VAT Legal Advice

VAT (Value Added Tax) is a transaction-based tax with complex rules that vary by sector, region, and transaction type. Specialist legal advice helps businesses stay compliant and avoid costly mistakes.

Every business and every project will have a large number of transactions, both purchases and sales, which should be understood for VAT, captured in the VAT record and reported to HMRC.

The VAT on sales must be recorded correctly by the seller. The VAT claimed on purchases must be recorded correctly, including identifying incorrect VAT charges by suppliers, identifying when to claim and when not to claim (including partial exemption and Capital Goods Scheme adjustments), and identifying when purchases are treated as sales under the various reverse charge mechanisms.

There are also obligations regarding when to register for VAT and when to deregister, when to submit and pay returns, how invoices are laid out and how VAT returns are submitted (Making Tax Digital or MTD).

Does that mean everything HMRC tells you to do is an obligation?

If you think HMRC is wrong, you can stand your ground and argue your case, preferably with an experienced adviser in support.

You must register for VAT if your taxable turnover exceeds £90,000 over the past 12 months, or if you expect it to go over that threshold within the next 30 days.

You’ll also need to register regardless of turnover if all of the following apply:

• You are based outside of the UK
• Your business is based outside the UK, and
• You supply goods or services to the UK or plan to do so within 30 days

This applies to non-established taxable persons (NETPs) overseas businesses trading in the UK.

Even if you don’t meet the threshold, you can voluntarily register for VAT, which may allow you to reclaim VAT on business costs.

You won’t need to register if you only sell VAT-exempt or ‘out of scope’ goods and services.

Once registered, you’ll be responsible for charging VAT correctly and paying any VAT due to HMRC.

HMRC will investigate a business to ensure it’s VAT records and liabilities are correct. This will happen routinely (every few years), or because HMRC has concerns (every year or so), or because there is a specific question HMRC wish to answer.

Reliefs don’t really exist in VAT as they do for direct taxes. There are different rates of VAT with different advantages and disadvantages, some of which allow no VAT to be accounted for on a sale.

There are simplifications and special methods, where for example complex VAT calculations can be avoided or made more practical. There are also exceptions where VAT registration can be avoided. Planning a project to capture a balance of these various advantages can save time and money.

HMRC have a variety of ways of penalising a taxpayer who has put a foot wrong, such as failure to notify HMRC of a requirement (e.g. applying for VAT registration on time), failure to submit a VAT return or pay a VAT liability on time, making an error in calculating VAT liabilities on sales or recovering VAT on purchases, or compounding these mistakes with deliberate or evasive behaviours.

A taxpayer can also be assessed for interest for VAT which HMRC considers it did not receive on time.

There are ways to reduce or eliminate penalties, but the right approach from the earliest stages will produce the best result.

Since Brexit, businesses importing and exporting goods face new VAT rules, including import VAT, OSS compliance, and specific challenges for Northern Ireland, which now operates a separate VAT regime.