Last week we offered an update on the online filing issues for self-assessment tax returns. We also looked at a case where the taxpayer was confused about zero rating and exempt goods for VAT, and took advice from his suppliers. Finally, don’t forget the tax credits renewal deadline is 31 July; your clients may need you to provide some estimated figures of profit for 2016/17.
Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)
Exempt or zero rated
Do your clients and your staff understand the difference between goods which are zero rated for VAT, and goods which are exempt? Sales which are zero rated must be included within the turnover which counts towards the test for compulsory VAT registration, exempt sales are not included.
This distinction is particularly important for e-bay traders whose turnover may quickly exceed the VAT threshold (now £85,000). This happened to Nathaniel Hendrickson who sold motorbike protective clothing online, including helmets. He didn’t think he had to register for VAT as his supplier had assured him that the protective clothing was exempt from VAT. In fact, VAT notice 701/23 make it clear that motorcycle helmets and certain safety boots are zero rated (not exempt), but all other clothing for adults is standard rated.
Hendrickson claimed his accountant had told him in 2015 that all the clothing he supplied would not be subject to VAT. He took this as meaning that he wouldn’t have to register for VAT. However, the accountant changed her advice, and apologised for her oversight, once HMRC started to enquire into Hendrickson’s tax affairs.
Hendrickson had to pay VAT of £23,962 in respect of sales made in the period for which he should have been VAT registered, plus a penalty of £4,792, which was the minimum penalty chargeable at 20% of the late paid VAT. The tax tribunal did not accept that his ignorance of the law, or his reliance on advice from his accountant was a reasonable excuse.