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Discover the Key VAT implications and risks associated with Mergers and Acquistions including Consideration, Balance Sheet Completion Statements, Due Diligence, VAT Risks and much more. Introduction The term Mergers and Acquisitions refers to the activity of two or more companies combining to form one entity or one company acqu i ring the assets or shares of another company. The are a number of VAT issues associated with Mergers and Acquisitions some of which are listed below: The Recovery of VAT on Deal Costs The recovery of VAT on deal costs largely depend s on whether the costs are incurred to acquire or create a business that will be used to make taxable supplies going forwa rd (direct attribution). In other words the costs incurred must have a direct and immediate link to taxable supplies that will be made by the business being acquired. In such cases, the VAT is recoverable from HMRC on cost such as those listed below; Legal Fees Consultancy Fees Accountancy Fees Project Management Fees SPA Drafting Fees Corporate Finance Advisory Fees Due Diligence Fees Tax Advice Post Completion Structuring If on the other hand the target business was only making exempt supplies and this was going to continue post acquisition, then the VAT on the deal costs would be irrecoverable. However with many M&A deals the target is often acquired by purchasing shares which in itself is an exempt activity and as such means the associated deal costs can be irrecoverable. When a shareholding is used as part of an economic activity VAT may only be recovered if incurred in the course of an economic activity. Simply holding shares in order to receive dividends and perhaps to sell them for a capital gain is an investment activity and not an economic activity for VAT purposes. Therefore the VAT on the costs of acquiring and holding shares for either of these purposes is not recoverable. For the VAT to be potentially recoverable the entity acquiring the shares must do so, for some other purpose which is economic. For example Shares may be acquired and held temporarily as part of an activity of trading in securities. Trading in securities differs from investment in securities because the aim is to profit from short term movements in the price rather than the long term growth. A profit can be made regardless of whether the shares are increasing or decreasing in price. Trading in securities is an economic activity. A company may acquire and hold shares in subsidiaries to which it intends to provide management services for consideration. The provision of services for consideration is an economic activity. Following the CJEU decision in the joint cases Larentia +Minerva and Marenave (L+M) HMRC r eviewed its existing policy in respect of holding companies and deduction of VAT incurred on acquisition costs. Prior to L+M our policy was that VAT incurred on costs of acquiring shares by a holding company was only deductible where it was directly attributable to the provision of taxable management or technical services. VAT incurred had to be apportioned between non-economic activity of shareholdings and economic activity. Additionally, VAT on costs incurred by a holding company was only recoverable if the intention was to recoup the expenditure from the income resulting from taxable services provided to subsidiaries within a reasonable time. In L+M the CJEU held that VAT incurred by a holding company on the costs of acquiring shareholdings in subsidiaries, to which it also intends to provide taxable management services, must be regarded as belonging to the Holding company’s general expenditure and is deductible subject to any Partial Exemption restriction in place. In order to be able to deduct VAT incurred on costs of acquiring shareholdings in subsidiaries the following conditions must be satisfied: the holding company making the claim must be the recipient of the supply the holding company must be undertaking economic activity for VAT purposes that economic activity must involve the making of taxable supplies. If the holding company is VAT grouped with its subsidiaries, it makes taxable supplies or loans for which it earns interest and the loans support the making of taxable supplies by the VAT group. If the holding company is not the recipient of the supp ly, or is not undertaking economic activity, it will not be able to recover VAT. Is the Holding Company the recipient of the su pply HMRC consider that a holding company is the recipient of the supply where it has contracted for the supply, including by novation and it has made use of the supply, been invoiced and paid for the supply. Is the Holding Company undertaking economic activity for VAT Purposes In addition to an activity which any other business may undertake (supplies of goods and services more generally), the holding company is undertaking economic activity for VAT purposes where it makes or intends to make supplies of management services for consideration, to its subsidiaries. It is important to note that the management services must be genuine and provided for consideration which is more than nominal. Where the Holding company is passive with no economic activity of its own, any VAT incurred on the costs of acquiring subsidiaries is not recoverable, and this will still be the case if the holding company joins a VAT group with the acquired companies. For VAT to be recoverable, the costs on which it is incurred (including acquisition costs) must have a direct and immediate link to taxable supplies conducted as part of the economic activity. VAT will only be recoverable to the extent that those costs are used for the taxable activity. For more on the meaning of the term direct and immediate link see VIT21000 If a holding company provides taxable management services, to all its subsidiaries, then any VAT incurred on acquisition costs relating to the holding in those subsidiaries will be deductible. The receipt of dividends does not affect the deduction. However, if a holding company incurs costs on acquiring shares in subsidiaries intending to make taxable supplies to some of them, but not others, the acquisition of the latter subsidiaries is an investment activity and not an economic activity for VAT Purposes. Accordingly, the VAT incurred should be apportioned between the economic activities and the investment activities. Alternatively a holding company may incur costs on acquiring shares in a subsidiary to which it both provides management services and makes a loan in respect of which it earns exempt interest. In those circumstances any VAT incurred on costs relating to the holding must be apportioned between the taxable and exempt supplies in line with the company’s partial exemption method. Shareholding acquired as a direct, continuous and necessary extension If the shareholding is acquired as a direct, continuous and necessary extension of a taxable economic activity of the holding company, the VAT incurred may also have a direct and immediate link to taxable supplies and be recoverable. For example A retail company incurs costs acquiring a subsidiary whose main asset is a property from which the retail company intends to trade. In these circumstances the acquisition of the shares may be an extension of the retail business rather than an investment. If this is the case, the costs of acquisition are likely to be cost components of the retail supplies to be made from the property. The shares were acquired in order to obtain the property for the retail business. The VAT incurred will be recoverable to the extent that the retail supplies are taxable. A business acquires a direct competitor, a similar and complementary business or a key supplier/customer with a view (as the case may be) to increasing market share, achieving economies of scale, or achieving efficiencies through greater integration of its supply chain. In the above examples the shareholding is a direct, continuous and necessary extension of the existing business activity. There is no need for a specific supply (e.g. management services provided to the acquired business) to link the VAT costs to the existing economic activity. This is to be contrasted with: A company which purchases a business as a free-standing enterprise with a view to making money on dividends or an eventual sale. In the first two examples the buyer is buying to strengthen its business, but by contrast in the above example there is no direct link between the acquisition and its own business and the acquired business does not itself benefit by being part of a larger, similar operation. The VAT on costs incurred by the target of an acquisition, such as vendor due diligence costs, may also be deductible provided it can be shown that the target is the recipient of the supplies in question and those supplies were received for the purposes of the business carried out by the target. Intention to make taxable supplies If a holding company recovers VAT on acquisition costs because it intends to make taxable supplies to the subsidiary, it should retain evidence to demonstrate that this was the intended business model. Where a holding company can evidence a genuine intention to make taxable supplies to its subsidiaries but those services are not actually made then the normal input tax rules regarding intention to make supplies will apply. See VIT22000 Contingent consideration for management services Where a holding company incurs input tax on costs in providing or intending to provide management services to subsidiaries on terms whereby any payment will be contingent upon the profitability of those subsidiaries, then the holding company is not engaged in economic activity. This is because where services are supplied for no consideration or there is no contractual expectation that consideration will be received there is no supply for VAT purposes. The supplies in question are not being provided for a consideration because the essential direct link and reciprocity between the obligations on the one hand of the holding company to provide the management services and the obligations on the other of the subsidiaries to make a payment for those services, is absent. The issue of what constitutes a supply for a consideration has been the subject of a substantial body of case law. Most recently we have the decision of the Upper Tribunal in the