VAT: top ten trouble spots

Article Abstract:

Value-added tax (VAT) investigations and additional assessments are commonplace among British business enterprises. Companies wishing to avoid such assessments from British Customs officers should realize that: (1) taxes paid (or input) due to the purchase of company automobiles cannot be recovered, (2) input tax claims for gasoline expenses will be disallowed when the gasoline was used for personal rather than business purposes, (3) input tax on business entertainment expenses is not recoverable, (4) duplicate transaction records could create duplicate VAT claims, forcing an investigation, (5) all input tax claims must be accompanied by VAT invoices, (6) taxes paid in relation to employees' travel and entertainment allowances are only recoverable if it can be shown that the allowance was spent for business meals, (7) input tax claims arising from exempt outputs (such as rental income and profits from the sale of properties unrelated to the corporate business) will be disallowed, (8) VAT costs should be applied to intercompany charges, (9) output and input tax confusions frequently occur as a result of 'reverse charges' recognized by VAT rules, and (10) VAT does not apply when going-concern portions of a business are transferred in terms of ownership.

Tax administration and procedure, Tax administration

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Cross border transactions post-1992

Article Abstract:

The European Community (EC) has agreed on changes to the value-added tax (VAT) treatment of inter-EC transfers of goods. As of 1 Jan 91, all VAT documentation and examinations of goods for other than contraband will be eliminated. Goods will be able to be shipped across the EC without official documentation. There will be no presence collecting VAT at the borders of EC states, and VAT will no longer be paid upon importation of goods from other EC states. Registered UK businesses will pay a 15% VAT on all standard rated goods imported from suppliers in EC member states, which will be entered in Box 1 of their VAT returns as an output tax. The new VAT regime will be in effect until 1 Jan 1997.

Europe, International trade, Single European market, European Community

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The partial exemption VAT shake-up

Article Abstract:

The rules regarding value added taxes (VAT) in Great Britain have been modified to conform with a European Economic Community Directive on taxation. The resulting partial exemption rules affect virtually all firms that have VAT liability. A new standard method for determining partial VAT exemption, called 'exempt input tax', has been introduced. Exempt input tax is defined as input tax attributable to an exempt supply, either wholly or in part. As a consequence of this new standard, traders will have to use a direct attribution accounting method for calculating partial exemptions.

Accounting and auditing

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