Find out what we have been answering for you this month…

 

Q

I would like to confirm the correct VAT treatment of services provided from overseas suppliers to a GB VAT-registered business with a UK place of residence.

From my understanding, where the service is provided by a company registered abroad, even if they have a GB VAT number, the treatment should be reverse charge. However, there are occasions where the service provider isn’t aware they are providing the service to a VAT registered customer, and they issue an invoice at 20% VAT. Should this then be processed at 20%, or should all services from abroad be marked as reverse charge? We want to ensure that clients aren’t reclaiming VAT in error.

 

A

In this case if the UK business is receiving supplies from a non-UK supplier the reverse charge procedure should apply despite the supplier being registered in the UK as a non-established taxable person.

VAT Notice 741A section 5.17 explains:

5.17 What to do if my supplier has a UK VAT number and raises a VAT invoice

If you receive a supply to which the reverse charge applies and yet your non-UK supplier issues a VAT invoice on a UK VAT registration, you must still apply the reverse charge as it is not an optional adjustment. You should advise your supplier to amend or correct their invoice appropriately.

 

Q.

 

Can I have please list of all products that can be sold in restaurants and supermarkets that is Zero and 5% rated.  I also need guidance around rules and regulations around it.

 

A.

 

There is no generic list of products sold in restaurants and supermarkets and the VAT rate that is applied to each product however the following should assist:

https://www.gov.uk/guidance/food-products-and-vat-notice-70114

https://www.gov.uk/guidance/catering-takeaway-food-and-vat-notice-7091

https://www.gov.uk/hmrc-internal-manuals/vat-food/vfood0500

https://www.gov.uk/hmrc-internal-manuals/vat-food/vfood4000

 

 

Q.

 

A new client has this scenario.

He was an IT contractor company, shares 5% owned by husband, 95% by wife, both are directors. The company was active from February 2023 to November 2024, I assume therefore no BADR is available.

There is a surplus of around £120k in the company and the client wishes to use it to invest in buy-to-let.

Husband is now under PAYE and is a higher rate taxpayer, looking to avoid higher rates on rental income, wife also under PAYE earns £36k. Live in Scotland.

Is it better to use the existing company with the cash for the buy to let or set up a new company? If BADR was available would an MVL and then set up a new company to invest be an option? Or something else?

 

 

A.

 

Your clients wouldn’t qualify for BADR as the company hasn’t traded for two years.

I’m not sure of the rationale for the 95%/5% share split in favour of wife as husband presumably did all the work and wife has earnings anyway. However, as husband is presumably now doing a similar job through PAYE, HMRC may seek to apply the TAAR (Phoenixing) rules if the company is liquidated.

It would be safer to use the existing company for the property investment to avoid any potential issues. The higher rates of SDLT/LBTT will of course apply but interest relief available in full and presumably surplus income that isn’t needed can be accumulated within the company.