case of Norseman Gold see VIT64050 Both the FTT and the Upper Tribunal on appeal considered the adequacy for the purpose of making taxable supplies of an intention to charge at some time in the future for services being provided. The FTT concluded that this would be insufficient in the absence of evidence of any agreement about the amount to be charged, the frequency with which invoices would be sent and the details of the services to be provided in exchange for the charge. It decided that it was important that the price or consideration is stipulated rather than there being ‘a rather vague intention to levy an unspecified charge, at some undefined time in the future’. The effect of a holding company joining a VAT Group Joining a VAT group does not, of itself give rise automatically to an entitlement to recover VAT. It cannot change a non-economic (i.e. out of the scope) activity into an economic activity. Nor does it automatically create a direct and immediate link between all input costs of a holding company and the taxable outputs of other VAT group members unless such a link can be traced through the intra group supplies, or the input costs are such that they are properly and naturally attributable to the VAT group’s taxable outputs. VAT grouping has the effect that all supplies are treated for VAT purposes as made to and by the representative member and imposes joint and several liability on all the members. It doesn’t have any other effect. If a member of a VAT group incurs costs which it uses for non-economic activities, then the VAT on those costs still relates to the non-economic activities and VAT grouping does not change that. The supplies are treated as being used by the representative member for non-economic purposes. If the holding company provides management services or loans in respect of which it earns interest (see VIT64050 EDM C-77/01) to the companies acquired in the VAT group and these can be seen to support the making of taxable supplies by the VAT group (identifiable by ‘looking through’ the supply chain within the group), the related VAT will be recoverable to the extent that the costs support taxable supplies made. This is the case whether the transactions within the group would be taxable or exempt supplies, were they not disregarded because of the VAT grouping. It is use that determines whether input tax is deductible and the existence of a direct and immediate link between the cost and the taxable supply. The question to ask is ‘has the VAT group incurred the costs for use in its economic activity?’ Th e Sale of Shares In a Subsidiary to Fund Business Expansion As illustrated in the case HMRC vs Hotel la tour , it is possible to recover input VAT on costs related to the sale of shares in a subsidiary which will be used to fund expansion of a taxable business. Basically the VAT was recoverable because: The costs were incurred to fund the businesses expansion providing ta xable supplies and as such the associated VAT was recoverable The costs were not incorporated into a component of the share price Sale and Purchase Agreement (SPA's) The sale or acquisition of a business will normally involve the drafting of a SPA which will set out the responsibility of each party under the agreement including the price of the deal, the assets and liabilities (Including Tax and VAT). Its important from a VAT perspective to ensure that all VAT receivable and payable is clearly identified and included in the SPA as an asset and liability respectively. Both of these elements will affect the final agreed deal price. Getting these amounts wrong can lead to future problems and disputes so its also important that the VAT cl auses within the SPA cover how to resolve such issues when they arise. For example The VAT receivable maybe based on invoices from suppliers which include VAT but have not been recovered from HMRC yet. If the invoices are issued to the existing busin ess owner under its VAT registration, then the new owners will not be entitled to VAT recovery under a new VAT registration number for the newly purchased entity. The VAT on such invoices will normally have to be recovered by the former owners of the business by submitting an Error Correction Notice (ECN) to HMRC. Acquisitions that Straddle VAT Return Periods. It is often the case that the date of acquisition occurs on a day that is in between the usual VAT reporting period of the business being sold or acquired. Where this happens, it can present a number of issues that need to be addressed to ensure accurate reporting of VAT to HMRC. Some examples are listed below: Output VAT payable and Input VAT recoverable reporting will need to align to the date up to the sale date Data extracted from systems used to provide information for the VAT return will need to be changed to reflect the new cut off date. Accounts Payable and Receivable teams will need to be informed of the deal date so invoices are issued and paid within the appropriate period. VAT payable and receivable post deal date will need to be settled by the new owners or transferred across from the existing owners respectively. The mechanism to effect this will need to be included in the VAT clauses of the SPA. VAT Recovery Forecasts Some businesses being sold maybe partially exempt and as such can only recover a percentage of the VAT they incur on their costs. VAT recovery will either be based on using the standard partial exemption method or by using a HMRC Agreed Special Method . In any cas e, where the business uses the gross method of VAT accounting by posting the cost and VAT to P&L based on invoices received from suppliers, it may forecast its VAT recovery credit on a monthly basis and annual basis. VAT recovery can have a significant impact on profitability especially for large businesses where irrecoverable VAT can be high. It is therefore important that the current owners of the business being sold ensure that VAT recovery forecasts are amended to reflect the shorter period of VAT / Financial Reporting. Due Diligence for VAT Risks Due diligence is the process that is carried out by a prospective buyer of a business to understand the business and assess any inherent and future risks to the business. It also involves a review and appraisal of the business to identify its assets and liabilities and evaluate its commercial viability as a going concern. There are many areas and aspects of the business that a potential buyer will want to review and assess before going ahead with the purchase or to ensure that any material issues identified are reflected in the final purchase price. Some of the main due diligence areas for review from a VAT perspective are listed below: Intercompany recharging agreements and recharges to identify any VAT liabilities including reverse charges applicable Controls in existence around intercompany invoicing and recharging The VAT accounting process and any existing input VAT receivables and output VAT payables The systems used to prepare the VAT returns including billing and accounts payable systems VAT registration periods are these monthly or quarterly / mixture of both Entities where payments on account are made to HMRC and the scheduled payment dates Systems used to extract values data, transaction counts, sales credits for Partial Exemption calculations External third party systems used to prepare the VAT returns and partial exemption calculations such as VAT consolidation systems, e filers, VAT allocation and analysis systems. Internal VAT preparation procedures and any VAT bibles Review and understand any Partial Exemption Special Methods agreed with HMRC. Is it up to date or due to be reviewed Any assessments issued by HMRC, penalties or interest due Overall relationship score with HMRC Existing staff and levels in the VAT team and who will be assisting with providing the necessary data to support the business sale List of existing VAT reliefs and agreements with HMRC that are in use in preparing the VAT returns Review of branch and subsidiary structures to ensure they are compliant from a fixed establishment perspective both locally and overseas. (See Skandia and Danske cases under the VAT News section. Any overseas entities and the existing tax authority relationships Pending and recent HMRC audits and also overseas tax authority audits Recent internal audit outcomes. Barter Transactions and Arrangements - How VAT is accounted for Existing property portfolio and who manages the billing for rent and service charges where these are sublet. (External management or internal) Options to Tax on properties in place with HMRC Level of client entertaining and whether the recovery is being blocked per HMRC rules Error Correction Notices (ECN) review for any potential future VAT risk Understand the business structure and transaction types VAT group members Understand the supply chain / product procurement process and existing contracts both local and global New product and changes to existing product signoff process by VAT Team VAT Coding used for transactions Tax Technology support. (Internal / external) Completion Accounts T he acquisition or disposal of a VAT registered business or a business that is part of a VAT group will require a due diligence review of the financial records f rom both the buyer and sellers perspective. As part of that review, a set of completion accounts will be drafted and agreed which will list all the assets and liabilities of the business being sold in order to make adjustments to the initially agreed purchase / sales price for the business. As part of this exercise, the seller will be required to declare / include all VAT a ssets (recoverable VAT debtors) and outstanding / pending VAT liabilities in the completion statement. Failure to do this can result in: The incorrect valuation of the business leading to under or over consideration payments for the business Unexpected liabilities for the buyer Irrecoverable input VAT for the buyer Post acquisition disputes / litigation As such, it is imperative that clear and specific VAT clauses are included within the sale and purchase agreements (SPA) by the tax / legal team to ensure that where lapses occur within the due diligence process, there are mechanisms to settle any losses and resolve any disputes post sale completion. Seller - Pre - Completion Date Responsibilities (List not Exhaustive) Ensure all