VAT conundrum

[ryanb741]

Another VAT question however I can't find an accountant who can answer this properly so hopefully someone here can shed light.

It's to do with the PSAs on the watches and the VAT situation. I'm starting it again via my wife but keeping it to below £86k (VAT threshold) for the year so that VAT isn't an issue however this means we will be done in a few months which restricts the opportunity to the forum. The AD is happy as Larry with the scheme as they are blasting their sales volumes targets!

Anyway here's an actual example of how the scheme works and I would love it if someone could say what they think the VAT situation is.

The AD gives me a 15% discount. So if a watch was £5k they sell to me at £4250. The retailer declares VAT of £710.

I buy £4250 vouchers at 15% off via a work scheme. This costs me £3612. I don't believe VAT applies on vouchers as it's dealt with at point of redemption but please correct me if this is wrong. I don't want to ask for VAT receipts from the workplace scheme voucher provider in case they delve deeper and shut the opportunity down as it's technically supposed to be for personal use (which it kind of is as she doesn't sell the vouchers, she is making the purchase with her own loaded gift card, it's just that the watch goes elsewhere). Technicalities and all that.....

The member will send something like £3650 to my wife's account. Technically there is a minor profit here but factoring in the cost of dealing with the AD, filing tax returns, paying business banking fees etc this is only fair as it takes her time and the profit will end up something like £20 on a watch. She's a housewife with no income so she has a full personal allowance.

So. Re the VAT situation my accountant says that the £3650 sent to my wife's account will count as turnover as far as HMRC are concerned. If she wanted to sell more than the £86k per year turnover VAT is applicable. But what amount? For example the receipt we get from the AD shows £710 VAT on a £4250 sale price, but this has actually cost her only £3650! So can she when filing VAT returns state that paid VAT was £710 and charged VAT on a sale of £3650 was £609. Meaning she would be due a refund of £101 from the VAT office? Because the AD will have declared £710 VAT charged when filing their return.

Does this make sense? If it is the case then obviously this then makes a fairly significant profit per watch (and ability to benefit the fundraiser more) but surely this is a loophole HMRC will be all over like a rash.

Like I said nobody seems to be able to give me a straight answer- I want to do things by the book but am wondering if I have uncovered something here!!!

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[Andyg]

Another VAT question however I can't find an accountant who can answer this properly so hopefully someone here can shed light.

It's to do with the PSAs on the watches and the VAT situation. I'm starting it again via my wife but keeping it to below £86k (VAT threshold) for the year so that VAT isn't an issue however this means we will be done in a few months which restricts the opportunity to the forum. The AD is happy as Larry with the scheme as they are blasting their sales volumes targets!

Anyway here's an actual example of how the scheme works and I would love it if someone could say what they think the VAT situation is.

The AD gives me a 15% discount. So if a watch was £5k they sell to me at £4250. The retailer declares VAT of £710.

I buy £4250 vouchers at 15% off via a work scheme. This costs me £3612. I don't believe VAT applies on vouchers as it's dealt with at point of redemption but please correct me if this is wrong. I don't want to ask for VAT receipts from the workplace scheme voucher provider in case they delve deeper and shut the opportunity down as it's technically supposed to be for personal use (which it kind of is as she doesn't sell the vouchers, she is making the purchase with her own loaded gift card, it's just that the watch goes elsewhere). Technicalities and all that.....

The member will send something like £3650 to my wife's account. Technically there is a minor profit here but factoring in the cost of dealing with the AD, filing tax returns, paying business banking fees etc this is only fair as it takes her time and the profit will end up something like £20 on a watch. She's a housewife with no income so she has a full personal allowance.

So. Re the VAT situation my accountant says that the £3650 sent to my wife's account will count as turnover as far as HMRC are concerned. If she wanted to sell more than the £86k per year turnover VAT is applicable. But what amount? For example the receipt we get from the AD shows £710 VAT on a £4250 sale price, but this has actually cost her only £3650! So can she when filing VAT returns state that paid VAT was £710 and charged VAT on a sale of £3650 was £609. Meaning she would be due a refund of £101 from the VAT office? Because the AD will have declared £710 VAT charged when filing their return.

