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10 COMMON VAT MYTHS – DISPELLED

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10 COMMON VAT MYTHS – DISPELLED

Gavin Barker, UK Head of VAT, Ayming

Gavin Barker

Gavin Barker

While it may be referred to as being a simple tax, there’s nothing simple about VAT.

Whether you’re calculating your VAT returns and liability or recovery from across Europe, there are countless different factors and variables at play that can muddy the waters, create mistakes and potentially lead to costly penalties from HMRC or other tax authorities from across Europe, depending on where the error(s) occurred.

There are plenty of VAT myths out there – Gavin Barker has dispelled 10 of the more common culprits so they don’t catch you out:

VAT MYTH 1: ‘I’ve made an error on my VAT return – I’m going to get a fine and a penalty.’

This isn’t always the case. The circumstances and nature of the mistake, as well as whether or not HMRC are at a loss due to the error, will all be taken into account.

For instance, certain errors with a net value of £10,000 or less can be adjusted on your next VAT return.

Errors with a net value of between £10,000 and £50,000, that don’t exceed the limit of 1% of Box 6 on your VAT return, may also be included on your next return.

However, it’s worth noting here that HMRC could still assess you at some point in the future. So, if you haven’t had a visit from HMRC for a number of years, and are aware that you’ve made a VAT return error, it’s best you notify them about it sooner, rather than later.

VAT MYTH 2: ‘Post-Brexit, the UK will no longer be governed by EU VAT rules.’

This is true, to a certain extent.

While the Court of Justice of the European Union (CJEU) will no longer have jurisdiction in exiting UK VAT law following Brexit, the Great Repeal Bill White Paper states that failing to follow CJEU case law in the UK’s own legal system would create ‘new uncertainties about the application of VAT.’

Post-Brexit, this could effectively mean that if VAT is overpaid or underpaid due to the UK failing to implement the EU legislation correctly up to the date of leaving the EU, then taxpayers will be entitled to claim, dating back up to four years (the cut-off date for claims is 2023).

VAT MYTH 3: ‘It’s possible to recover VAT on my business entertainment expenses.’

This isn’t true. HMRC only allows tax relief and the claiming of VAT on the cost of entertaining your employees, who have to be on your payroll and being paid a salary.

If you’re entertaining somebody else, then that’s classed as business entertaining, rather than staff entertaining, which means you can’t claim either tax relief or VAT on the cost of entertaining them.

VAT can only be recovered on business expenses that are incurred by an employee, not by a business as a whole.

VAT MYTH 4: ‘VAT is only due when an invoice is issued.’

False. Yes, VAT can be due when an invoice has been issued, but it can also be due once goods have been delivered, payment of a future delivery has been made (on account or deposit) or if the VAT invoice precedes the date before the delivery of the services or goods.

VAT MYTH 5: ‘You don’t have to charge VAT to overseas customers.’

False. B2B sales are accounted for through the reverse charge in Europe, whereas B2C sales are subject to the distance selling thresholds (that vary from country-to-country).

If you breach, or believe you are about to breach, a distance selling threshold in another EU country, you need to register for VAT locally in that country. Non-EU sales can be zero-rated, subject to place of supply rules.

VAT MYTH 6: ‘There’s no point registering for VAT in another EU country – HMRC will never find out.’

Yes, it is important you register for VAT in another EU country. And yes, HMRC can find out.

It’s possible for HMRC to find out about your actions through the European Union’s Mutual Assistance Recovery Directive, which is designed to enable EU tax authorities to cooperate efficiently in the pursuit of unpaid foreign VAT. As a result, cross-border audits, fines, and penalties are becoming increasingly common these days.

VAT MYTH 7: ‘You can reclaim VAT from another EU country on your VAT return.’

False. If you do, then this would be classed as an error.

If VAT has been correctly charged (based on place of supply rules), then it may be possible for you to recover the VAT in the country where it was incurred, subject to local guidelines.

But if you shouldn’t have been charged VAT, you should request for the invoice to be reissued without VAT, account for it as a reverse charge or acquisition on your VAT return and, subject to partial exemption, recover it.

VAT MYTH 8: ‘VAT is simple: It’s just about inputs and outputs at 20%.’

Many people still believe VAT is a simple tax, including the Chancellor of the Exchequer, Anthony Barber, who made this claim when it was first introduced in the UK back in 1973.