recoverable input VAT is Identify and included within the completion statement Ensure all VAT payable amounts are identified and included within the completion statement De register the business for VAT or remove from VAT group as at date of completion Include the relevant VAT clauses as agreed with buyer Run all the necessary reports required for pre sale VAT reporting prior to the completion date Inform HMRC of the sale and change to the business or VAT group structure Amend the partial exemption method calculations and process notes where necessary. Inform HMRC of any required changes to the PESM Buyer - Pre - Completion Date Responsibilities (List not Exhaustive) Ensure adequate due diligence is undertaken by tax and legal teams and the necessary VAT clauses are incorporated in the SPA Register the acquired business for VAT or as a member of the VAT Group from date of completion Inform HMRC of any required changes to the agreed group partial exemption special method (PESM) Update the internal process notes for the acquired entity's VAT return preparation and compliance Ensure there are trained staff to oversee the acquired entities VAT compliance and reporting process MTD requirements for acquired entity Transitional Service Agreements (TSA) Normally as part of the sale of a business, the buyer and seller will come to an agreement known as a TSA to ensure there is a smooth transition of the business after the deal has been signed. This will ensure that there is continuity of the business post sale and these TSA's can normally be in place for between 1 to 2 years. They can cover areas such as: Ongoing IT Support by the seller Use of Sellers systems for a period Supply of sellers staff to maintain BAU Use of Buildings where the leases are still in the name of the seller Logistical support etc TSA's need to be drafted and operated correctly from a VAT perspective. Some of the key points are listed below: TSA invoices issued to the new owner need to show the correct VAT liability depending on the service being provided Costs associated with the TSA will normally need to be ringfenced in a specific cost centre to segregate them from the sellers existing BAU costs. VAT incurred by the seller on costs that have been ringfenced as above will often be fully recoverable as they are directly attributable to the taxable supply of services provided to the buyer. If the cost and VAT cannot be ringfenced then full recovery of VAT will most likely not be possible. Contains public sector information licenced under the open Government Licence v3.0 Mergers and Acquisitions VAT

VAT Risk - Identifying VAT risk areas in an organisation, controls and how to mitigate against VAT errors and Introduction VAT Risk - Failure to introduce and continually develop robust controls in relation to VAT within the E2E processes in an organisation and can result in: The over-payment of VAT to HMRC Under recovery of VAT From HMRC Fraud HMRC Penalties and Fines Reputational Damage with HMRC Increase in VAT P&L Cost VAT Risk Areas Client On-boarding Risks (know your Client Failure to document and verify a client's residence or their businesses country of operation resulting in incorrect VAT determination within billing systems and thus incorrect VAT applied on invoices. Potential fines and penalties from HMRC. Failure to obtain and verify a clients VAT registration number or determine if they are in business resulting in incorrect billing for VAT and potentially aiding fraud. Potential fines and penalties from HMRC. Note - Issues such as above can usually be identified during HMRC audits where samples of client details are requested along with their country of residence or operation which HMRC will then test against VAT applied to their Invoices. Supplier On-boarding Risks Failure to obtain and verify a suppliers VAT registration details and number, potentially resulting in the invalid recovery of input VAT Failure to obtain and verify a suppliers VAT registration details and number resulting in carousel fraud where fraudulent suppliers do not pay the VAT to HMRC. Note: Domestic reverse charging in some industries like Telecoms (mobile phones etc) and the construction industry were introduced to combat this problem. Accounts Payable Risks Invalid VAT Invoices - Failure to review and validate supplier invoices to ensure they are compliant from a HMRC perspective and thus risking recovering VAT on invoices that are invalid resulting in HMRC claw-back and penalties Poorly Trained Staff - Staff with little or no understanding of VAT can result in incorrect coding of invoices for VAT and potential under or over recovery of VAT. Mistakes caused by incorrect coding will result in repeated Error Correction Notices (ECN's) having to be raised and submitted to HMRC which will attract penalties and damage the organisations reputation with HMRC Failure to Reverse Charge Non UK Supplier Invoices for Services - Invoices received from non UK suppliers for services in the majority of cases (exceptions hotels, admissions to events, overseas property transactions, non UK transport) are required to be reverse charge and thus the organisation will be required to self account for output VAT to HMRC. This is a common problem. Failure to Reverse Charge UK Supplier Invoices Subject to the Domestic Reverse Charge Rules - Supplier invoices in certain industries are subject to the domestic reverse charge where the customer is responsible for accounting for the output VAT to HMRC. This is normally the case in the construction industry, wholesale electricity and gas sales, mobile phone and computer chip industry. Processing Invoices Issued in a Foreign Currency where the VAT is not Translated to GBP - Supplier invoices issued in the UK in a foreign currency are required to display the VAT amount in GBP along with the exchange rate used. Invoices where the VAT is not translated into GBP should not be processed as they are invalid from a HMRC perspective. Application of Reverse Charge to Goods that have been Imported to the UK - Where goods have been imported into the UK and import VAT has been levied at the border or via the Postponed VAT Accounting (PIVA) procedure (where VAT is paid and recovered via the VAT return), there is no need to account for reverse charge VAT again. Procedures should be in place in Accounts Payable to identify and distinguish between invoices for goods and those for services to avoid such mistakes and potential VAT errors. Input VAT Directly Attributable to Onward Supplies to Clients - Input VAT that is directly incurred (linked) to onward supplies to clients such as legal fees will often be recharged to the clients during billing. Where the underlying deal is a taxable supply in the UK or the supply is to a non UK counter-party then the associated VAT on such third party cost can usually be recovered in Full from HMRC . If the underlying deal is a Financial Service provided to a UK counter-party and is Exempt from VAT, then the input VAT on such cost (legal fees etc) would normally be fully irrecoverable . If an organisation does not have a process in place to identify and apply the correct VAT recovery to these costs then this can result in the under or over recovery of VAT from HMRC. Third Party Costs Incurred - Input VAT can only be claimed by the recipient company as addressed on the supplier invoice. Therefore where a company pays for goods or services on behalf of a client or customer for example and the invoice is addressed to the client, then the company has no right to recover any input VAT shown on the invoice. (Even though it paid for the services). Hence VAT recovery should be blocked in such cases. Payments made Outside of the Accounts Payable System - Whereas the majority of payments made to suppliers by an organisation will usually be processed by its main accounts payable team, there can be instances where payments are made by functions directly to suppliers and thus the usual checks and application of VAT may be bypassed unintentionally. For example this can occur where front office functions pay for trading type costs direct or where self billing invoices are processed outside of the accounts payable function. The best way to monitor and mitigate against such risks is for tax teams to have regular catch-ups and with Finance, Front Office, Accounts Payable, Sourcing and other teams to identify such processes early. Accounts Receivable (Billing) Risks Manual Billing Processes - Where customer invoicing is carried out via manual billing processes such as using MS Word or Excel, errors can occur where the VAT liability determination is not automated leaving staff to apply the correct VAT treatment. If staff are inadequately trained in relation to VAT, then this can result in the issue of incorrect invoices . Applying VAT to Inter- Company Invoices issued within a VAT Group - Companies within a VAT Group benefit from VAT free invoicing among group members and as such its imperative that there are controls in place to ensure VAT is not added to inter VAT group invoices resulting in additional costs for the recipient entity. Not Applying VAT to Intercompany Invoices Issued to Non VAT Group Members - Whilst VAT will not normally be applicable to invoices issued to other entities within the VAT group, output VAT should always be applied to standard rated supplies on inter-company invoices where the UK recipient entity is not a member of the VAT Group that the issuing entity belongs to. Incorrect Static Data - It is common for billing systems to be fed with client data from static data systems to enable them to populate invoices with the name and address of clients, their VAT registration number and in some cases determine the correct rate of VAT to apply on invoices. Where the static data held for clients is incorrect or not up to date, then this will inevitably result in invoices being issued with incorrect data and rates of VAT. Inadequately Trained Staff - the application of VAT is based on a number of factors such as product type, type of customer (business / non business), customer residence / country of operation etc. If billing staff have a limited understanding of the application of VAT, then errors can occur during customer billing. Intervention and its Impact on Billing - A company may provide services to a non UK counter-party but its local branch may actually