Does this make sense? If it is the case then obviously this then makes a fairly significant profit per watch (and ability to benefit the fundraiser more) but surely this is a loophole HMRC will be all over like a rash.

Like I said nobody seems to be able to give me a straight answer- I want to do things by the book but am wondering if I have uncovered something here!!!

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Have you asked the Revenue mob?

[mr noble]

If your vat office is anything like mine, you'll call them to ask and they won't have a clue!

It does sound like there could be an issue/loophole/other here.

But, if the AD has paid the VAT on each watch and you have 'bought' the watch for yourself using the vouchers, then the watch becomes your property and VAT is already paid on the watch.

When you then sell it onward to the punter, there is no VAT to pay as it's a 2nd hand watch.

Does that make sense?

[cbh]

Sounds like an HMRC investigation waiting to happen!

[deepreddave]

Rather than relying on an opinion on here I'd recommend contacting HMRC and obtaining a written ruling, see here https://www.gov.uk/government/organi.../vat-enquiries.

[Dave O'Sullivan]

Ryan,
Assuming you've exhausted all other avenues, contact the tax office to clarify.
VAT is only paid on profit so however it's structured, if you're only making £20 per watch then your VAT liability will be £3.34.
If the vouchers are exchanged for VAT applicable goods then you will have paid the VAT at the time of purchasing them.
To be honest mate, it might be worth charging £100 per watch profit and running it as a straight business. That'll still be much cheaper than most AD's can do. At the end of the year, pay an accountant a few quid to square the books.
Any surplus, either keep for yourself (and let's face it, you are putting in the work), or stick into Eddie's fundraiser.

[Devonian]

I agree with what Dave says above, you're doing a lot of work and a £50 or £100 charge wouldn't be out the way, even if it's just to pay for some quality advice.

Last thing you want happening is to get it wrong and you end up being substantially out of pocket. I don't think that will happen for one second, but you're doing a great thing here for the benefit of The forum members and only right you should cover yourself properly.

[deepreddave]

You don't always pay vat on only the profit as it can be more complicated than that and there are a variety of vat schemes available. I favour getting a written answer from HMRC to a set of factors for peace of mind although it would seem the sums involved are minor whatever.

*I'm still uncertain that there's any need to register if you are not trading commercially but recognise you've decided that issue. Great effort still btw *

[MrSmith]

Vat is a bit odd on second hand goods. I sometimes buy S/H photographic equipment from a pro dealer and they will charge me Vat which I reclaim. The odd time I have enquired about a bit of S/H kit from a high st camera shop the vat situation has been different, sometimes they run a margin scheme where there is only vat charged on the profit not the whole cost of the goods.

Would definitely get some advice from HMRC

[MB2]

VAT is only paid on profit so however it's structured, if you're only making £20 per watch then your VAT liability will be £3.34.

I would echo talking to the VAT office as whilst you are correct VAT is only paid (ie incurred) on the profit you will have to account for VAT on your purchases, charge VAT on your sales and fill in a VAT return if you exceed 86k of turnover.

We do this and it isn't difficult however it is a lot of work (and liability) for what is really a charity job on your behalf.

If you ring the VAT office they are very helpful and should assist - if you get stuck PM me and I will PM you my VAT number so you can call on behalf of a VAT registered business. You are correct there is no VAT on the vouchers as they don't know what they will be spent on.

It might be worth considering doing the voucher jobs for friends and the AD discount as the "business" for your wife as that would probably make the VAT a lot cleaner as it would be a simple buy/sell model with you paying/collecting VAT but only actually paying any extra on the small profit.

[Snowdon]

When a business registers for VAT, they have access to the VAT info line. The VAT advisors will be able to answer your queries and if they cannot answer immediately, they will check and get back to you. You can request a call reference number. So if you then act on their advice, you have a reference point to refer to if anyone ever asks you why you did such and such.

