AM I REALLY NOT REQUIRED TO REGISTER FOR VAT BUSINESS?
At Harbour Key we work with a number of non-VAT registered business, and each time we take one of these on as a client, we have to consider their VAT position.
We have several financial brokerage businesses, who are VAT exempt as in the main the implementation of a financial investment is VAT exempt, this being their core business. However, when you dig deeper, you discover, that they hirer their paraplanners to other businesses, as they have additional capacity, this supply is a supply of labour, not implementation of a financial investment, and therefore VATable. If the labour supply is more than the VAT threshold (currently £90,000), then required to register for VAT.
It is therefore important, to avoid HMRC’s penalties, or issues when coming to sell your business, that you continue to review and consider your VAT status, as it is never completely safe to say I am VAT exempt.
We have set out below a few common areas, where VAT is complicated!
THE REVERSE CHARGE – WHAT IS THIS?
This is one of the areas that we have had to consider for our financial advisor businesses and was raised buy a buyer on Due Diligence for a sale we where were brought in last minute.
The reverse charge is a complicated process of treating overseas expenditure as taxable UK income, so that there is a level playing field between UK and overseas suppliers. Basically, it is unfair for a VAT exempt business to save 20% irrecoverable VAT by using overseas suppliers, as opposed to buying the goods and or services in the UK.
When a UK business purchases services from overseas suppliers, such as Facebook or LinkedIn advertising, and those services would be subject to UK VAT if supplied by a UK business, the value of those purchases must be treated as the business's own taxable turnover when assessing whether it has exceeded the compulsory VAT registration threshold.
ARE ALL YOUR SALES STILL EXEMPT?
As highlighted above, although your main sales are VAT exempt, are any other types of sales, or maybe just sales that are bolted on to your main sales VAT exempt. For example, cases have arisen over issue of whether certain cosmetic treatments are exempt from VAT as a medical service intended to improve the health of a patient, or a standard rated cosmetic procedure which has been carried out for vanity/appearance purposes. The medical treatment being exempt for VAT purposes. Recent case decisions have concluded that cosmetic treatments, are not medical treatments, and therefore subject to VAT.
We have already highlighted above the financial services business in the main supplying VAT financial advice, but then starts to supply labour by hiring out their paraplanners, which is not a VAT exempt supply.
It is therefore important, that all VAT unregistered businesses regularly review their sales to ensure they are still exempt, particularly in these tough times, and businesses are hunting down new business sales.
