There are a few VAT margin schemes. The margin schemes work by allowing qualifying businesses to account for VAT on their profit margin i.e., on the difference between the cost of acquiring an item and its sale price rather than on the full selling price.

Without the margin scheme the business would have to account for VAT on the full selling price of each item. If an item is sold for less than was paid for it, then no VAT is due on the sale.

The eligible goods are:

• Second-hand goods – defined as tangible movable property that is suitable for further use as it is or after repair, other than works of art, collectors’ items, or antiques and other than precious metals or precious stones as defined.
• Works of art and collectors’ items. The legal definition of works of art includes pictures, paintings, collages, and drawings executed by hand by the artist
• Antiques. The legal definition of an antique is an item, other than a work of art or a collectors’ item, which is over one hundred years old.

It is the businesses responsibility to provide satisfactory evidence of an item’s eligibility for the scheme. A list of ineligible goods can be found in Notice 718 The VAT Margin Scheme and global accounting.

The temporary reduced rate of 5% for hospitality, holiday accommodation and attractions that came into effect in July 2020 ended on 30 September 2021.

However, the government had previously decided that reverting to the standard rate would be too much for many businesses and had announced a further step before reverting the rate back to the standard rate.

This means that we now have a new reduced rate of 12.5% from 1 October 2021 that will be in effect until 31 March 2022 at which point it is expected that the rate will go back to the 20% standard rate.

Although many businesses had campaigned for the rate to remain at 5% at least there is still some temporary reduction to help the continuing recovery of the sector.

Affected businesses are advised to check that they have updated their billing and pricing software to provide for this change. There will also be increases in the VAT flat rate scheme percentages for catering services, hotel accommodation and pubs to accommodate this change.

If you need any help understanding how these changes will impact your VAT accounting, please get in touch.

HMRC’s guidance on how to complete and submit a One Stop Shop (OSS) VAT Return from 1 October 2021 has been updated. The special VAT return should only be completed by businesses registered for the OSS Union scheme.

The OSS Union scheme can be used by businesses selling goods from Northern Ireland to consumers in the EU under the terms of the Northern Ireland Protocol. In order to use the scheme, sales must be above the distance selling limit of £8,818 (€10,000). The scheme is only for the sale of goods. Supplies of digital services to consumers in the EU should not be reported.

Using the OSS saves affected businesses from having to register for VAT in up to 27 EU countries where they make distance sales of goods from Northern Ireland. The OSS Union scheme can be used to manage the VAT on distance sales of goods from Northern Ireland to the EU in one place.

HMRC’s published guidance titled ‘Check genuine HMRC contact that uses more than one communication method’ has been updated. The list is intended to help taxpayers check if recent contacts purporting to be from HMRC are actually a scam.

The guidance contains a list of emails, phone calls, letters and text messages recently issued by HMRC that are genuine. The list can be useful to help taxpayers decide if a contact is genuine or from a fraudster trying to trick taxpayers into supplying confidential or personal information.

One of the most recent additions on the list concerns contact by HMRC relating to VAT register inactivity. This confirms that HMRC is contacting customers who are believed to no longer need to hold a VAT Registration Number due to recent inactivity on their VAT account. Customers may receive a phone call or email, with the email referring to VAT register inactivity.

The phone calls or emails will ask customers to confirm whether they still require to be VAT registered, and to provide some basic information on where they are trading.

The calls or emails from HMRC do not ask for personal or financial information.

There are special VAT rules that allow businesses to standard rate the supply of most non-residential and commercial land and buildings (known as the option to tax). This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

HMRC had temporarily changed the time limit from 30 to 90 days for notifying an option to tax land and buildings during coronavirus. This extension applied to decisions made between 15 February 2020 and 31 July 2021. This extension has now ended.

HMRC has also confirmed that the temporary change, introduced as a result of the pandemic, to allow options to tax to be signed electronically has now been made permanent. HMRC requires evidence that the signature is from a person authorised to make the option on behalf of the business.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

However, any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able to recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost. Once an option to tax has been made it can only be revoked under limited circumstances.