With my accountant hat on, I'd say if you exceed the vat threshold, you will charge VAT. So you sell something for £5k, turnover recorded is £4166.67 rest is VAT. Your purchase price is whatever you pay for the voucher. And this includes vat. Say you paid £4000 for the voucher. You have paid £3333.33 plus vat.

How the retailer records the transaction is of no concern to you. You have to account for your purchase and your sale. Your purchase is your purchase of vouchers from your work. Not the 'purchase' of the watch

And for all this to work, you need a vat receipt from whoever supplies the voucher.

It's been some time since I worked as an accountant. But this is fairly simple stuff and I'm pretty sure what I've said above is correct.

[ryanb741]

When a business registers for VAT, they have access to the VAT info line. The VAT advisors will be able to answer your queries and if they cannot answer immediately, they will check and get back to you. You can request a call reference number. So if you then act on their advice, you have a reference point to refer to if anyone ever asks you why you did such and such.

With my accountant hat on, I'd say if you exceed the vat threshold, you will charge VAT. So you sell something for £5k, turnover recorded is £4166.67 rest is VAT. Your purchase price is whatever you pay for the voucher. And this includes vat. Say you paid £4000 for the voucher. You have paid £3333.33 plus vat.

How the retailer records the transaction is of no concern to you. You have to account for your purchase and your sale. Your purchase is your purchase of vouchers from your work. Not the 'purchase' of the watch

And for all this to work, you need a vat receipt from whoever supplies the voucher.

It's been some time since I worked as an accountant. But this is fairly simple stuff and I'm pretty sure what I've said above is correct.

I was under the impression VAT was not charged in vouchers? If I need a VAT receipt from the voucher supplier the whole thing is toast as they will clock that this is no longer personal use and probably stop it. If that is the case I will just do it until turnover reaches £86k (probably 25 watches) and then that will be it for the year


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[gbn13]

I would take a different view to asking HMRC VAT at the moment.

If your accountant can't answer your questions it would be best to ask him to put you in contact with a qualified tax adviser who specialises in VAT.

[Chris_in_the_UK]

Asking the VAT office?

Seriously - c'mon guys, this needs informed independent opinion.

[Snowdon]

https://www.gov.uk/government/public...value-vouchers

I think this notice should clear up any queries. Independent opinion won't be any good if you find yourself having to pay vat on the whole sale. So say you sell a watch for £3600 that you have made £20 profit on and HMRC decide you have not adhered to vat rules, they may rule you owe vat on the whole sale, not on any margin. That will be £600. Now you're nursing a £580 loss. Times by number of watches supplied.

[ryanb741]

https://www.gov.uk/government/public...value-vouchers

I think this notice should clear up any queries. Independent opinion won't be any good if you find yourself having to pay vat on the whole sale. So say you sell a watch for £3600 that you have made £20 profit on and HMRC decide you have not adhered to vat rules, they may rule you owe vat on the whole sale, not on any margin. That will be £600. Now you're nursing a £580 loss. Times by number of watches supplied.

Thanks for the link although I'm still none the wiser about what it all means :(

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[Dave+63]

My take on this for what it's worth (and I may be completely wrong here) is this.

You can reclaim VAT on your purchases but need to charge VAT on your sales.

You buy the watch for £4250 of which £708.. is VAT.

You sell the watch for £3650 and create an invoice for £3040. + VAT.

You have paid £708 VAT and charged £610 VAT so on your VAT return you reclaim £102 per watch.

How you pay for the goods whether it be cash, cheque, credit card or vouchers is irrelevant to HMRC.


The fact that they're vouchers that you got cheap is irrelevant in your transaction and the fact that you got them cheap is a matter between you and your employer for tax purposes. The VAT element of the vouchers is between your employer and whoever they purchased them from.

[midgetda]

Hi Ryan

I know you spoke with a colleague of mine on the VAT question but things seemed to have moved on. I will just echo one comment from above. Get professional advice on this. I'd be happy to help again if you would like but this would almost certainly constitute formal advice and they would need to formally engage with you etc. Drop me a PM if you want formal advice and we can go from there.

