Steps to maintain high levels of VAT accounting compliance and ensure opportunities are not missed are to be encouraged. Such aspirations in the Not For Profit sector have challenges in an environment with both financial and staffing pressures. Hybrid working has an impact on managing the VAT compliance process, particularly in keeping up to speed with those changes in your organisation that might be triggered by that conversation in the corridor. We thought a timely checklist might help give focus on areas to prioritise.
Priority Compliance Areas:
Upcoming reviews from HMRC
HMRC has increased its VAT technical resources through the recruitment of up to 6,000 VAT compliance staff. HMRC have continued a targeted review program, including the Not for Profit sector.
Areas include trading subsidiaries, partial exemption and business/non-business, property developments, Capital Goods Scheme, services purchased from non-UK suppliers, Making Tax Digital and tax avoidance.
Trading Subsidiaries
Subsidiaries get used for a wide range of purposes – some of which may be VAT-led. These intentions can take them outside of the usual VAT treatments that apply to a charity itself. The subsidiaries may not have charitable status; some sit inside a VAT Group; others are separate registrations. All these aspects illustrate how it’s important not to make any VAT-related assumptions in respect of trading subsidiaries.
Partial Exemption and Business Non-Business
HMRC has set out their updated approach to determining the nature of an activity as to whether it would see it as a business activity for VAT purposes. Obtaining an income, even where the charge for that supply is below cost, brings the activity into the range of being a business activity.
RCP status of Buildings; Change of Use; Capital Items
Check for change of space use or leases and disposals around assets that fall into the 10-year monitoring regime for Capital Items. This is an area where it is as much about showing you have good compliance and monitoring processes in place as ensuring the correct VAT technical liability or treatment has been applied.
Making Tax Digital
The soft-landing period has now ended, and the key focus is ensuring that “digital links” are in place for all information to flow into the VAT account. HMRC have issued reminders on the penalties that relate to the failure to ensure fully compliant digital links in the completion of VAT returns. Systems, an area to walk through, therefore.
Proactive Areas:
The soft-landing period has now ended, and the key focus is ensuring that “digital links” are in place for all information to flow into the VAT account. HMRC have issued reminders on the penalties that relate to the failure to ensure fully compliant digital links in the completion of VAT returns. Systems, an area to walk through, therefore.
Outside of the known list of areas that HMRC have an interest in there are a number that we would suggest our clients should be considering to minimise risks and maximise opportunities :
- Net Zero Strategy – Your organisation may already have a written Net Zero Strategy – but have the VAT and Environmental Tax impact areas been established? News Update here
- Cash is King – Being proactive will save you money and time. We undertake reviews for our clients, with possible savings areas including charity VAT reliefs such as those relating to fuel and power or to certain disabled adaptations, change of partial exemption method, energy saving materials and environmental tax reliefs.
- Risk Evaluation Tool – Establishing where areas of VAT risk may lurk in any organisation can be a challenge whatever your area. Risk management in the complex world of VAT is an area where we feel a proactive approach can be taken. We’ve devised our own VAT risk evaluation process as a result and would be happy to discuss how we can add value to the challenge of managing VAT risks in your organisation.
When you need expert VAT and Environmental Tax support then the Xeinadin Indirect Tax team are here to help:
- Helplines and VAT management meetings
- Property projects
- VAT reviews
- Partial exemption methods
- Risk evaluation tool
- Training