be heavily involved in providing the service. Where this occurs, some countries (France for example) may have rules in place that state that local VAT should be applied to the transaction. In such cases, even though the invoices are raised from the UK to the overseas customer, local VAT (French for example) should be applied to the invoice to ensure it complies with local VAT rules. VAT Accounting Risks Failure to Reconcile VAT Accounts - Accounting for and posting VAT correctly within the financial accounting system should always be followed up by preparing a monthly reconciliation of the output VAT, input VAT and VAT control accounts to ensure all balances are fully supported by detailed and itemised lists showing what is items and actions are required to clear the balances. For example, the output VAT balance may contain VAT payable to HMRC next month or quarter, the input VAT balances may contain VAT recoverable amounts still pending for payment from HMRC. Or both input and output VAT balances may contain amounts to be swept to the VAT control account for balancing with payments to and from HMRC. Failure to carryout reconciliations regularly can result in significant uncleared balances being built up that are not fully understood or explainable by accounting staff and can result in errors going undetected. This can also cause delays and the need to employ costly consultants to rectify when such issues are detected during annual external or internal audits. Failure to Book The VAT on Invoices Issued - There can be instances where invoices are issued and sent to customers but the VAT is not correctly booked to the output VAT account or worse booked to a revenue account which is contrary to the VAT accounting standard. This will result in the incorrect reporting of VAT to HMRC and possible penalties when the errors are detected. Note such errors can be detected by HMRC when a customer includes an issued invoice within their VAT return to recover the VAT incurred. In such cases the errors will be categorised as careless by HMRC and result in severe penalties. Sourcing / Procurement Risks Procurement for Major Contracts - There should always be a policy within an organisation for procurement teams to engage with both Legal and Tax teams prior to entering into contracts for the purchase of goods or services. It is important that such contracts are efficient for VAT in terms of ensuring that the organisation does not incur unnecessary VAT costs. A common example of this is where a firm enters into a contract with a supplier to provide global services to its organisation without considering how the contract should be formulated to ensure that local business contract for supplies directly. Also where the UK head office is the main party to the contract and the supplier bills the UK, reverse charge VAT will be a significant cost which may not be fully recoverable. VAT on such contracts will often not be budgeted for creating large unexpected costs during the yea and impacting the P&L account. Also VAT registered companies importing goods should always ensure that they actually own the goods they are importing as import VAT is only recoverable where the goods are owned by the VAT registered entity. Purchase of Goods from Overseas The importation of Goods from overseas will result in input VAT (20%) being levied at the boarder and paid to HMRC or included on the VAT return to pay and recover the VAT from HMRC under the Postponed Import VAT Accounting (PIVA) process. Input VAT is only recoverable by the owner of the goods and as such the legal owners of the goods should ensure that they are the importer of record and own the goods at the time of importation to ensure they can successfully recover the VAT paid to HMRC. New System Implementation VAT Determination - The introduction of new billing or accounts payable systems in an organisation will require close liaison with a VAT specialist or team to ensure the systems are correctly configured for VAT and more specifically to determine the correct VAT liability to apply to transactions. Regular and continuous engagement here between IT, Finance and Tax teams is critical during the build or implementation process to ensure VAT is correctly set up within the system and to avoid costly reconfiguration. Making Tax Digital Requirement - All VAT registered businesses are required by HMRC to be MTD compliant by ensuring that their billing, AP and accounting systems are digitally linked (E2E) right up to filling their VAT return to HMRC via e-filler (API link). Failure to do this will result in HMRC penalties and possible reputational damage. Automation - Although automating processes within the VAT compliance area can result in significant benefits in terms of time saving, accuracy and data quality, it can also result in over engineering and create risks if the audit trail is lost and processes are subsequently changed. It is therefore important that a complete integrity review of the existing processes is carried out prior to automation. VAT Report Design and Parameters VAT Reports Used for VAT Reporting - The design of reports that are extracted from systems to provide data for VAT reports is critical as getting this wrong can lead to significant errors within the VAT return that can continue for years leading to over paid or under recovered VAT. All reports designed for VAT reporting should go through extensive testing, review and documentation prior to deployment to avoid future errors, losses in the P&L and reputational damage. Ongoing Annual Review of VAT Report Content & Parameters - To ensure the continued accuracy of data contained in reports used for VAT reporting, it is essential that VAT report parameters and content are up to date and continue to capture all the required information including impacts of changes in tax authority rules and Government legislation. Key Man Risk Over Reliance on Key Individuals - Over reliance on individuals to manage specific processes in Finance or Tax brings with it the risk that key knowledge can simply evaporate if and when these individuals suddenly leave the business due to redundancy, illness, or simply move on to new role. Organisations can then be left exposed to VAT risks due to the inability of existing staff to complete and file correct VAT returns. Larger organisations with more complex operations may be forced to hire expensive contractors to plug the gap. To prevent this, organisations need to ensure they have robust and up to date process notes which include diagrams to illustrate key parts of processes. Rotation of staff or work sharing can mitigate against such risks becoming embedded. Changes in Business Structure Partial Exemption Special Method - PESM's are designed and agreed with HMRC to ensure there is a fair and transparent allocation of input VAT to different areas of the organisation and to ensure VAT is recovered in line with a prescribed recovery method. To ensure PESM's are up to date it is essential that tax teams hold regular and annual meetings with both revenue generating product departments and accounts payable to ensure that any changes to the business structure or new products on boarded can be reviewed and the PESM amended and re agreed with HMRC. Failure to do this will result in incorrect input VAT allocation and recovery and can be costly in terms of the P&L hit when VAT has been over-recovered and a repayment is required to HMRC. Fixed Establishment Branches and Fixed Establishment - Where UK companies set up branches overseas for example in EU countries, they need to be aware of local rules sometimes driven by case law such as Skandia and Danskie Bank (see UK news page) which can impact the VAT liability of recharges between branches and their head office and visa versa. Also where UK companies have subsidiaries overseas and those subsidiaries have UK branches that are a member of the head offices UK VAT Group, care must be taken to ensure those branches meet the criteria of having a fixed establishment in the UK. That is, they are resourced with sufficient human and technical resources and are actually providing services in the UK. Branches that are merely "brass plates" where they have few or no employees or infrastructure and have no major trading activity and are mainly conduits of overseas recharged cost, may fall foul of HMRC fixed establishment and VAT grouping rules. HMRC can de-group such branches. Services Provided to Staff via Salary Sacrifice Benefits Provided to Staff via Salary Deduction - Benefits such as car parking, bikes for work where the cost is deducted from an employees salary are vatable and Standard Rated VAT at 20% is due to HMRC on such cost. As these are not normally processed via the accounts payable team and are employee expense or payroll related, there is the risk that they will not be included in the VAT return process and overtime a significant VAT liability can build up which will eventually have to be declared to HMRC via an Error Correction Notice. As a result HMRC can impose penalties and may lead to reputational damage. VAT Risk and Control Framework Risk Documentation, Controls and Testing - To avoid and mitigate against many of the possible errors identified above, it is essential for organisations large and small to ensure that they have an internal VAT Risk and Control Framework that sets out all the potential risk that can affect the accuracy of the organisations VAT return. This will involve preparing a schedule of all the potential risks, the controls required to mitigate against these risk, who is responsible for operating each control, who has overall accountability for signing off that the controls are in place, documented and are operating correctly and finally what testing is required and the frequency. HMRC - have also recently published guides on VAT compliance and what they expect from businesses in terms of controls and the required testing of these controls to ensure VAT reporting is accurate and compliant. See links below. Help with VAT compliance controls — Guidelines for ... Help ensuring documents filed with HMRC are correct and ... Senior Accounting Officer Requirements Annual Senior Accounting Officer Compliance - Schedule 46 of the Finance Act 2009 contains the Senior Accounting Officer (SAO) provisions. These provisions apply to larger qualifying companies and