[ryanb741]

Thanks for the advice all. I will take formal VAT specialist advice here. In the interim now that I have pretty much done the £83k threshold before needing to register for VAT my wife will take it up until such point as she has reached £83k, hopefully by then we will have the VAT picture clear.


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[MB2]

I was under the impression VAT was not charged in vouchers? If I need a VAT receipt from the voucher supplier the whole thing is toast as they will clock that this is no longer personal use and probably stop it. If that is the case I will just do it until turnover reaches £86k (probably 25 watches) and then that will be it for the year


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VAT is "charged" on everything - the VAT receipt for the vouchers should show zero VAT as they can only be spent in certain shops and the VAT is recovered then. This is definitely correct as we used to run voucher promotions and I have plenty of receipts with zero VAT on them and VAT inspections. As an aside John Lewis charge an "average" VAT rate on their vouchers but they removed it when challenged.

[jordan-arch]

Another VAT question however I can't find an accountant who can answer this properly so hopefully someone here can shed light.

It's to do with the PSAs on the watches and the VAT situation. I'm starting it again via my wife but keeping it to below £86k (VAT threshold) for the year so that VAT isn't an issue however this means we will be done in a few months which restricts the opportunity to the forum. The AD is happy as Larry with the scheme as they are blasting their sales volumes targets!

Anyway here's an actual example of how the scheme works and I would love it if someone could say what they think the VAT situation is.

The AD gives me a 15% discount. So if a watch was £5k they sell to me at £4250. The retailer declares VAT of £710.

I buy £4250 vouchers at 15% off via a work scheme. This costs me £3612. I don't believe VAT applies on vouchers as it's dealt with at point of redemption but please correct me if this is wrong. I don't want to ask for VAT receipts from the workplace scheme voucher provider in case they delve deeper and shut the opportunity down as it's technically supposed to be for personal use (which it kind of is as she doesn't sell the vouchers, she is making the purchase with her own loaded gift card, it's just that the watch goes elsewhere). Technicalities and all that.....

The member will send something like £3650 to my wife's account. Technically there is a minor profit here but factoring in the cost of dealing with the AD, filing tax returns, paying business banking fees etc this is only fair as it takes her time and the profit will end up something like £20 on a watch. She's a housewife with no income so she has a full personal allowance.

So. Re the VAT situation my accountant says that the £3650 sent to my wife's account will count as turnover as far as HMRC are concerned. If she wanted to sell more than the £86k per year turnover VAT is applicable. But what amount? For example the receipt we get from the AD shows £710 VAT on a £4250 sale price, but this has actually cost her only £3650! So can she when filing VAT returns state that paid VAT was £710 and charged VAT on a sale of £3650 was £609. Meaning she would be due a refund of £101 from the VAT office? Because the AD will have declared £710 VAT charged when filing their return.

Does this make sense? If it is the case then obviously this then makes a fairly significant profit per watch (and ability to benefit the fundraiser more) but surely this is a loophole HMRC will be all over like a rash.

Like I said nobody seems to be able to give me a straight answer- I want to do things by the book but am wondering if I have uncovered something here!!!

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so looking at the big picture you want to tell the Revenue your buying watches for £4k and selling them for £3K and you want the vat back on the deals as well. On top of that you want to buy something like £80 Grands worth of vouchers through a work scheme every year (£6-7K a month) but your concerned about them finding out its not for personal use from the outset, then factor in the £12K loss you will be telling the revenue you make every year on these deals then its all looking a bit off isn't it.

If you want my 2ps worth its just got trouble written all over it, so much so that I really cant see the point in doing any of it so that its written on anything submitted to the revenue, business bank accounts or anything like that. do it a few times and stick a few quid in the charity bin, anything more than that I really cannot see the point.

As a one off showing a rebate wont be an issue, hell it might never be an issue, but constantly showing sale prices for less than your purchases on all returns, even for such small amounts, might come back to bite you in the arse hard.

[MB2]

I just called the VAT helpline as I had a work enquiry and one of the initial options is "something else" so you could call them without being VAT registered for some help - took about 5 minutes to get through.

0300 200 3700

[ViperStripes]

My take on this for what it's worth (and I may be completely wrong here) is this.

