Tax Partner Pro – Answer to your question on September 24

Q

I have a question regarding our client, who sporadically exports physical and digital goods to the EU and US.

In the past, he sent a package to Poland without charging VAT, because it was a B2B sale.

By the time the package arrived in Poland, it was stopped by customs, resulting in our customer receiving an invoice with VAT (I assume, Polish import VAT) from UPS.

I have a few questions that I hope you can help me with:

• Is the customer successful in selling to the customer outside the UK without charging VAT?
• Why was he charged this VAT?
• Can he get it back on a tax return?
• Should it be registered with some sort of import VAT regime so that this doesn’t happen again?
• What can we do to minimize parcel hold-up and VAT (if applicable)?

A

The place of delivery of the goods is the place where the goods are located at the time of transfer of title.
Where the place of supply is the United Kingdom, the export of goods from the United Kingdom may be zero-rated in accordance with section 3 of the VAT on Goods Exported from the United Kingdom (VAT Notice 703) – GOV .UK (www.gov.uk).

Where the place of supply is another country, the VAT/tax rules of that country will apply.

Imports into the EU will be subject to EU import rules and associated VAT and import duties. If your customer is the importer of record into the EU, this suggests that they have not yet transferred title to the goods (the importer of record is usually the owner of the goods). Duty Paid (DDP) conditions generally lead to this.

If this is the case and your customer has actually supplied goods while in Poland, then they will be required to register for VAT in Poland and account for Polish VAT on the sale accordingly.

There are European mechanisms that help simplify accounting in EU member states, such as the Import One Stop Shop (IOSS) where all EU imports intended for sale can be declared in one place . There is no import VAT charged under IOSS (IOSS only concerns imports <150EURO) Where Polish import VAT has been incurred, it cannot be reclaimed via a UK VAT return. It can be recovered on the Polish VAT return, subject to Polish input tax rules.

Q

The director and 30% owner owns a private vehicle: he was using it on a business trip and had an accident.

He received an excess insurance claim bill, addressed to the company and named as the insured.

£1,500 excess + £2,300 VAT on repair Total – £3,800

Questions

1. The company will pay the £3,800 and process the claim – is the £3,800 a P11D benefit and is it added to EE’s NI salary?
2. Is VAT payable?

A

If the vehicle is used for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax, provided the business paid for the work. This is confirmed in the following HMRC handbook:

VIT54500 – Car expenses: car repairs and other car expenses – HMRC Internal Manual – GOV.UK (www.gov.uk)

Regarding your second question, assuming the person contracted with the insurance company, but the employer paid the bill directly to the insurance company, then you must:

• Report the cost on form P11D
• Add the total cost to the employee’s income and deduct Class 1 National Insurance (but not PAYE tax) via payroll.

If the company contacted the insurance company rather than the individual, the treatment might be slightly different, so please let me know if this is the case.

Q

My client has built an extension which is a home office which will be used exclusively as a business.

My understanding is that the cost of construction cannot be claimed through the company nor do we want them to have any issues with capital gains.

However, from what I have read, the VAT element can be claimed as the cost is for business use.

Can you advise us whether or not she can claim VAT on business expenses.

A

Provided that these are business expenses and that the invoices are made payable to and paid by the company, the VAT can be recovered.

The rules relating to input tax are as follows: –

The input tax is VAT which:

(1) was borne by a taxable person;

(2) includes either:

(i) VAT incurred on the supply of goods or services;

(ii) VAT paid or payable on the importation of goods; Or

(iii) VAT incurred on the acquisition of goods from an EU Member State to Northern Ireland*.

(3) provided that such goods or services are used or will be used for the purposes of any business which he carries on or will carry on.

The availability of CGT relief will depend on the use of the room. If it is used 100% of the time for business purposes, then the PPR would be affected.

Q tracking

So even because VAT is claimed, it affects PPR (even if no capital allowance is claimed)?

Track A

For CGT purposes, PPR relief is specifically limited by section 224(1) of TCGA 92 where part of the dwelling is used “exclusively for the purposes of a trade or business, or a profession or vocation”, thus recovering the entire home. VAT in respect of part of the house would likely trigger section 224(1) on that part, as this would effectively amount to a declaration that that part of the house was used exclusively for business purposes.

However, HMRC Handbook CG64663 confirms that section 224(1) only applies where the use is exclusive; therefore, provided there is some residential use, the PPR claim is unlikely to be affected; the corollary to this is that there would be non-commercial use and therefore the VAT recovery would need to be limited appropriately.

Also note HMRC’s comments in paragraph four of CG64663 that “occasional and very minor residential use” will generally be ignored, resulting in a restriction in the PPR claim, such that the residential use must be tangible.

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