November Q&A
How do we code payments to unregistered subcontractors?
Q. Our travel guide business uses the services of in-house employees, VAT registered subcontractors and non-VAT registered subcontractors to produce our online magazines.
A colleague says that we should code payments to the non-VAT registered subcontractors as “zero-rated” on our system rather than “no VAT” but that seems wrong because their services would be standard-rated if they were registered for VAT. Which is the correct code?
A. The coding of payments to your subcontractors who are not registered for VAT does not affect the amount of input tax you will claim; the only relevance to your quarterly returns is the inputs value in Box 7. This figure must include the value of all goods and services received by your business, including those provided by subcontractors who are not registered. It is likely that a code of “no VAT” will omit these payments from Box 7, so “zero-rated” might be correct. You will need to test your system. You should also check that the payments to your employees are excluded from this box because wages and salaries are not classed as payments to suppliers.
Are reverse charge sales included in cash accounting scheme limit?
Q. We trade as builders and would like to use the cash accounting scheme (CAS) to improve our cash flow. Our annual turnover is £1.5m excluding VAT but £300,000 of this figure relates to sales where our customers account for the VAT with the reverse charge. In other words, we don’t charge VAT on these sales.
Does this mean we can join the CAS because our sales subject to VAT are less than £1.35m?
A. You are correct on several issues. Firstly, the CAS will improve your cash flow because you will account for VAT on your returns when your customers pay rather than according to the invoice date, which is usually earlier.
Secondly, you can only join the scheme if your taxable sales in the next twelve months are expected to be less than £1.35m excluding VAT. In other words, it is all about future sales rather than historical turnover.
However, this figure unfortunately includes your £300,000 of sales where the reverse charge applies. This is because these sales are still taxable, the only difference is that your customers declare the VAT rather than you.
Is there VAT on delivery fee if driver is not registered?
Q. My wife and I trade as a partnership selling furniture online. Our prices include a delivery charge so that our customers will receive the goods in their home. We use a self-employed driver and he is not registered for VAT. My understanding is that we do not charge VAT to our customers on the delivery part of our invoices because this is a disbursement. Is this correct?
A. The answer is “no” because you are supplying “delivered goods” to your customers and, in such cases, the VAT liability of the delivery charge follows that of the goods, i.e. standard-rated in the case of the furniture. The fact that your driver is not registered for VAT, presumably because his annual sales are less than the registration threshold of £90,000, is irrelevant. In other words, the driver is providing services to you and has no commercial relationship or contract with your customers, and then you supply delivered goods to your customers.
Brought to you by Andrew Wayness, Partner, JRW Hogg & Thorburn