You can reclaim VAT on your purchases but need to charge VAT on your sales.

You buy the watch for £4250 of which £708.. is VAT.

You sell the watch for £3650 and create an invoice for £3040. + VAT.

You have paid £708 VAT and charged £610 VAT so on your VAT return you reclaim £102 per watch.

How you pay for the goods whether it be cash, cheque, credit card or vouchers is irrelevant to HMRC.


The fact that they're vouchers that you got cheap is irrelevant in your transaction and the fact that you got them cheap is a matter between you and your employer for tax purposes. The VAT element of the vouchers is between your employer and whoever they purchased them from.

This sounds about right but if you stay below VAT threshold then the only figures relevant are £4250 purchase, £3650 sale so a loss of £600. Will also need to register as self employed.

The VAT Threshold is a rolling 12 months i.e. each month you must look at preceding 12 months combined to assess your annual turnover, it has nothing to do with tax or trading year ends.

The losses may also have other tax benefits you could put to use but as the rules on tax relief for losses regularly change you need to check with a tax accountant.

[Robertf]

I'm sure you have this all in hand already but the vouchers will need to be declared as a benefit in kind against which tax presumably is payable?

[ryanb741]

I'm sure you have this all in hand already but the vouchers will need to be declared as a benefit in kind against which tax presumably is payable?

No I pay for the vouchers they aren't given to me


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[Dave+63]

No I pay for the vouchers they aren't given to me


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It will probably still count as a BIK though as you're getting them at a discount off face value.

As I said earlier though, I think that's a separate issue to the trading question you posed.

[Kingstepper]

No I pay for the vouchers they aren't given to me


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Isn't the 15% discount a benefit in kind?

[midgetda]

Ryan. Tried to PM you back but your inbox is full. Drop me a PM with your email and mobile number again and we can go from there.

[sundial]

If your declared VAT input tax exceeds you VAT output tax and you therefore claim a VAT refund, sooner or later you'll be more likely to receive a communication from the VAT office advising you'll be subject to a VAT inspection. If the inspector discovers anything untoward and that you might have been reclaiming VAT erroneously you could be ££penalised as well as having to repay overclaimed nett VAT Input Tax. They do not take prisoners and expect traders to be fully aware of all the regulations relating to their businesses. VAT inspectors know all the methods used to try and minimise VAT liability. Your best course of action now is to consult a tax specialist to make sure your proposal is within the VAT rules, that you register for the most appropriate VAT scheme, and that you account or all VAT Input Tax and potential VAT Output Tax properly. Accountants are not necessarily VAT experts - which is why VAT specialists offer VAT accounting seminars. I've attended two John Price VAT seminars and they were eye-openers for identifying common VAT misconceptions and the need for business people to increase their VAT awareness and improve their VAT accounting skills.

dunk

[ryanb741]

Ok so I think in hindsight I will just get my wife to sell up to £83k of watches. Then I can do likewise. Therefore no VAT obligation.

I must say the whole VAT situation seems unnecessarily complex and a bit of a barrier to commerce. It is what it is I suppose.

In order to give as many members as possible the opportunity to get a watch we will restrict purchases to RRP of £4K and below, otherwise if someone wants a grey side of the moon we have used 10% of the allocation on one watch.


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[deepreddave]

Why not just ask HMRC for a ruling and be clear?

Be mindful that if there is a genuine issue with vat HMRC might argue that's an artifical separation (disaggregation) especially as you've made that the clear intention on this thread.

I really would be surprised if HMRC saw a vat issue in your activities here but tax can be odd. I don't think you have a trading loss position at all but if you did then the losses wouldn't be available for offset against other income as you need to be trading commercially with a view to a profit for that relief. I still don't think under the original model that you're trading but hey ho.

[JasonM]

Fair play to you Ryan for your doggedness, I'm afraid I would have filed this under 'too complicated' long ago.

[sundial]

Ok so I think in hindsight I will just get my wife to sell up to £83k of watches. Then I can do likewise. Therefore no VAT obligation.