require them to appoint a Senior Accounting Officer (SAO) to represent the company in confirming annually via a certificate in which they must state whether the company had appropriate tax accounting arrangements. If the company did not have appropriate tax accounting arrangements they must also explain what the shortcomings were. Penalties can be applied by HMRC in the event that: It fails to notify the name of its SAO, or If they fail to meet their main duty (though an SAO may escape a penalty if they have made reasonable efforts to rectify shortcomings), or If they fail to give HMRC a certificate within the required timescale, or they provide a timely certificate that contains a careless or deliberate inaccuracy. It is therefore even more paramount for larger companies to ensure that their risk and control environment is robust and they have adequate controls and updated process notes, flow diagrams and other documentation in place. For more information in relation to the SAO process, please see the link below to HMRC guidance in this area. Senior Accounting Officer Guidance - HMRC internal manual HMRC - Business Risk Review The Business Risk Review (BRR+) is the process by which we evaluate and discuss with the customer where we think they sit on the compliance spectrum and in particular whether they meet the criteria for Low Risk. It is based on the principle that, while factors such as the size and complexity of a business create their own risks and can make it more challenging for customers to comply with their tax obligations, even the largest and most complex businesses can be classified as Low Risk if they mitigate these risks to an acceptable level through their behaviours. The results of the BRR+ inform both our overall approach to a customer and the focus of any future Risk Assessment activity. The BRR+ will take place at least annually for customers who are not Low Risk. For Low Risk customers a BRR+ will, in general, be carried out on a three year cycle. The BRR+ process involves the following steps: Considering the landscape in which the business operates, and it’s potential impact on the inherent level of tax compliance risk the customer presents For each applicable tax regime, considering the effect of the customer’s behaviour on this inherent risk - does their relationship with HMRC, their Systems and Processes, Internal Governance and their Approach to Tax Compliance tend to increase or decrease this inherent risk Considering the overall risk rating of the business Agreeing the customer’s overall risk status Agreeing any action required to reduce the level of risk Open Government Licence v3.0 VAT Risk

VAT Guide For Switzerland - Find out how VAT works in including VAT rates, VAT rules, VAT registration, imports and exports, VAT liability of goods and services and much more. Introduction VAT is a tax on consumption and an important source of revenue for the state. It is paid by consumers but levied on businesses. The price that customers pay for goods and services already includes value-added tax. The business selling the goods or providing the service collects the VAT and gives it to the state. If a business has to buy other products or services (inputs) in order to produce their own goods or provide their own services, it can deduct the VAT paid for them from the VAT it has received from its customers and has to send to the state. This is called an input tax deduction. Rates of VAT There are three different VAT rates in Switzerland: Standard Rate 7.7% - (Services, Alcohol Etc) Special Rate 3.7% - Accommodation services (overnight stays with breakfast) in the hotel and accommodation business (e.g. letting of holiday apartments) are subject to a rate of 3,7 %. Reduced Rate 2.5% applies to: A reduced rate of 2,5 % applies for certain categories of goods and services, particularly: Foodstuffs (except alcoholic beverages) according to the Foodstuffs Act of 20 June 2014 (exception: the normal rate applies for foodstuffs that form part of restaurant services); Cattle, poultry, fish; Seeds, living plants, cut flowers; Grains; Animal feed and fertilizer; Medications; Newspapers, magazines, books and other printed products without advertising character of the kinds to be stipulated by the Federal Council; Electronic newspapers, magazines and books without advertising character of the kinds to be stipulated by the Federal Council; Services of radio and television companies (exception: the normal rate applies for services of a commercial nature). There are also items that are exempt from VAT such as Education, Health, Rent from property Registration Threshold Businesses based in Switzerland - Annual turnover greater than CHF 100,000 must register and pay value added tax. They must register with the Federal Tax Administration and account for their sales annually. When they register, they are given a VAT number. Businesses based outside Switzerland that make sales in Switzerland - Annual turnover greater than CHF 100,000 must register and pay value added tax. They must register with the Federal Tax Administration and account for their sales annually. When they register, they are given a VAT number. Event Organisers - Organisers of one-off sports, cultural or other events (e.g. village or street festivals) are required to charge VAT. This applies if they earn at least CHF 100,000 from the sale of food and drink, advertising, etc. Clubs - Charitable institutions or non-profit associations that are run on a voluntary basis must register for VAT if they have a turnover of CHF 250,000 or more. Switzerland-VAT

FTT - Barclays Services Corp vs HMRC - Fixed Establishment & HMRC Protection of Revenue Barclays Services Corp vs HMRC (Fixed Establishment) In the FTT judgement, two key points were addressed: Whether BSC UK branch had a Fixed Establishment in the UK Whether HMRC had sufficient grounds for refusing the application for BSC UK Branch to join the VAT Group for the protection of the revenue. Barclays appeal against the rejection of its application for a UK branch of BSC US to join the VAT Group was dismissed on the grounds that it did not meet the necessary eligibility requirements for VAT grouping at the date of the application in terms of having sufficient human and technical resources in the UK to have a Fixed Establishment. The FTT however dismissed the second point on "protection of the revenue" on the basis that, had BSC UK had the necessary human and technical resources to be considered as having a fixed establishment in the UK as at the date of the application to join the VAT group, the VAT savings on its admission would be those that fell within the normal consequences of VAT grouping. See link to full FTT judgement below: Barclays Service Corporation & Anor v The Commissioners for HMRC - Find case law - The National Archives

Comprehensive guide on how is VAT applied on the supply of online digital services such as radio and broadcasting, online gaming, web hosting, software, publications. Introduction Digital Services are services supplied in electronic format and a number are listed below. (Not exhaustive) Radio and Broadcasting Telecommunication - Fixed and mobile telephone services Electronically Supplied Services - online gaming, music, software, advertising space on a website, web hosting, online magazines etc VAT Liability of Digital Services Standard Rated when supplied to UK customers. Outside the Scope of VAT when supplied to a non UK customer For supplies made to non UK customers, they may have to account for VAT in their country of operation or residence. Digital Services supplied via Platforms Supplies of digital services via an online platform will mean that the online platform (and not the supplier) will be responsible for accounting for VAT to HMRC. Digital Services supplied to Private Individuals and Non Business Customers in the EU Where digital services are supplied to private individuals or non business customers in the EU, the supplier will have to either: Register for the Non-Union One Stop Shop scheme in an EU member state Register for VAT in each EU member state where you supply digital services to consumers Non Union OSS Scheme The non union One Stop Shop scheme came into effect in early 2021. It effectively provides businesses selling Digital Services to non business customers with the option of registering with the scheme to file one EU wide VAT Return to cover all sales of Digital Services within the EU via a single return in one member state. The supplier will have the option to choose which country to file the single VAT return and payment to and this will include the quantity and VAT rate applied to the goods or services supplied in each EU member state. The benefit of this scheme is that it: Allows the Digital Service Trader to register for VAT in a Single EU member state rather than having to register in multiple member states where they sell services to their non - business customers. Significantly reduces administration Note: The Moss Scheme does not apply to business customers located within the EU as they will be covered under the Reverse Charge mechanism and they will self account for VAT in their own member state. Services Not Classed as Digital Services Supplies of goods, where the order and processing is done electronically Supplies of physical books, newsletters, newspapers or journals Services of lawyers and financial consultants who advise clients through email Educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link) Offline physical repair services of computer equipment Advertising services in newspapers, on posters and on television How to Determine if your Customer is a business or Private Customer If your customer is a business customer and located in the EU, they will most likely have a member state VAT registration number and as such will be proof of being in business. If the customer does not have a VAT registration number (maybe because they are below the local threshold) then so long as you can obtain other evidence of them being in business from other means, then you can treat the supply as B2B and not charge VAT. If the customer cannot provide evidence of being in business, then a business supplying the Digital Service should: Treat the supply as B2C Charge VAT at the relevant EU member state where the service was supplied. -Contains public sector information licensed under the Open Government Licence v3.0. Digital Services and VAT - Guide on How VAT is Applied

