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Avoid paying too Much VAT - Get the Basics Right


The VAT People - Expert Author

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4th April 2014

Whilst VAT is a complex tax many businesses unfortunately suffer VAT assessments due to relatively simple errors that can prove costly if not rectified at an early stage. The recent Tribunal decision in the case of Panesar Enterprise UK Limited highlights this fact. The business and a related company were burger King franchisees that used a software package recommended by Burger King. The package was set up to differentiate between standard rated supplies and zero rated supplies but unfortunately for the businesses concerned the systems had been incorrectly programmed so that the wrong VAT rate was picked up for some of the ‘product sales’.

There was no dispute over the fact that some products treated as zero rate were in fact subject to standard rate VAT so the company’s appealed on the basis that the error was a genuine mistake and not of their creating. Unfortunately the Tribunal chairman was unable to uphold the appeal as it could only consider the appeal if there was a difference in point of fact or if the amount of VAT at stake was in dispute. As neither applied in this case the appeal was struck out.

This type of error is surprisingly common and can result in a loss of profit as VAT and interest due to HMRC. We have assisted clients ranging from a nationwide retailer who had coded some adult clothing as children’s clothes resulting in an underpayment of VAT to a charity that had coded irrecoverable VAT relating to non business activities to T1 fully claimable VAT on Sage resulting in a substantial over claim of VAT.

A VAT review of the coding on the clients system would have revealed these errors much earlier thus avoiding an assessment for VAT, interest and penalties, which as both client’s errors were discovered during VAT inspections were at rates of 30% to 70% of the VAT due. Of course a VAT review doesn’t always result in bad news for the client, we have also carried out reviews where it has been identified that businesses are actively overpaying VAT due to coding errors including one client who was treating zero rate exports of motor vehicles as standard rate for VAT resulting in an over payment that we recovered from HMRC.

If you or your client make supplies of goods and services at multiple VAT rates, or have income that is treated as not attracting VAT, it would be worth calling our free VAT helpline for an initial discussion as this will help determine if a VAT review should be carried out to identify any VAT opportunities or exposures.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2014-04-10 09:12:35 in Tax Articles

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