Some recurring issues to be aware of……
Retailers who sell food – hot or cold? VAT charged or not?
There are two key questions to ask when deciding whether the sale is standard rated or zero rated.
- Is any supply of food for consumption on the premises on which it is supplied; and
- Is any supply of hot food provided for consumption off those premises?
If the answer to either question is yes, then the chances are that the sale is going to be subject to VAT. However, HMRC have definitions of what is meant by the terms ‘hot’ and ‘premises’, so care needs to be taken to ensure VAT is not charged incorrectly.
For example, in some circumstances, a pasty from a bakery may be physically hot but if it is freshly baked then it may fall outside HMRC’s definition of hot. With regards premises this does not just mean your café or shop but can extend to seated areas outside your café.
This can be a complex area and it is not always clear what rate of VAT to charge so if you are confused then please speak to one of the team.
Business Entertainment – reclaiming VAT?
The general definition of what constitutes business entertaining is that it is any hospitality provided to non-employees. This type of expenditure is generally not allowable for VAT recovery. Entertaining costs may be food, drink, accommodation, tickets for events and can even include the use of certain assets such as yachts or private aircraft. The block on VAT recovery applies in all cases but subject to conditions there is a limited concession for overseas customers entertained in the UK and there are a few exceptions for sporting bodies and airlines.
The VAT incurred on staff entertaining is generally recoverable with a few exceptions. The VAT on expenses in relation to Directors, partners and sole proprietors of a business and employees acting as hosts to non-employees are not allowable for recovery.
If in doubt on whether you can recover the VAT on entertaining costs, please do not hesitate to get in touch.
Bad Debt relief – A two-way street
It is commonly known there is an ability to make a claim on the VAT charged on bad debts in respect of sales that a business makes after they have remained unpaid for at least six months. However, some people overlook the fact that if a business has not paid an invoice from a supplier for six months it has to reverse out/pay back the input tax that it has reclaimed and pay it back to HMRC.
Selling goods abroad – Evidence that goods have left the UK
If you sell goods to countries outside the UK, you are able to treat such sales as zero rated provided you meet HMRC’s rules on holding the correct documentary evidence at the right time which proves the goods have left the UK.
Failure to obtain and keep the correct evidence within three months of the sale will lead to a business making an under declaration and having to pay VAT on the sale to HMRC together with interest and potentially penalties. To ensure that you avoid the risk of a VAT assessment you should check the documentation that you hold in respect of such sales.
If you are not sure what evidence is required, please get in touch with one of the team today.