What are Freeports? VAT implications

What are Freeports? VAT implications

A Freeport is designed to attract major domestic and international investment, these hubs of enterprise will allow places to carry out business inside a country’s land border but where different customs rules apply.​ At a Freeport, imports can enter with simplified customs documentation and without paying tariffs. Businesses operating inside designated areas in and around the port can manufacture goods using the imports and add value before exporting again without ever facing the full tariffs or procedures. If the goods move out of the Freeport into another part of the country, however, they have to go through the full import process, including paying any tariffs.

The EMF features three main sites: 1. the East Midlands Airport and Gateway Industrial Cluster (EMAGIC) in North West Leicestershire, 2. the East Midlands Intermodal Park (EMIP) in South Derbyshire, and 3. the Ratcliffe-on-Soar Power Station site in Rushcliffe in Nottinghamshire.

Freeports are designed to specifically encourage businesses that import, process, and then re-export goods. The East Midlands Freeport (EMF) will therefore be outside of the UK’s VAT and customs area. As a result, goods can be moved in and out of the EMF to and from locations around the world, free from import VAT, duties, and some paperwork.  Items sold within EMF may also be free of VAT. Goods held within the Freeport will be in duty and VAT suspension so will not trigger a VAT or duty charge. VAT and duty will only become payable when goods leave the Freeport into free circulation in the UK.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Free initial meeting

Tony Nickson

VAT Consultant, Sheffield

0114 266 7141

[email protected] 

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New Penalty Regime for VAT Returns

The budget has confirmed that HMRC is to introduce a new penalty regime for VAT. The new system will be in place for VAT returns beginning on or after 1 April 2022.

Currently, late submission and payment of VAT returns are penalised by a single default surcharge. For the first default businesses receive a surcharge liability notice which acts as a warning. Subsequent defaults are surcharged at 2%, 5%, 10%, and a maximum of 15% of the tax owed. The surcharge is imposed at a fixed amount for a late filing – it currently does not increase according to how late the submission is, and no interest is charged on late payments.

Current default interest charges can result in unexpectantly large fines for those who submit and/or pay just a few days late.

New Regime – This will impose up to 4 different penalties parallel charges on businesses that do not submit and/or pay their returns on time.

  1. Late submission penalty – HMRC will issue a single penalty point for late submission of a VAT return and once a business has exceeded a points threshold for multiple missed returns, a flat penalty of £200 will be charged.
  2. Late payment penalties – this is a two-part penalty. The first charge will be imposed at 2% of the outstanding tax if the tax due on a return remains unpaid after 15 days after its due date.  After 30 days the penalty increases to 4%.
  3. The second late payment penalty is a daily penalty (set at 4% per year of the tax still outstanding at that point), starting from 31 days after its due date until the business pays the tax that is due.
  4. Late payment interest – is calculated at 2.5% above the Bank of England rate and will be payable on tax outstanding after the due date for the VAT return. Where a payment is made after the due date, late payment interest will be payable from the due date until the date full payment of that tax is received by HMRC.

 

This new system appears fairer and although it is complicated, businesses who might occasionally submit and/or pay their VAT return less than 15 days late (for example, because of an administrative or bank error or a short cashflow-related delay) will benefit as they will only pay relatively small amounts of penalties and interest.

However, should a business fail to submit their VAT returns on time and are frequently more than 30 days late paying any VAT owed, they may find themselves in a situation with various penalties to pay.

Free initial meeting

Tony Nickson

VAT Consultant, Sheffield

0114 266 7141

[email protected] 

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VAT changes for sales to EU from 1 July 2021

The European Union is making changes to the VAT treatment of supplies of goods and services to EU non business customers. These changes take effect from 1 July 2021.

Goods

Under the existing rules sales of goods by non-EU businesses to the EU, customers are not subject to import VAT in the EU where the value of the shipment is €22 or less. Where the value of the shipment exceeds that threshold then import VAT is payable. Some businesses chose to pay this import VAT on behalf of customers to provide a better customer experience.

