Value Added Tax

The transfer of a business as a going concern (TOGC) rules concern the VAT liability on the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

• The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
• The purchaser intends to use the assets to continue the same kind of business as the seller.
• Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
• Where only part of a business is sold it must be capable of separate operation.
• There must not be a series of immediately consecutive transfers.
• There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

The taxable turnover threshold that determines whether businesses should be registered for VAT is currently £85,000. Businesses with turnover below this level can also apply for a voluntary VAT registration.

Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly, VAT will be payable on most goods and services purchased by the business. This is known as input VAT.

The output VAT is collected from the customer by the business on behalf of HMRC and must be regularly paid over to HMRC. However, the input VAT suffered on most (but not all) goods and services purchased for the business can be deducted from the amount of output tax owed to HMRC.

If your input tax is greater than your output tax, HMRC will owe you a refund.

As a VAT-registered business you must:

• include VAT in the price of all goods and services at the correct rate;
• keep records of how much VAT you pay for things you buy for your business;
• account for VAT on any goods you import into the UK; 
• report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) – usually every 3 months; and
• pay any VAT you owe to HMRC.

The Notification of Vehicle Arrivals (NOVA) is an online notification system for vehicles entering the country for permanent use on UK roads.

You can use the service if you are:

• a VAT-registered business that does not use the secure registration scheme;
• not VAT-registered and you have imported a vehicle from the EU into Northern Ireland;
• not VAT-registered and you have imported a vehicle from Ireland using a delayed declaration.

Under the system anyone who brings a vehicle into the UK using NOVA is normally required to notify HMRC within 14 days of the import date. Until this is done it will not be possible to register or licence a vehicle with the DVLA or DVA. A penalty system applies to late notifications.

A NOVA notification is not required if the vehicle has an engine size of 48cc or less (7.2kw or less if it’s electric) or if the secure registration scheme is used.

In order to make a notification to HMRC about a vehicle the following information will be required:

• The make, model, engine size and body type of your vehicle
• The Vehicle Identification Number (VIN)
• The existing registration number of the vehicle (if applicable)
• The value of the vehicle
• Mileage details

Whilst the easiest way to bring a vehicle into the UK will be by submitting the notification online there is also a paper form (VAT NOVA1) that can be used.

New simplified VAT guidance for overseas sellers has been published by HMRC. The guidance also includes a new translation into simplified Mandarin to help support Chinese retailers that sell goods online into the United Kingdom.

The guidance provides further information about the rules and obligations for overseas sellers that using online marketplaces and selling goods directly to UK consumers. This includes details of when and how VAT and import duties must be charged to customers by international sellers.

In 2022, the UK imported £83.3 billion in goods and services from China and Hong Kong. Online shopping accounted for 26.5% of all UK retail sales in 2022, with a substantial number of goods being bought from international sellers via online marketplaces.

Commenting on the publication of the simplified guidance, HMRC’s Director for Individuals and Small Business Compliance, said:

'We have acted on feedback from businesses to simplify and compile this online guidance into one, easily accessible place on GOV.UK. We have also recently published a simplified Mandarin translation of our guidance following research conducted with Chinese businesses.

By making our VAT and import duty rules easier to understand, we will be able to increase tax compliance levels for online sellers. We are asking UK freight, customs and shipping agents to help us reduce the tax gap by sharing this simplified guidance with their customers. By working together, we can help everyone pay the right amount of tax at the right time.'

The first monthly returns and payments affected by HMRC’s new VAT penalty regime were due by 7 March 2023. The new VAT penalty rules apply to the late submission and / or late payments of VAT returns for VAT return periods beginning on or after 1 January 2023. 

Under the new regime, there are separate penalties for late VAT returns and late payment of VAT as well as a new methodology to the way interest is charged. This replaces the old default surcharge regime and for most taxpayers should represent a fairer system.

The new system is points-based. This means that taxpayers will incur a penalty point for each missed VAT submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). For quarterly VAT returns, the penalty points threshold will be 4 points. The penalty points will reset to zero following a period of compliance, for quarterly returns this requires 12-months of compliance. There are also time limits after which a point cannot be levied. 

The new regime also sees the introduction of two new late payment penalties. A first payment penalty of 2% of the unpaid tax that remains outstanding 16-30 days after the due date. The second payment penalty increases to 4% of any unpaid tax that is 31 or more days overdue. To help with the introduction of the new system, HMRC has confirmed that it will not be charging a first late payment penalty for the first year of the new regime (1 January – 31 December 2023) once the debt is paid in full within 30-days of the payment due date or if a payment plan is agreed.

