

  1. VAT Registration: UK-based businesses selling goods to EU customers may be required to register for VAT in each EU member state where they conduct trade. This can lead to a significant administrative burden, including language barriers, as businesses must communicate with tax authorities in different EU countries.
  2. VAT Recovery: Businesses must be aware of the rules and procedures for recovering VAT incurred in both the EU and the UK. These procedures may vary, and understanding these nuances is essential for optimizing cash flow.
  3. Tax Compliance: To avoid potential penalties and ensure the smooth flow of goods, businesses must diligently adhere to VAT regulations in both the UK and the EU. This includes proper invoicing, record-keeping, and the timely filing of VAT returns. Click the bold link to learn more about our outsourced VAT and customs duty compliance solutions.
  4. Customs Procedures: In addition to VAT considerations, understanding and complying with customs procedures for goods entering or leaving the UK and the EU is essential. Non-compliance can result in delays and additional costs.

Solutions for Businesses

To effectively manage cross-border VAT in the post-Brexit era, businesses can consider several practical solutions:

  1. VAT Registration: Carefully assess whether it is more efficient to register for VAT in specific EU member states or to take advantage of the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) systems. These systems simplify VAT reporting for e-commerce sales and can significantly reduce the administrative burden.
  2. Postponed VAT Accounting: Consider utilising postponed VAT accounting (PVA) to defer import VAT payments, which can improve cash flow by allowing businesses to reclaim import VAT on their VAT returns.
  3. VAT Recovery: Establish and maintain a comprehensive record of all incurred VAT, both in the UK and the EU. Follow the necessary procedures for VAT recovery to maximise the financial benefits.
  4. Customs Expertise: Invest in developing in-house expertise in customs procedures or consider engaging a customs expert or consultant. An in-depth understanding of customs regulations is crucial for smooth cross-border trade.


The management of cross-border transactions between the UK and the European Union post-Brexit requires a comprehensive understanding of the VAT implications for exports and imports. While challenges exist, businesses can adapt and succeed in this evolving landscape by exploring VAT registration options, utilising postponed VAT accounting, and implementing robust VAT recovery procedures. Ensuring compliance with tax and customs regulations is essential to prevent delays, penalties, and additional costs. By carefully planning and staying informed about the dynamic regulatory environment, businesses can navigate the post-Brexit era successfully, fostering continued growth in cross-border trade between the UK and the EU.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.

VAT, GST and Sales tax Global

Worldwide VAT, GST, and Sales Tax Guide

By Customs Duty news|VAT news, VAT news

Taxes are a fundamental component of every nation’s economic structure, serving as a vital source of revenue for governments globally. Among the myriad of taxation systems, Value Added Tax (VAT), Goods and Services Tax (GST), and Sales Tax are three prevalent forms of consumption taxes that significantly influence businesses and individuals around the world. This guide delves into these taxation systems, highlighting their key features, variations, and their extensive global footprint.

Understanding VAT, GST, and Sales Tax

VAT (Value Added Tax):

Value Added Tax, commonly known as VAT, is a consumption tax levied on the value added to goods and services at each stage of production or distribution. In essence, it’s a tax on consumption. Unlike traditional sales taxes, which are typically imposed on the final retail price, VAT is a multi-stage tax. Businesses collect VAT from their customers and pay it to the government while simultaneously receiving credits for the VAT they’ve paid to suppliers. This mechanism ensures that the tax is only paid on the value added at each stage of the supply chain.

VAT is globally embraced, but its application varies from one country to another. Nations worldwide have adopted VAT with distinct rates, exemptions, and thresholds. It is a popular form of taxation in European countries, Latin America, Asia, and many other regions, making it one of the most commonly used consumption taxes.

GST (Goods and Services Tax):

Goods and Services Tax, or GST, is akin to VAT, as it is also a consumption tax applied at multiple stages of the supply chain. GST is renowned for its simplicity and efficiency in taxation, making it an attractive choice for various countries.

The primary differentiation between VAT and GST is semantic, with GST having a single, unified rate, while VAT can incorporate multiple rates and exemptions based on the nature of goods and services. Countries such as Canada, Australia, and India have adopted GST systems and have witnessed its advantages in terms of tax administration and revenue generation.

Sales Tax:

Sales tax is a more straightforward form of consumption tax. It is typically imposed only once, at the point of sale to end consumers. Unlike VAT and GST, which involve multiple stages of taxation, sales tax is collected exclusively when a purchase is made. The rates, exemptions, and administration of sales tax can vary significantly from one jurisdiction to another.

Global Reach of VAT, GST, and Sales Tax

VAT and GST systems are widespread, with more than 160 countries globally adopting some form of these taxes. These systems serve as substantial sources of government revenue and are designed to alleviate the tax burden on income and corporate profits, ultimately promoting economic growth.

The European Union (EU) operates one of the most extensive VAT systems, encompassing all its member states. In Europe, positive VAT rates range from as low as 5% on certain goods and services to as high as 27% in some countries. Other regions like Asia, Africa, and Latin America have also implemented VAT or GST to varying degrees.

Sales tax, conversely, is a commonly used form of consumption tax in the United States. It is levied at the state level, with each state determining its own sales tax rate. This decentralised approach results in a diverse array of tax rates across the country.

VAT & GST Challenges and Considerations

Effectively navigating the global landscape of VAT, GST, and sales tax is a complex undertaking for businesses with a global presence. Key considerations include:

  1. Compliance: Ensuring compliance with local tax regulations, which can significantly differ from one country to another, is a major challenge. Businesses must collect the appropriate taxes, report them accurately, and make timely payments.
  2. Technology: The intricacy of tax systems and the requirement for real-time reporting in some jurisdictions necessitate advanced tax technology solutions to manage compliance effectively.
  3. Cross-border Transactions: For businesses engaged in international trade, understanding the rules for import and export and managing cross-border transactions can be a formidable task.
  4. Rate Changes: Tax rates, exemptions, and thresholds can change frequently, necessitating the need to stay abreast of local tax laws and adapt to evolving tax structures.


The Comprehensive Worldwide VAT, GST, and Sales Tax Guide offers an exploration of these prevalent forms of consumption taxation and their extensive global presence. While VAT and GST systems are ubiquitous across numerous countries, sales tax remains the primary consumption tax system in the United States. Understanding the intricacies of each system and adeptly addressing the complexities of compliance and cross-border transactions are paramount for businesses operating on a global scale. As tax laws continue to evolve, businesses and individuals must remain informed and adaptable to the ever-changing landscape of consumption taxes to ensure compliance and financial efficiency.

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.