X

Archive for VAT

Making Tax Digital for VAT – can I just record the daily gross takings?

Making Tax Digital for VAT – can I just record the daily gross takings?

For many businesses, Making Tax Digital changes how transactions must be recorded in their accounting records. Not only does it require the relevant information to be captured digitally, the rules specify precisely what information needs to be recorded in relation to each supply. This may require a change in the method or nature (or both) of these businesses’ record-keeping.


At Cloud Accounting LLP, we have seen numerous queries around how to keep records which are compliant with MTD, but a question which comes up repeatedly is how MTD affects businesses who supply final consumers, but who do not consider themselves ‘retailers’. Examples could include restaurants and cafes, car wash businesses, and even a different revenue stream within a non-retail business such as a bar or a gift shop within a B&B or hotel. I will refer to them as ‘cash businesses’ in the remainder of this article.

Summary

Retailers and other cash businesses (those who sell to an end consumer) do not need to capture the details of each individual supply they make in their digital records, but they do need to record the total of all retail supplies for each day of trading – it cannot be done on a less frequent (eg weekly) basis.

This can be done on a simple Monday – Friday spreadsheet. In certain circumstances it may be necessary to split gross takings between those supplies that are zero rated and standard rated.

Read on if you want to understand the detailed legislation behind it:


Record keeping requirements

Let’s first look at the basic requirements and consider why cash businesses may find these difficult to comply with.
The Value Added Tax (Amendment) Regulations (2018 No. 261) state that the following information must be captured within the digital records:
(3) Subject to paragraph (4) the information specified for the purposes of paragraph (1) for each accounting period is—
(a) subject to sub-paragraph (c), for each supply made within the period—
(i) the time of supply,
(ii) the value of the supply, and
(a) subject to sub-paragraph (c), for each supply made within the period—
(i) the time of supply,
(ii) the value of the supply, and
(iii) the rate of VAT charged;
Paragraph (c) provides some relaxation from these rules:
(c) where more than one supply is recorded on a tax invoice and those supplies are either—
(i) supplies made which are required to be accounted for in respect of the same prescribed accounting period and are subject to the same rate of VAT, or they may be treated as a single supply for the purposes of … sub-paragraph (a)…
These rules are repeated in paragraph 4.3.2 of the VAT Notice (700/22).


Most readers will be aware that the word ‘supply’ in VAT has a particular meaning, and is much more granular than the amounts recorded on an invoice or statement, or amounts paid or received. So, businesses who make lots of individual supplies, particularly to end customers for whom they are not required to supply a VAT invoice, would have difficulties complying with the above record-keeping requirements of MTD.


Relaxation for retailers

Fortunately, all is not lost. Provision has been made in the Regulations to relax the above requirements in particular circumstances:
(4) The information specified in paragraph (3) may be varied by direction of the Commissioners to make provision about—

(c) the operation of retail schemes under Part 9 of these Regulations (supplies by
retailers);
Paragraph 4.5 of the VAT Notice provides that relaxation in a paragraph which has the force of law:
In addition to the records listed in paragraph 4.3 above, if you account for VAT using a retail scheme you must keep a digital record of your Daily Gross Takings (DGT). You are not required to keep a separate record of the supplies that make up your DGT within functional compatible software.
For more information on retail schemes and Daily Gross Takings see VAT notice 727: retail schemes.


So, retailers do not need to capture the details of each individual supply they make in their digital records, but they do need to record the total of all retail supplies for each day of trading – it cannot be done on a less frequent (eg weekly) basis.
But the question remains – does this relaxation include ‘non-traditional’ retailers ie the cash businesses described above?


What is a retailer?

There is no definition of ‘retail’ or ‘retailer’ in the VAT Act or the VAT Regulations. HMRC provide a definition in the retail scheme VAT Notice (727) as follows:
Retail is the selling of goods or services to consumers [and the retail schemes are aimed at retailers that cannot account for VAT using normal accounting].


Accounting for VAT in the normal way does not require businesses to issue a tax invoice to unregistered customers, but it does require them to identify, for each sale, the tax exclusive value and the VAT, and to be able to produce periodic totals of those amounts. Many cash businesses will not be able to do this, because of the level of information they retain in relation to each sale they make – even if they use electronic tills.


Therefore, in accordance with the definition above, and as HMRC has also kindly confirmed to us, cash businesses are considered to be retailers for these purposes. Cash businesses are likely to be covered by the point of sale scheme. This applies where the business is identifying the VAT rate when they make the sale and, if all sales are standard rated, they simply apply the VAT fraction to calculate the VAT due. As there is no retail scheme calculation per se to undertake then these businesses often do not realise that they are using a retail scheme.


So, these cash businesses can therefore benefit from the relaxation set out above in relation to their retail sales ie they can simply record their Daily Gross Takings in their digital records. They do not need to record each individual sale, nor is a digital link required between their tills and their accounting records – the input of the Daily Gross Takings is the start of the digital journey.


Any non-retail sales will need to be recorded in the digital records on a supply-by-supply basis as they do not benefit from this relaxation.

Are you missing out on Flat Rate VAT savings?

Are you missing out on Flat Rate VAT savings?

It may sound simple, but the flat-rate scheme for VAT continues to cause problems for businesses. This post sets out the basic rules behind the scheme, and highlights some of the potential pitfalls. Under the flat rate scheme (FRS), you pay VAT as a fixed percentage of your VAT-inclusive turnover. The actual percentage you use depends on […]

No Deal Brexit Tax Implications

No Deal Brexit Tax Implications

Government offers costly Brexit no-deal VAT concession The government has proposed to eliminate the post-Brexit threat of hefty VAT bills on thousands of importers into Britain. This subsidy could cost nearly £8bn per annum. However, additional export VAT, tariff charges and compliance burdens loom for over 130,000 other UK businesses.   Brexit Guidance papers make […]

VAT for businesses if there’s no Brexit deal

VAT for businesses if there’s no Brexit deal

After 29 March 2019 if there’s no deal This note summarises the main VAT issues that will affect UK businesses trading with the EU in goods and services if the UK leaves the EU without an agreement on 29 March 2019. Although no changes will be made before then, this note highlights the VAT changes […]

How Much Do Accountants Charge?

How Much Do Accountants Charge?

As the number of accountants has increased and online bookkeeping has become a way of life for many entrepreneurs, the average cost of accountant services has gone down. Accountant prices vary but when you’re considering the average cost of an accountant for small businesses, what you pay in fees will either be mainly or completely […]

CLOUD ACCOUNTING LLP

#NumbersinBlackandWhite

ONLINE CHARTERED ACCOUNTANTS

BELFAST ADDRESS
Catalyst Inc,
Titanic Quarter
Belfast
BT3 9DT
+44 2895 219365


LONDON ADDRESS
New Broad Street House
35 New Broad Street
London EC2M 1NH
+44 207 971 1002

Name: Cloud Accounting LLP
Email address: admin@cloudaccountingni.com
Phone: +447868663538