30 taxation
Managing the cash – 10 steps to improve your VAT position
VAT in a fully taxable business can represent 30% of turnover in terms of the cash managed through the VAT accounts. It is a significant responsibility that taxpayers are obliged to undertake and if they make a mistake it can result in some pretty significant penalties. Most businesses take great care over getting VAT compliance right, but perhaps spend less time considering whether the process that has been implemented is the most efficient. In the following article Duncan Stocks, regional director of VAT at RSM Tenon, outlines 10 areas where businesses could potentially derive additional value from the VAT process
1 Bad debt relief
Where a customer has not paid a bill and that bill has been outstanding for 6 months from the due payment date, a taxpayer is entitled to claw back the VAT from HMRC.
If in a later period the bill is settled in part or whole then the VAT previously reclaimed needs to be paid back.
2 Input tax accruals
VAT recovery usually requires an invoice to evidence the right of deduction. How a business manages the processing of these invoices can impact how quickly those refunds will be received. It is usually the case that a number of purchase invoices will be received towards the end of a VAT period, or just after the period end, and for practical reasons may not have been posted to the input VAT account before the period end cut-off date. Businesses are able to claim VAT by reference to the tax point, so even if the invoice was not posted before, or was received after the period end date it is eligible to be claimed. By identifying these invoices before the VAT return is submitted a business is able to accrue for the VAT and effectively accelerate those amounts by up to three months (for quarterly VAT returns).
3 Output tax deferral
Output tax has to be accounted for by reference to the tax point. However in certain circumstances the tax point can be deferred (e.g. the 14-day rule for issuing invoices or requests for payment). It may be possible, towards the end of a VAT accounting period, to defer the tax point so that it falls into the following period thereby deferring a VAT payment to HMRC by up to three months. This would hopefully give the business the time to collect the payment from its customer before it has to pay the VAT to HMRC.
4 Car lease payments
Where a business is applying the 50% VAT recovery restriction for the lease of company cars, it should be aware that all payments under the lease may also be restricted by 50% (subject
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to how the contract is set up and the additional charges are invoiced). Therefore if the lease includes such added goods and services as routine maintenance, tyre replacement etc, then there may be an opportunity for a business to receive these services separately and recover more, if not all, of the VAT charged for these extra items.
5 Employee expenses
Most businesses take a prudent and conservative approach to VAT recovery incurred through employee expenses, but there are a number of expenses that employees incur where the associated VAT is recoverable by the business (these are typically travel, subsistence and entertainment expenses, but can relate to other expenses too). Rules of evidence apply and a business therefore needs to have robust and well controlled policies in place, but the amounts of VAT can often justify the additional compliance that the business needs to follow.
6 Export companies
The export of goods is zero-rated. Where a taxpayer has a mixture of standard rated supplies and zero-rated exports it may be beneficial to channel the zero-rated exports through an intermediate export company. The main company will sell the goods for export to the export company who will then sell them on to the final customer. Under this model the export company would be in a regular repayment position and if it were separately registered for VAT could potentially submit VAT returns monthly thereby accelerating the VAT repayment. The main company could submit returns quarterly therefore the export company would get a refund of the VAT incurred before the main company is required to pay it to HMRC.
7 Overseas VAT refunds
Many foreign territories, particularly in the EU, provide a structure to allow for the refund of VAT incurred on expenses by businesses that are not otherwise established in that territory. These are typically travel, subsistence and entertainment expenses that employees might
incur whilst travelling, but larger VAT bearing expenses, that might be incurred directly and managed through Accounts Payable, such as trade shows and conferences, are also eligible for reclaim.
8 Pension funds
Employers are currently entitled to recover certain VAT expenses relating to the administration of the pension fund. However there is also the possibility that some pension funds could also potentially recover VAT they incur on expenses relating to the management of the fund. For example, where a pension fund holds an investment in commercial property then it may be beneficial to opt to tax that property and recover the VAT incurred on the related expenses - the pension fund would need to be registered for VAT.
9 Property
Property transactions (purchases, disposals, leasehold interests, sub-leases, lease surrenders, inducement payments and so forth) are frequently the largest one-off expense that a business will incur. The amount of VAT that can be incurred could be significant and such transactions need to be carefully planned to avoid incurring irrecoverable VAT.
10 Corporate transactions
Whether the transaction concerns the disposal, acquisition or restructuring of businesses assets or companies the associated costs can attract substantial VAT charges. Optimising the recovery of this VAT requires some forethought and planning. HMRC is increasingly challenging the entitlement of a taxpayer to recover the VAT. However, other cases illustrate that some costs can be recovered provided that they are incurred by the right party.
For more information contact Duncan Stocks at
duncan.stocks@
rsmtenon.com
Details for RSM Tenon Offices Reading: 0118-9530350 Basingstoke: 01256-312312 Marlow: 01628-478100
THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2011
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