VAT liability table for Financal services type products such as loans, accountancy, banking, consultancy, commodities, advisory, share trading etc. Financial Services VAT Liability Matrix

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VAT on Business Expenses - Comprehensive guide on the HMRC rules around the application of VAT on business expenses such as hardware, software, rent, motor expenses etc and their recoverability. Introduction There are many expenses a business may incur in the course of purchasing goods or services and as such these will either be Standard Rated, Zero Rated, Exempt, Outside the Scope or Reverse Chargeable (where purchased from non UK suppliers). The recovery of any VAT incurred on expenses will depend on the nature of supplies (sales) the business is making. A business that makes only Standard Rated sales would be entitled to the full recovery of this input VAT from HMRC. A business that makes Standard Rated and Exempt supplies would only be able to partially recover VAT on its expenses under the Partial Exemption Rules (See how VAT works button) A business that makes only Exempt supplies of goods or services will in most cases not be able to recover any VAT incurred on expenses The List below outlines the VAT treatment of common business purchases from VAT registered Businesses: Rent and Service Charges Rent and Service charges incurred on a businesses principal place of business will normally be exempt but can be standard rated if the landlord has opted to tax or charge VAT. Note where a business is changed VAT on Rent and Service charges, it can normally recover this VAT from HMRC where it makes taxable or standard rated supplies itself. Professional Fees Professional fees for Accountancy, Legal, Architecture and Consultancy services are standard rated when purchased in the UK (including IOM) and Reverse Chargeable when purchased from outside the UK. ( Please see Reverse Charges button for more details on accounting for reverse charges) . VAT Recoverable from HMRC. Hardware and other Peripherals Hardware such as computers, monitors, keyboards, scanners and printers are all taxable at the standard rate when purchased in the UK (including IOM). If these items are purchased from outside the UK then UK import VAT at 20% will be payable. VAT Recoverable from HMRC. Software The purchase of software in the UK (inc IOM) will attract VAT at the Standard Rate 20% and will be Reverse Chargeable if purchased from a non UK supplier. VAT Recoverable from HMRC. Fuel Fuel including petrol and diesel is Standard Rated and can be recovered from HMRC where: The fuel is used for business use The appropriate fuel scale charge is used where the fuel is used for private use Restaurant Food and Catering Breakfast, Lunch and Dinner, Drinks while eating in a restaurant will attract 20% Standard Rated VAT. Hot Takeaway food will also be Standard Rated. VAT Recoverable from HMRC. Note - Cold takeaway food is Zero Rated so no VAT is charged. Tools and Equipment The purchase of tools and equipment for use by trades men and women in the UK (incl IOM) will be Standard Rated. VAT Recoverable from HMRC. Materials in Building Trade Most items that are considered building materials and sold by builders merchants are charged at the Standard Rate. VAT Recoverable from HMRC. Children's Clothing & Footwear The sale of children's clothing and footwear is Zero Rated. Note there are conditions that govern the ability to Zero Rate and can be read in detail here. Young children's clothing and footwear (VAT Notice 714) Electricity and Gas VAT is charged by utility companies for Gas and Electricity at the Standard Rate 20% unless their use of Gas and Electricity is below the de minimis usage limit in which case VAT would be charged at the reduced rate of 5%. VAT Recoverable from HMRC. Business Rates Business Rates are outside the scope of VAT Business Entertaining Most forms of business entertainment such as taking customers to restaurants for meals and drinks or to pubs or bars, golf days, football matches etc will incur VAT at the Standard Rate. However the VAT on such entertainment for UK customers is not recoverable from HMRC (blocked from recovery). VAT on overseas entertainment is recoverable where the entertainment is for purely business purposes and the individuals being entertained do not receive any private benefit as a result. Note there is a fine line between purely business entertainment and private entertaining so in practice many businesses may block business entertainment regardless of whether it takes place in the UK or abroad. Staff Entertaining Where an employer provides entertainment for the benefit of employees for example to reward them for good work or to maintain and improve staff morale, it does so wholly for business purposes. Thus the VAT incurred on entertainment for employees for example staff parties, team building exercises, staff outings and similar events is input tax and is not blocked from recovery from HMRC under the business entertainment rules. However, there are two exceptions to the general rule. These are where: Entertainment is provided to directors, partners or sole proprietors of the business Employees act as hosts to non-employees Staff Subsistence VAT incurred by employees for subsistence while carrying out their work duties away from the normal place of work is recoverable where the actual cost of the subsistence such as meals is reimbursed or paid by the employer. VAT Recoverable from HMRC. Hotel Accommodation Hotel accommodation costs incurred in the UK (incl IOM) will normally include VAT and where this is paid by a business for its employees while working away on business, it can be recovered from HMRC. VAT Recoverable from HMRC. Hotel Accommodation costs incurred abroad are likely in many instances to include overseas VAT as the place of supply of Hotel Accommodation is where the hotel is located. (See Land & buildings) Note : As the place of supply for Hotel Accommodation is where the Hotel is located, the cost would not be subject to the Reverse Charge procedure in the UK Mobile Phone costs The purchase and connection of mobile phones for business use will include VAT at the standard rate 20%. This VAT can be recovered where the phones are used for business purposes. VAT Recoverable from HMRC. Phones provided by businesses to their employees where the business covers the cost of calls for business use (and any small amounts incurred for private use) can treat the input VAT as its own and recover the VAT. VAT Recoverable from HMRC. If the business charges employees for calls made on mobile phones it has provided, it must also charge output VAT on the amounts charged to their employees. If Employee are allowed to make private calls on mobile phones provided by a business, then the business should analyse calls between business and private use to ensure a fair and reasonable recovery of VAT is made. Telephone Land Line and or Broadband Services Telephone land line and broadband setup costs and monthly charges will include VAT at 20% Standard Rate. VAT Recoverable from HMRC. Delivery Charges Delivery charges which are contractually included in the supply of delivered goods follow the same VAT liability of the goods themselves. If the goods being delivered are Zero Rated then any separate charge for delivery will be Zero Rated. Where there is a separate contract or arrangement for delivery, then a separate supply of delivery will occur and this charge will be standard rated. VAT Recoverable from HMRC. Motor Vehicle expenses Motor Expenses incurred on company cars such as repairs and servicing, parts, parking etc will incur VAT at the Standard Rate. VAT Recoverable from HMRC. If you use a vehicle for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax as long as the business paid for the work. It does not matter if the vehicle is used for private motoring or if you have chosen not to reclaim VAT on road fuel. Note: - If you’re a sole proprietor or partner and use a vehicle solely for your own private motoring you cannot reclaim the VAT from HMRC on repairs as input tax. Charging Electric Vehicles Expense Businesses Charging Electric Vehicles - VAT incurred by businesses when charging electric vehicles can be recovered on the business use of those vehicles, where the vehicles are charged at work or at public charging premises. You can also recover the VAT for charging your electric vehicle if you’re a sole proprietor or a partner in a partnership business, and you charge your electric vehicle for business purposes at home. You should work out how much of the cost of charging your electric vehicle is for business use and how much is for private use by keeping mileage records. The normal input tax rules then apply. Employees Charging Electric Vehicles - If an employee charges an electric vehicle (whether this is a company vehicle or not) at a public charging point , the supply of electricity is made to the company or employer. They can recover the VAT on the cost of charging the electric vehicle. The employer must keep detailed mileage records to work out how much of the charging cost is used for business and private purposes where applicable. Where an employee charges an electric vehicle (whether this is a company vehicle or not) at home, the overall supply of electricity is made to the employee and not the employer. The employer is not entitled to recover the VAT on the cost of charging the electric vehicle. Advertising Advertising costs will have 20% VAT applied if purchased in the UK and will be reverse chargeable if purchased from outside the UK. VAT Recoverable from HMRC. Sponsorship Sponsorship is a payment to a charity, social project or a business for which the sponsor receives something in return. Payment may be in the form of money, goods and services (commonly referred to as ‘barter’), or a combination of money with goods and services. Sponsorship is outside the scope of VAT where it is provided as a form of charity. Where sponsorship involves one party being obliged to provide funds etc to another party in return for benefits such as advertising, logo promotion, entertaining, brand promotion etc, then the Supply in Standard Rated. VAT Recoverable from HMRC. Business Expenses Incurred