I must say the whole VAT situation seems unnecessarily complex and a bit of a barrier to commerce. It is what it is I suppose.

In order to give as many members as possible the opportunity to get a watch we will restrict purchases to RRP of £4K and below, otherwise if someone wants a grey side of the moon we have used 10% of the allocation on one watch.


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You could be taking a risk and could be deemed as 'money laundering' to avoid VAT if your, and your wife's sales, in total, exceed the VAT threshold - as they surely will as soon as the cumulative sales reach the threshold. You should consider taking professional advice from a qualified tax expert … and any costs involved passed on (until recovered) to those benefitting from the scheme. Better safe than sorry.

dunk

[markrlondon]

Ok so I think in hindsight I will just get my wife to sell up to £83k of watches. Then I can do likewise. Therefore no VAT obligation.

Note that HMRC can consolidate two enterprises into one for VAT purposes if they feel they are being run pseudo-separately to avoid VAT, and this kind of arrangement could be seen as such.

[ Edit: I see that sundial said the very same thing above! ]

You really do need VAT advice from an experienced VAT consultant and/or a written determination from HMRC to protect you. In my view there is no sensible way round one or both of these routes.

I must say the whole VAT situation seems unnecessarily complex and a bit of a barrier to commerce. It is what it is I suppose.

Quite so. If I may make a pseudo-political statement (take it up in BP if anyone wants to pursue it), it's all about maintaining the status quo.

[markrlondon]

https://www.gov.uk/government/public...value-vouchers

I think this notice should clear up any queries.

Having read the notice in detail, I think it does answer many questions. I reckon the retailer could probably be invoicing for VAT at a lower level, but aren't (for various reasons). Not that that matters to Ryan.

However, to my mind, clearing up one issue prompts questions elsewhere, such as the difference between being an agent and a supplier, and so on.

Thanks for the link although I'm still none the wiser about what it all means :(

Then definitely consult a VAT consultant and/or HMRC themselves. There is just no way round being certain.

[ryanb741]

Thanks all chaps. Because everything is somewhat close to the wind I think it's probably prudent to wind this in, and not offer the facility. Just too much of a palaver. I will fulfil the order for teh chap who wants a Speedy Pro for his 50th and whose wife is paying for it but then that's it sadly. Don't want to take the risk.

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[rasputin]

Thanks all chaps. Because everything is somewhat close to the wind I think it's probably prudent to wind this in, and not offer the facility. Just too much of a palaver. I will fulfil the order for teh chap who wants a Speedy Pro for his 50th and whose wife is paying for it but then that's it sadly. Don't want to take the risk.

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Don't blame you at all Ryan. It was starting to sound way too complicated. Fair play to you though, for pursing it thus far.

[Wallasey Runner]

Thanks all chaps. Because everything is somewhat close to the wind I think it's probably prudent to wind this in, and not offer the facility. Just too much of a palaver. I will fulfil the order for teh chap who wants a Speedy Pro for his 50th and whose wife is paying for it but then that's it sadly. Don't want to take the risk.

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Totally understandable Ryan, it all sounds like it was heading beyond a bit of fun and helping out a few fellow forum members. I think you may need to put something in WT or SC as some people may not tune into this thread.

Thanks for everything that you have done for people up to this point and I am sure that everyone will respect your decision.

[deryckb]

Isn't the 15% discount a benefit in kind?

As long as the employee is not paying the discount it is not a benefit in kind. My employer has a scheme thay gives various discounts that do no count as benefits in kind.

[markrlondon]

As long as the employee is not paying the discount it is not a benefit in kind. My employer has a scheme thay gives various discounts that do no count as benefits in kind.

"As long as the employer" surely?

[sundial]

You could ask all those wishing to participate in the scheme to underwrite the cost of consulting a taxation professional. If it costs each of them e.g. £50 and it's a viable scheme they'd save far more than the fee. If it's deemed not to be a viable scheme because it contravenes VAT regulations then they take a £50 hit … rather than you picking up the whole fee … or you being found in breach of the law when offering the discounted items.

dunk

[rasputin]

Aside from all the leg work that would require it was my impression that you cannot rely on guidance provided either by HMRC or by an adviser, unless it has been provided with a full statement of the facts. In addition most of these types of request are vetted by HMRC and are ultimately rejected.