The EU considers that the existing scheme results in non-EU businesses having a competitive advantage over EU businesses in respect of sales under €22. In addition to this, there is administrative friction on sales exceeding €22 due to import VAT being payable before goods can clear customs.

Therefore, from 1 July 2021 non-EU businesses (including UK businesses) will be required to charge sales VAT on goods sold to EU consumers where the value of the goods is €150 or less and import VAT will not be due.

However, rather than requiring businesses to register in each European country the EU have introduced an Import One Stop Shop Scheme (IOSSS). This means that non-EU suppliers can register for VAT in just one EU country and file and pay the VAT due in respect of sales to customers in any EU country through the IOSSS registration.

However, where goods are sold via an online market place the duty to account for EU VAT shifts to the online marketplace who will be regarded as the deemed supplier. In this scenario, the UK supplier would simply zero rate the invoice to the online market place.

For consignments exceeding the €150 IOSS threshold, import VAT is still due in the EU country of importation. However, where the non-EU supplier is the importer of record it will be required to register for VAT in the country of importation and local charge VAT on the onward supply.

In such a scenario, rather than having to register in each EU country into which a supply is made, non-EU businesses are able to register for the Union One Stop Shop (OSS). As with the IOSSS this enables businesses to have one VAT registration and file one VAT return to account for VAT in various countries rather than having multiple registrations.

Under existing rules, non-EU businesses that hold stock in the EU have been required to account for an charge VAT in various EU countries where distance selling thresholds have been breached. However, from 1 July 2021 the distance selling thresholds have been abolished. In order to avoid business having to obtain multiple registrations the  Union OSS scheme can be applied for. This is available to non-EU businesses who have stock in an EU member state.  The business would register and file OSS VAT return in that country which has the stock. Therefore, the business would only have to file one VAT return to account for VAT in various countries rather than having multiple registrations.

Services

The VAT place of supply of services for B2B supplies is that is where the customer belongs. The default position for the VAT place of supply for B2C supplies (e.g., sales to non-business customers) is where the supplier belongs unless it relates to certain services such as telecommunications, e-services, land-related services, and performances. If the supply relates to telecoms or e-services the place of supply is where the customer belongs. In terms of land-related services, it is where the land is situated and in the case of performances, it is where the performance is held. These rules are not changing but the way that the tax is collected and paid is changing.

Under existing rules suppliers of B2C e-services and telecoms are allowed to account for VAT under the OSS (Non-Union Scheme) which has removed the requirement to register VAT in various EU states.

Suppliers of land related services and performances have not benefited from this facility and have been required to register and account for VAT in various EU countries. However, the One Stop Shop is now being extended to cover the sales of such services and this will make VAT accounting easier for UK businesses providing such services in the EU.

Free initial meeting

Aaron Hemmington Tax Adviser Northampton

Aaron Hemmington

Tax Partner, Northampton

01604 645 600

[email protected]

Tony Nickson

VAT Consultant, Sheffield

0114 266 7141

[email protected] 

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To ensure the continuation of fairness HMRC has decided to implement an accelerated process when it comes to VAT Partial Exemptions. This accelerated process will allow businesses to request changes to their VAT Partial Exemption methods due to Covid-19.

To submit a Partial Exemption Special Method request you will need to send a declaration that the method proposed is fair and reasonable. See example here: https://www.gov.uk/guidance/partial-exemption-vat-notice-706#Appendix1

If the nature of your supplies has changed due to COVID-19 and you believe that you will be moving back to pre-pandemic supplies soon, then HMRC will likely accept proposals that use a representative income stream from the previous 1-3 tax years.

If you believe that your business is eligible to make changes, please visit the HMRC website to find out more details.

 

How can we help?

At Hawsons our VAT expert Tony Nickson has 20 years of experience working at the VAT office, Tony has gained a wealth of knowledge of VAT processes, including VAT visits to customers, client education, VAT repayments, and error corrections. Tony provides practical VAT advice to a wide range of clients in numerous business sectors.