Somebody also recently said to me that VAT is as clear as black as white, as it just involves focusing on inputs and outputs at 20%. If only that were the case.

Contrary to popular belief, VAT isn’t simple. Yes, in many instances, businesses have straight-forward transactions, but you just have to look at the legislation and UK and European case law to see there are many grey areas that are constantly being scrutinised, reviewed and refined.

VAT MYTH 9: ‘The reverse charge VAT liability is taken into consideration when the VAT registration threshold is considered.’

True, although it’s often missed. Businesses must take VAT registration reverse charges into account, if they’re not VAT registered, but are buying in services from abroad (without VAT being charged).

The value of these services then needs to be taken into account when deciding if the VAT registration threshold has been exceeded or not.

VAT MYTH 10: ‘Financial records aren’t sufficient support for VAT records.’

Many businesses believe that financial records, such as their bank statements, can be used to provide HMRC with details of their VAT affairs.

However, what many companies don’t realise, is that financial accounting records are based on incomes due or earned, whereas VAT is recognised and due whether you have or haven’t been paid for goods or services.

There are countless myths about VAT out there, the points listed above provide a small snapshot of just some of the pitfalls we’ve encountered in recent months that tend to catch companies out. While it’s best practice to stay on top of the latest legislation and regulations governing UK VAT affairs, it’s also wise for businesses to be mindful of the many myths out there – if they don’t want to fall foul of them, that is.

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Using payments to streamline everyday transport

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Using payments to streamline everyday transport 1

By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail

Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.

This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.

Optimising transport with payments

The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.

  1. Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
  2. Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
  3. Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.

Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).

Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.

Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.

Managing coronavirus

Venceslas Cartier

Venceslas Cartier

COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.

Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.

However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.

Other trends to keep an eye on

Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.

Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.

Next steps for operators

Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime 2

By Dhanum Nursigadoo, ComplyAdvantage

With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.

Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year.  But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.

But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.

The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.

The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.

Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.

The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.

As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.

Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.

But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.

It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines?

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines? 3

By Don Marshall, Marketing role at Exporta.

The challenge of mobilising a supply chain for the introduction of a global and nationwide vaccine will be enormously complex. The process will be costly, and it’s likely the figures will stretch to the hundreds of millions for both the production of the vaccine itself and its distribution across the UK. We must prepare and plan a supply chain strategy to ensure it reaches those most in need in a timely and safe manner.

The task of immunising a whole population is something that has never been planned or likely imagined by anyone within a standard supply chain. A supply chain that goes directly from the manufacturer to the end consumer, or user/ patient in this case, is complex and goes beyond the scope of any single logistics company. It would have to be conceived and delivered via a large joint effort and collaboration between multiple organisations. Effectively distributing the vaccine will depend on the source of manufacture, its storage requirements, and protection of the vaccines from manufacture through to patient administration.

The majority of vaccines require storage within a specific temperature range and need to be handled safely and in hygienic conditions. Depending on where the vaccines are manufactured, the transport legs will vary; if they are coming from overseas, air freight will increase cost and complexity. In addition to supplying the vaccine, syringes, needles and containers also need to be taken into account when preparing the supply chain.

Securing the specific types of boxes or containers i.e. the lidded containers normally used for transporting pharmaceutical products will mean acquiring them from all available stockists and manufacturers. Delivery vehicles would then need to be considered, with temperature-control factored in. The medical supply chain can inform their approach to distribution by assessing data from previous supply chains, and how large quantities of vaccines have been sent out in the past. Collating successful vaccine delivery examples from other parts of the world would be advantageous here, the more we can do to prepare for a logistical challenge of this magnitude, the better.

The distribution of this COVID vaccine will be unique in its scale and for that reason, additional supply chains will need to be mobilised. Apart from medical supply chains, those best suited for this type of transportation are the fresh/frozen food industries and supermarkets. I would mobilise these businesses to assist with the vaccine’s distribution wherever possible and use their car parks and facilities for the temporary medical centres needed to administer the vaccine to the public.

Using the food industry and supermarket networks would leave the current pharmaceutical supply chains intact for health services, pharmacies and the NHS. It would protect those vital services and continue to serve communities across the UK. Inevitably, it would place a short term strain on food supply chains, but these are supply chains that are well-equipped and versed in coping with excess demand i.e. the spike endured from the brief spell of public panic buying at the start of the crisis. With adequate resourcing and planning, I believe the UK supply chain can and will handle this challenge.

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