[Enda]

If the transaction was buying the vouchers rather that the watch would it eliminate the loss issue? So you buy vouchers for £3,750, sell them for £3,800 and they are then exchanged for the watch?

[markrlondon]

This is moot now, so I'm just saying this for fun (fcvo fun)...

If the transaction was buying the vouchers rather that the watch would it eliminate the loss issue? So you buy vouchers for £3,750, sell them for £3,800 and they are then exchanged for the watch?

According to the HMRC notice linked above[1], Ryan would definitely then have to register for VAT (assuming he hit the threshold or knew he was going to) as he would be reselling the vouchers and they would go on his turnover (as opposed to him being an agent for other people and mostly handling other people's money).

According to the HMRC notice and if I read it correctly, the vouchers in question are 'face-value vouchers' of a type called 'credit vouchers' and these are theoretically VATable[2], meaning that a seller of them must be VAT-registered if his turnover is high enough. Counter-intuitively HMRC chooses not to levy VAT on them until they are redeemed[3].

Simple? Of course not!




Footnotes:-
1: https://www.gov.uk/government/public...value-vouchers

2: Section 8.2: "The issue of a face value voucher is a supply of services for VAT purposes."

3: Section 8.5: "The legislation allows us to collect VAT from any person selling credit vouchers. This includes the issuer, along with subsequent intermediaries where the redeemer fails to account for any VAT due. But we have undertaken to enforce this only in the event of a deliberate attempt to avoid paying the VAT."

[ryanb741]

As an aside, if members trusted me enough to give me their debit card details if they allowed my wife to purchase on their behalf using the cards, thereby having no cash enter her account, and then sent her an agency fee of £150 or so, so the total compensation is £150, total amount entering her account is £150 and the service is buying vouchers for.someone else, then the total number of £150 transactions would never get above the £83k VAT threshold. What do we think of this as a solution?

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[sundial]

Check HMRC VAT notice 700/7 … sections 7.2 & 7.4 therein:

7.2 Issue and sale of coupons

Normally money-off coupons are issued for no payment or consideration. Even where the issue is linked to the purchase of goods, there is no VAT due provided the goods are sold at their normal price.

However, if you sell money-off coupons, discount coupons or discount cards, which entitle the holder to discounts from either you or other businesses, then this is a standard-rated supply and you are required to account for VAT.


The old adage 'Ya don't get nuffink fer nuffink' comes to mind … HMRC are aware of all the schemes that people propose. As stated/advised previously, you really should consult a tax professional before embarking on such a scheme. You and /or your wife would in effect be selling (laundering) discount vouchers liable to VAT output tax at their cost price … if you're registered, or are obliged to register(by virtue of actual turnover), for VAT.

Furthermore, the £150 agency fee which would also be liable to VAT:

7.4 Handling charges
If you make a charge for handling, promoting or advertising coupons, this represents consideration for a supply of your services. The supply is taxable and so you will be required to account for VAT.

… the agency fee output tax liability would be sooner rather than later if the vouchers are deemed liable for VAT output tax.


dunk

[markrlondon]

You and /or your wife would in effect be selling (laundering) discount vouchers liable to VAT output tax at their cost price … if you're registered, or are obliged to register(by virtue of actual turnover), for VAT.

Furthermore, the £150 agency fee which would also be liable to VAT:

7.4 Handling charges
If you make a charge for handling, promoting or advertising coupons, this represents consideration for a supply of your services. The supply is taxable and so you will be required to account for VAT.

… the agency fee output tax liability would be sooner rather than later if the vouchers are deemed liable for VAT output tax.

For what it's worth, I think that what Ryan proposes would legitimately get around the issues you raise. He only needs to account for VAT if he hits, or is likely to hit, the VAT threshold, on his turnover and he definitely will not do so under this proposal.

But yes, don't take anyone's advice here: Consult a VAT consultant and/or HMRC to be sure.

