Firm News

Government to amend law on VAT recovery on entertaining overseas clients

• VAT recovery on entertaining has always been blocked by HMRC whether the customer is a UK based customer or an overseas customer.

• However following a recent case in the European Courts of Justice, HMRC has concluded that the UK’s block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law.

• Therefore, subject to any private use adjustments businesses are able to recover the VAT they incur on entertaining overseas clients with immediate effect. Furthermore, HMRC will consider claims in the previous 4 years as long as you have evidence to support the claim.

Change in the standard rate of VAT to 20%

• Do not forget that from 4 January 2011 the standard rate of VAT will change to 20%. Please click on the following link for further information http://www.bpuaccountants.co.uk/news/vat-changes.htm

• Beware if you are using cash accounting on a computerised software package – make sure you match off ‘payments on account’ against the relevant invoice. If the invoice was raised before 4 January 2011, but paid after that date, Sage will calculate the VAT due to  be paid over to HMRC at 20% instead of the invoice rate of 17.5%

Further changes in the Place of Supply Rules

• You may recall that the basic rule for Place of Supply for VAT reversed on 1 January 2010. The place of supply is now where the customer is based.

• Certain services have always been treated as supplied where they are performed and not where the supplier or customer is based. However, from 1 January 2011 these services will follow the basic rule of where the customer is based. Contact us for a list of these services.

VAT recovery on private use assets

• Whilst not necessarily a new principle, HMRC have become very conscious of businesses recovering VAT on assets used for business and private use following the abolition of the Lennartz principle.

• If your business purchases an asset which will be used partly for private purposes your VAT recovery needs to be apportioned accordingly. Output Tax may also have to be accounted for if an asset on which VAT was claimed in full on the basis that it was solely for business use, subsequently becomes used partly or fully for private purposes.

If you have any queries regarding the above please contact Elliott Buss, Tax Senior on elliottb@bpuaccountants.co.uk or call 029 20734100