Prior to VAT Registration Input VAT on goods and services incurred by a business prior to being registered for VAT can be treated as recoverable input VAT where it is attributable to taxable supplies made by that business. The conditions for recovering VAT on goods prior to VAT registration are as follows: The goods were supplied not more than 4 years before the business was registered or was required to be registered The goods were supplied to the person who is now registered for VAT The goods were obtained for the business which is now covered by the VAT registration and related to its taxable activities — if the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities You still hold the goods or they have been used to make other goods which you still hold You compile a stock account of the goods — this must show the quantities of goods and the dates when you obtained them, and if you used any goods to make other goods, or disposed of them after you were registered for VAT, the account must give details, with dates Note: Remember, you cannot claim VAT incurred on goods which have been completely used up before registration. You can treat the VAT on services that you received before you were registered as if it were input tax. If: The services were supplied not more than 6 months before the business was registered or was required to be registered The services were supplied to the person who is now registered for VAT The services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities — if the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities The services were not related to goods which you disposed of before you were registered (such as repairs to a machine which was sold before registration) You compile an account of these services, this must describe the services and the dates when you received them and, if the services related to goods which you disposed of after you were registered for VAT, the account must give details, with dates -Contains public sector information licensed under the Open Government Licence v3.0. Business Expenses and VAT - VAT on Business Expenses Guide

Comprehensive guide on Canada GST, PST and HST and how it is applied in Canada including registration thresholds, who is required to register and rates for GST, PST & HST by province. Canada GST Guide - Comprehensive guide for GST in Canada Introduction T he Canadian Tax Authority is know as the Canada Revenue Agency (CRA) and is responsible for administering General Sales Tax (GST) and Harmonized Sale Tax (HST). The Federal GST rate of 5% is applicable across all provinces and territories and where a province has what is known as a Provincial Sales Tax (PST) and it is combined with GST, then this is known as Harmonized Sales Tax (HST). However some provinces have a separate Provincial Sale Tax (PST) that is levied alongside GST. General Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes levied on most property and services in Canada. G ST / HST Rates Provinces with 5% GST Alberta British Columbia + 7% PST Manitoba + 7% PST Northwest Territories Nunavut Quebec Saskatchewan + 6% PST Yukon Provinces with HST 13% (HST) in Ontario 14% (HST) in Nova Scotia 15% (HST) in New Brunswick 15% (HST) in Newfoundland and Labrador 15% (HST) in Prince Edward Island When Do you Have to Register for GST / HST Businesses - who's total worldwide taxable supplies (including zero rated supplies) are above CAD $30,000 (CAD $50,000 for public service bodies) in a single calendar quarter or in total over the last 4 consecutive calendar quarters or less (but not in a single calendar quarter) will be required to register for Goods and Services Tax (GST) / Harmonized Sales Tax (HST). Worldwide Taxable supplies should exclude revenues from supplies of Financial Services, Sales of Capital Property and goodwill from the sale of a business. Note: Voluntary Registration is also allowed where businesses (small suppliers) do not exceed this threshold but wish to claim GST / HST input tax credits from the CRA on purchases they have made such as: Business start-up costs Business-use-of-home expenses Delivery and freight charges Fuel costs Legal, accounting, and other professional fees Maintenance and repairs Meals and entertainment (allowable part only) Motor vehicle expenses Office expenses Rent Telephone and utilities Travel Charities and Public Institutions - will also be considered as small suppliers if they meet the CRA's gross revenue test of $250,000 or less. For more information on what constitutes a charity or public institution, please see the link to the CRA website GST/HST Memorandum 2-2, Small suppliers . Taxi Operators / Commercial Ride Sharing Driver - Self-employed taxi drivers or commercial ride-sharing drivers, have to register for the GST/HST even if they are a small suppliers and the effective date of registration is the day they start supplying taxable passenger transportation services. Non Resident Businesses - that do not have a permanent establishment (fixed place of business) in Canada may be required to register for GST / HST if they: Make supplies of Cross-border digital products and services Make supplies of Goods located in Canada Make supplies of Platform-Based Short-Term Accommodation Make supplies of Taxable goods or services, leases, or other supplies (including zero-rated supplies) in Canada in the course of carrying on business activity in Canada. Make supplies of Books, newspapers, magazines, periodicals, or similar printed publications in Canada or you offer such goods for sale in Canada, either through an employee or agent, or by means of advertising directed at the Canadian market, and send the publications by mail or courier to the recipient at an address in Canada. Sponsor (host) a convention in Canada and more than 25% of the attendees are residents of Canada. (Mandatory registration for GST / HST) Make taxable sales, leases, or other supplies (including zero-rated supplies) of admissions in Canada for a place of amusement, a seminar, an activity, or an event held in Canada. (Mandatory registration for GST / HST) Source CRA Effective Date of GST / HST Registration The effective date of registration is the day of the supply that made a business exceed $30,000 and GST / HST must be applied to that supply. Mandatory Electronic Filing of GST / HST Returns From 2024, all Businesses registered for GST / HST are required to file their returns electronically unless they are: A Charity Selected Listed Financial Institutions Other useful links can be found on the CRA website below Building and Construction GST / HST Builders and construction Non Resident Digital Platform Businesses GST / HST Non-resident digital-economy businesses Listed Financial Institutions GST / HST GST/HST Notice 265, GST/HST Registration for Listed Financial Institutions (including Selected Listed Financial Institutions) .

Salary Sacrifice Schemes - Types of benefits and the HMRC rules around how VAT is applicable and should be accounted for. Introduction Salary Sacrifice Schemes allow employees to receive benefits provided by employers by exchanging a reduction in salary for those benefits. From a VAT perspective the forgoing of salary is consideration for a taxable benefit and as such output VAT is due and any associated input VAT is recoverable by the business under the normal rules. VAT will be payable to HMRC by the employer on the cost of providing these benefits. Types of Salary Sacrafice Benefits - Taxable (20% Output VAT Due) Cycle to Work Scheme Under the Cycle to Work Scheme employers purchase bicycles and safety equipment and provide them to employees. Where this is under a salary sacrifice arrangement employers must account for output tax based on the value of the salary foregone by the employee in exchange for the hire or loan of a bicycle. VAT is due when a bicycle is disposed of and its value should normally be based on the price of an identical or similar item, taking into account the age and condition etc. Valuing bicycles has caused difficulties for Scheme operators and therefore, to reduce administration burdens, the table used to value bicycles for direct tax purposes may be used http://www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm (link is external) . Any bicycles that fall outside of the table (such as antique or specialist bicycles) should be valued using the normal VAT valuation rules. If businesses choose to use lower values, they may be challenged in which case evidence will be required to support the valuation. Gym Membership Corporate gym memberships where the benefit is optional and not provided free to all employees. Output VAT is due on cost of the membership. Face Value Vouchers Where vouchers, such as those available from high street retailers, are provided under a salary sacrifice arrangement (as defined above) input tax may be claimed and output tax is due on the consideration paid by the employee. Car Parking Car parking provided to employees near their place of work where an amount is deducted from their salary is taxable (standard rated) and output VAT is due on the cost of the parking. Any input VAT incurred by the Employer can be recovered under the normal VAT recovery rules. Computers, Technology, Mobiles Computers and laptops, phones or other peripherals provided to employees via salary sacrifice for personal use are also taxable and output VAT is due on their supply. Food and Catering Provided to Employees Food and catering provided to employees under a salary sacrifice scheme will be taxable under the normal catering rules. VAT payable on taxable supplies of catering. No output VAT payable on items that are zero rated. Types of Salary Sacrifice Benefits - Non Taxable (No Output VAT Due) In addition to salary sacrifice benefits that are taxable at the standard rat e (employer pays), there are salary sacrifice benefits where forgoing salary is not considered as consideration for receiving benefits and as such Output VAT is not payable by the employer when provided to employees. Some of these are listed below. Child Care Vouchers - Salary forgone to a third party for childcare support Free Food and catering (available to all staff) Workplace gym available to all employees where employees are not charged for using it. Health Insurance Dental Insurance Others S alary Sacrifice VAT - Guide on how VAT is Applied and Accounted for.