[sundial]

For what it's worth, I think that what Ryan proposes would legitimately get around the issues you raise. He only needs to account for VAT if he hits, or is likely to hit, the VAT threshold, on his turnover and he definitely will not do so under this proposal.

But yes, don't take anyone's advice here: Consult a VAT consultant and/or HMRC to be sure.

Selling discount vouchers i.e. 'coupons for £3650 each to be used for buying discounted watches would attract standard rated VAT .. as per HMRC VAT notice 700/7 … section 7.2

I'd be interested to hear any tax expert advise why such transactions should not attract VAT. The proposal is a service and thus VAT rated … unless classified as VAT zero rated or VAT exempt.

Just 23 watches would exceed the VAT threshold i.e. £3612 + £150 = £3.7K 86/3.7= 23.24

dunk

[markrlondon]

Selling discount vouchers i.e. 'coupons for £3650 each to be used for buying discounted watches would attract standard rated VAT .. as per HMRC VAT notice 700/7 … section 7.2

No, he wouldn't be selling the discount vouchers. In fact he never was buying or reselling the vouchers in his own right[1] but (whether or not HMRC or anyone else agrees with that) he definitely would not be buying or reselling them under this new proposed arrangement. Instead, other people, his clients, would be buying the vouchers directly with this proposal.

Agents or advisors do not generally need to account for VAT on their clients' purchases, as I understand it. They only need to account for their own service fee and, in this scenario, such service fees would never reach the VAT threshold (although they'd still be taxable income).

In fact I do quite similar in my work: I used to sell computer hardware to my IT consultancy clients but the margins are so small that I rarely do so nowadays. It isn't worth the hassle. Instead I tell my clients what to buy and they buy direct. Sometimes, with their permission of course, I use their debit or credit card to make the purchase on their behalf. Just as with Ryan's proposal above, the client is the direct purchaser and I have no need to account for anything to do with the goods as the goods are never my property. I account for my consultancy and other fees separately. In Ryan's proposal, the vouchers are the goods in this context.

But it really doesn't matter here. No matter what, I still think that Ryan needs to get professional advice before proceeding.




Footnote:-
1: According to my understanding he was using clients' funds to buy them as an agent of the purchasing client. Things could have appeared confused, however, because he was directly handling client's money so it could have looked like resale.

[sundial]

No, he wouldn't be selling the discount vouchers. In fact he never was buying or reselling the vouchers in his own right[1] but (whether or not HMRC or anyone else agrees with that) he definitely would not be buying or reselling them under this new proposed arrangement. Instead, other people, his clients, would be buying the vouchers directly with this proposal.

Agents or advisors do not generally need to account for VAT on their clients' purchases, as I understand it. They only need to account for their own service fee and, in this scenario, such service fees would never reach the VAT threshold (although they'd still be taxable income).

In fact I do quite similar in my work: I used to sell computer hardware to my IT consultancy clients but the margins are so small that I rarely do so nowadays. It isn't worth the hassle. Instead I tell my clients what to buy and they buy direct. Sometimes, with their permission of course, I use their debit or credit card to make the purchase on their behalf. Just as with Ryan's proposal above, the client is the direct purchaser and I have no need to account for anything to do with the goods as the goods are never my property. I account for my consultancy and other fees separately. In Ryan's proposal, the vouchers are the goods in this context.

But it really doesn't matter here. No matter what, I still think that Ryan needs to get professional advice before proceeding.




Footnote:-
1: According to my understanding he was using clients' funds to buy them as an agent of the purchasing client. Things could have appeared confused, however, because he was directly handling client's money so it could have looked like resale.

But these are discount vouchers or coupons - not hardware - which TZ UK members cannot buy direct themselves from the same source as Ryan - and which being discounted are dealt with for VAT purposes by HMRC VAT notice 700/7 … section 7.2 Being discounted, the voucher or coupon is subject to standard rated VAT, thus the purchaser has to pay it - and the provider / seller has to account for the VAT output tax. The situation would likely be different if the vouchers were not discounted.

dunk