 

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

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Free initial meeting

Tony Nickson

VAT Consultant, Sheffield

0114 266 7141

[email protected] 

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The Chancellor has confirmed that the following supplies will continue to be charged at 5% instead of 20% until 30 September 2021. To help businesses manage the transition back to the standard rate, a 12.5% rate will then apply for a further six months, until 31 March 2022:

 

  • food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs;
  • hot takeaway food and hot takeaway non-alcoholic beverages;
  • sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities;
  • admissions to the following attractions if they are not already eligible for the cultural VAT exemption:
  • theatres
  • circuses
  • fairs
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  • museums
  • zoos
  • cinemas
  • exhibitions
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Where admission to these attractions is covered by the existing cultural exemption, the exemption will take precedence.

 

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Free initial meeting

Tony Nickson

VAT Consultant, Sheffield

0114 266 7141

[email protected] 

Domestic VAT reverse charge introduced from 1 March 2021

Domestic VAT reverse charge introduced from 1 March 2021

A domestic reverse charge will be introduced from 1 March 2021 to tackle VAT fraud in the construction industry. Tony Nickson, VAT Consultant at Hawsons, explains what this will mean for businesses.

What is a reverse charge?

In a nutshell the reverse charge is where the customer charges themselves VAT, rather than the supplier charging VAT. This means there is no opportunity for the supplier to disappear without paying the VAT to HMRC.

When will this come into effect?

This will come into effect on 1 March 2021. It was originally due to come in on 1 October 2019 but was subsequently delayed.

Who will be affected?

Businesses involved in buying or selling specific construction services.

What types of construction services will be covered by the reverse charge?

The domestic reverse charge will only affect supplies at the standard or reduced rates where payments are required to be reported through the Construction Industry Scheme (CIS).

Therefore supplies between subcontractors and contractors, as defined by CIS, will be subject to the reverse charge.

What supplies are excluded from the reverse charge?

It will not apply where:

  • Services are applied to the end-user, such as the property owner, or directly to the main contractor who sells a newly completed building to the customer
  • The recipient makes onward supplies of those construction services to a connected company
  • The supplier and recipient are landlord and tenant or vice versa, or
  • The supplies are zero-rated.

The Government’s original proposal stated that the reverse charge would apply to ‘labour only’ supplies of construction services. However, HMRC’s latest publications state that it will also cover the provision of construction services that include materials. This will bring many more construction businesses into the reverse charge than first thought.

How will it work?

The introduction of a reverse charge will not change the liability of the supply of the specified services. It will just change the way in which the VAT on those supplies is accounted for- rather than the supplier charging and accounting for the VAT, the recipient of those supplies will account for the VAT. Only supplies made on, or after 1 March 2021 will apply. This will include goods supplied with those services.

What do contractors need to do?

Businesses that supply construction services should identify instances where they supply services to other businesses in the construction sector (rather than to a consumer of those services) and determine whether the services are included within the list of specified service. Businesses that are caught by this will from March 2021 no longer need to charge VAT on these services as the recipient will charge themselves VAT.

Implementation of the reverse charge

HMRC understands the difficulties businesses may have in implementing the domestic reverse charge and will apply a light touch in dealing with related errors that occur in the first 6 months after introduction, where businesses are trying to comply with the new legislation.

However, businesses that knowingly claim end-user status when the domestic reverse charge should have applied will still be liable for the output tax that should have been paid and may be liable for penalties.

 How Hawsons can help

If you have any concerns relating to the introduction of the reverse charge or any other aspect of your VAT affairs, please get in touch with Tony Nickson or your usual Hawsons contact.

 

Tony Nickson

Tony Nickson is a VAT Consultant at the firm. He provides practical VAT advice to a wide range of clients in numerous business sectors and advises on matters relating to sole proprietors, partnerships and corporate bodies on all VAT issues including exporting, importing or providing goods/services within the UK. Please contact Tony on [email protected] or 0114 266 7141.

Free initial meeting