Making Tax Digital is a UK Govenment initiative to digitalise tax reporting and filing. In the UK it is mandatory and requires VAT registered businesses to file their VAT returns digitally using third party software. Introduction Ma king Tax Digital is a UK Government initiative to become the most Digitalised Tax Administrator in the world by introducing legislation which requires all VAT registered businesses to sign up to HMRC's M aking Tax Digital and record and maintain records digitally. (Note as of 1 April 2022 all VAT registered businesses must use MTD compatible software or spreadsheets to record VAT related transactions and submit VAT returns to HMRC via Application Program Interface (API). Prior to 1st April 2022, the rules only applied to VAT registered business that were above the £85,000 VAT registration threshold. The aim here is to make the administration of tax (VAT) more efficient and accurate and eliminate manual intervention as far as possible. To achieve this, businesses will either have to obtain accounting software from a software vendor or use a spreadsheet (such as Excel) to record transactions. Note: If you choose to use spreadsheets to maintain records digitally then you will need to obtain compatible bridging software to be able to link and file the VAT figures you wish to report in your spreadsheet records to HMRC. Search for record keeping software and bridging software . Once you have compatible software or bridging software, you can then register with HMRC for Making Tax Digital or ask your agent to do you on you're behalf. Exempt from Making Tax Digital HMRC will allow individuals to be exempt from submitting returns under MTD and using compatible software or bridging software for the following reasons: Disability - prevents an individual from using compatible MTD software Location - You business is located in an area that does not have great internet access Age Business is subject to Insolvency proceedings Religion Note: HMRC will consider each request for exemption on an individual basis and will make an decision based on individual circumstances. To make a claim for exemption, contact VAT: General Enquiries . Maintaining Records Digitally HMRC requires that all VAT Registered businesses keep the following records in digital format either within their MTD compatible software or in spreadsheets they are using to record their transactions. General Data Your business name The address of your principal place of business Your VAT registration number Any VAT accounting schemes that you use Supplies Made to Customers For each supply you must record: Time of supply – the tax point ( Invoice Date or date cash received if earlier) Value of the supply – the net value excluding VAT Rate of VAT charged (seperate records for Std Rated, Reduced Rate, Exempt and Zero Rated supplies) Supplies Received from Vendors For each supply received record: Time of supply (tax point) Value of the supply Amount of input tax that you’ll claim Note: HMRC will allow you to record a number of transactions as a single VAT record in a number of different circumstances such: Petty Cash Transactions Supplier Statement where multiple transactions are consolidated into single VAT categories - Std Rated, Reduced Rate, Exempt, Zero Supplies made by Agents Charity Fund Raising Events For More information on these items please refer to HMRC VAT Notice 700 / 22 Making Tax Digital VAT Return Summary Data For Each VAT Return your MTD compatible Software or Spreadsheets should contain: The total output tax you owe on sales The total tax you owe on acquisitions from EU member states The total tax you’re required to pay on behalf of your supplier under a reverse charge procedure The total input tax you’re entitled to claim on business purchases The total input tax allowable on acquisitions from EU member states The total tax that needs to be paid or you’re entitled to reclaim following a correction or error adjustment Any other adjustment allowed or required by VAT rules Adjustments Where adjustments are required to amend or correct data, these must be: Made within the Software or system itself or spreadsheets The totals of each adjustment should be included Digital Links - Mandatory under Making Tax Digital Digital links are the transfer of data electronically within or between different applications or software Formulas linking different cells or workbooks in a a spreadsheet Electronic links between different pieces of software used by businesses. Transferring data onto a memory stick, external hard drive etc for upload onto a different system. XML, CSV import and export, and download and upload of files Transfer by Application Program Interface (API) Other automated electronic transfers Emails Containing Data Files which are the uploaded onto other electronic systems The aim here is to ensure that a digital journey (audit trail) is maintained for the VAT returns submitted to HMRC. What are not Digital Links : Copy and pasting between spreadsheets and workbooks Written notes being copied from one system and entered in another Emails Containing Data Files which are the uploaded onto other electronic systems Sign up for Making Tax Digital for VAT Sole Trader, Partnership or Company HMRC: Sign up now Data and information you require to sign up: Your business email address Your Government Gateway user ID and password - if you do not have a user ID, you can create one when you use the service Your VAT registration number and latest VAT return Your National Insurance number if you’re a sole trader Your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society Your Unique Taxpayer Reference and the postcode where you’re registered for Self Assessment if you’re a general partnership Your Unique Taxpayer Reference, the postcode where you’re registered for Self Assessment and your company’s registration number if you’re a limited partnership Agents signing up on behalf of their clients: What you need to do as an Agent to File VAT returns for your Clients Obtain / Create MTD Compatible Software or Spreadsheets. Create an Agent Services Account (note this is a separate account from your existing online agent account) For your existing clients that are already on your online agent account you will need to copy them across to your new Agent Service Account. Your clients VAT certificate Contact details and Business email For Sole Traders their NI Number For Companies their UTR for Corporation Tax HMRC : Sign up now Making Tax Digital For Small and Medium Sized Businesses Typically, these businesses will either maintain digital records using: Off the shelf MTD compatible Software ( including API based link to submit returns to HMRC themselves) Excel workbooks and spreadsheets and separate Bridging software used to submit Returns to HMRC) Use own accounting software or Spreadsheets to produce summary data and email or download onto a memory stick and pass to their agent who will then upload onto their own software for processing and filing to HMRC. Use an agent to record their Digital records using the agents own MTD compatible software or spreadsheets. The key challenge here is making sure all the relevant records for the VAT return are manually entered or uploaded into the software or spreadsheet workbooks and that there is the required digital linking within the software and more importantly within the spreadsheets being used. Whichever method is used, all VAT return data must be submitted using API's to HMRC. Making Tax Digital For Large Businesses For Large Businesses such as Banks or Manufacturing Companies, MTD can be much more complex and complicated in that: These organisations will have multiple systems that contain data required for VAT reporting Multiple VAT returns that feed into a main Group VAT Return Some of those systems will be supplied by external Vendors and digitalisation will require extensive liaison and possible development costs A lot of the data and processes used to support VAT reporting will be contained in excel workbooks which may or may not have adequate digital links There is usually a lot of manual processing which will have to be documented and eliminated It may require specific IT and Project management staff to implement an robust MTD solution It may need to build Tax Engines, Data Warehouses and internal API's to inter connect systems and for filing VAT returns with HMRC Key Things to Consider When Implementing MTD Successfully in a Large Organisation Will need to Identify and document all sources of Income and Expenses and the associated systems used to record and account for VAT. Will require the Identification and documentation of all manually processes and figures used to prepare the VAT returns Work should focus on eliminating manual processes and adjustments early on in the project Ensure you have staff with the right knowledge and skill set in place to build a robust MTD VAT reporting process Ensure there is a common set of mandatory fields to extract data from each system to ensure there is efficiency and completeness Decide on the structure and architecture of the MTD process. Will it be a purely internally developed or will it require the assistance of an external partner or software provider Its imperative to ensure that all requirements are documented and presented to the internal IT Teams or external IT teams to ensure there are no bottlenecks in the later stages of development. Build a data and Transformation warehouse specifically to store and process VAT information, static data tables and to transform the data into your VAT return. Ensure there is a project plan complete with overview of MTD, stages, timelines, budgets and costing, key personnel, any external vendor requirements and timelines, systems in scope, out of scope, manual adjustments that will require automation etc. Ensure controls are in place to maintain customer data integrity and confidentiality Use API's as much as possible to maintain and fully automate digital links If you have clients in multiple jurisdictions, you will need to link your static client data to your Tax Engine to ensure VAT is applied and calculated accurately based on client country of operation or location. If you are a complex partially exempt business and have a Partial Exemption Special Method , then consideration needs to be made as to how input VAT allocation and VAT recovery will work with the new MTD system. In larger more complex businesses such as Banks, there are likely to be multiple service companies and trading companies where service company incurred VAT is allocated to the different trading entities, product and service areas within these trading entities. (Basically allocating VAT incurred on general Back Office Costs to Front Office Areas). This can be a complex process and there will usually be an automated system or manual allocation process that manages this process. Making Tax Digital - VAT Guide on HMRC Rules for MTD