Late payment interest will be charged from the date a payment is overdue, until the date it is paid in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

The first monthly returns and payments affected by HMRC’s new VAT penalty regime are due by 7 March 2023. The new rules apply to the late submission and / or late payments of VAT returns for VAT return periods beginning on or after 1 January 2023. 

Under the new regime, there are separate penalties for late VAT returns and late payment of VAT as well as a new methodology to the way interest is charged. This replaces the old default surcharge regime and for most taxpayers should represent a fairer system.

The new system is points-based. This means that taxpayers will incur a penalty point for each missed VAT submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). For quarterly VAT returns, the penalty points threshold will be 4 points. The penalty points will reset to zero following a period of compliance, for quarterly returns this requires 12-months of compliance. There are also time limits after which a point cannot be levied. 

In addition, the new system sees the introduction of two new late payment penalties. A first payment penalty of 2% of the unpaid tax that remains outstanding 16-30 days after the due date. The second payment penalty increases to 4% of any unpaid tax that is 31 or more days overdue. To help with the introduction of the new system, HMRC has confirmed that will not be charging a first late payment penalty for the first year of the new regime (1 January – 31 December 2023) once the debt is paid in full within 30-days of the payment due date or if a payment plan is agreed.

Late payment interest will be charged from the date a payment is overdue, until the date it is paid in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

The transfer of a business as a going concern (TOGC) rules concern the VAT liability of the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

• The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
• The purchaser intends to use the assets to carry on the same kind of business as the seller.
• Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
• Where only part of a business is sold it must be capable of separate operation.
• There must not be a series of immediately consecutive transfers.
• There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

If you are required to register your business for VAT purposes you are joining that reluctant band of business owners that are obliged to collect tax for HMRC.

The amount of VAT you have added to your sales, less VAT you have paid out on qualifying purchases, will be paid to HMRC at the required intervals, usually quarterly. As long as your customers pay you the VAT added, over time there should be no effect on your profits, but there can be dramatic impacts on cash flow.

Unfortunately, this is not the end of your responsibilities to act as unpaid tax collectors.

If you employ a person, and HMRC considers that their salary should be reduced by Income Tax and National Insurance contributions, it is your legal duty to make these deductions and pay them directly, every month, to the Collector of Taxes.

As with VAT registered traders, there is no increase in costs to an employer if employee contributions (Income Tax and National Insurance) are considered in isolation. However, employers also have to pay a separate National Insurance Contribution (NIC) and these are added to monthly payments to HMRC.

Therefore, these employer NIC contributions are a cost to the employer’s business.

We are not aware of the overall costs to UK businesses of calculating PAYE and NIC to meet these demands, but it must be considerable.

The alternative would be to make employees responsible for calculating Income Tax and NIC deductions and paying their taxes individually instead of receiving wages and salaries net of these deductions.

However, UK business owners need to be aware of these obligations and take them into account as the tax collection activities will take up time or increase overheads.

The taxable turnover threshold, that determines whether businesses should be registered for VAT, is currently £85,000.

The taxable turnover threshold that determines whether businesses can apply for deregistration is £83,000.

It was confirmed as part of the Autumn Statement 2022 measures that the taxable turnover registration and deregistration thresholds will be frozen at the current rates until 31 March 2026.

Businesses are required to register for VAT if they meet either of the following two conditions:

1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

The registration threshold for relevant acquisitions from other EU Member States into Northern Ireland is also £85,000.

Businesses with no physical presence in the UK may also have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or are expected to in the next 30-days).

The VAT One Stop Shop is an EU wide scheme that allows a VAT registered business to register in only one single EU Member State. The scheme was extended with effect from 1 July 2021. The extended scheme covers three special schemes: the non-Union scheme, the Union scheme and the import scheme. 

The VAT One Stop Shop scheme can be used by businesses selling goods from Northern Ireland to consumers in the EU under the terms of the Northern Ireland Protocol. In order to use the scheme, sales must be above the distance selling limit of €10,000 – currently set at £8,818. The scheme only covers the sale of goods. Supplies of digital services to consumers in the EU should not be reported.

Using the VAT One Stop Shop can save affected businesses from having to register for VAT in up to 27 EU countries. If a qualifying Northern Ireland business chooses not to use the scheme, they will have to register for VAT in each EU country where they make distance sales of goods.