VAT

Does it matter if your food is hot or cold?

Published on: 13 Apr 2012

Now I’m not talking about the nutritional benefits of food. No, I’m talking about the cost to you of purchasing food.

The recent tax budget in the UK has caused a bit of a debate.

The background to matters is that, as is the case in a lot of countries, when food is sold in the UK it is zero rated for VAT purposes. In other words, there is no VAT charged on it.

The exception to this is any food which is sold as a “supply in the course of catering”. This means that whilst “food” bought at a supermarket does not have VAT added to it, food bought at a restaurant or at a takeaway does have VAT applied to it as it is a “supply in the course of catering”. The adding of the VAT to the cost obviously makes it more expensive to the individual customer.

So far it’s all fairly clear with in general terms, food having VAT added to it if it is to be consumed immediately whilst food purchased to eat later doesn’t have VAT added to it.

There have however been certain types of food which have had a somewhat “confused” existence.

“Pasties” for example are in effect meat and vegetable filled types of pie which originate from the south-west part of England. People would often buy pasties from bakeries just as they had been baked and the question was whether these items were food to be taken home to be eaten later (VAT zero rated) or food that was to be consumed immediately (VAT standard rated).

To date, the treatment has been one of zero rating but in the recent budget the government announced a proposal that any food sold above the ambient air temperature would be liable to VAT at the standard rate.

This would mean that if people bought a pasty that had just been cooked they would have to pay the VAT even if they were going to eat it several hours later at home after it had cooled down.

Whilst the additional tax revenue that would be generated by this approach would be relatively small, the amount of publicity that this is getting in the UK is significant.

The tax authorities issued a consultative document on budget day called “VAT: addressing borderline anomalies” and within this was the topic of hot take away food.

Because it’s a consultative document it’s not actually law at the moment. Instead, people can comment on the issue prior to it becoming law and there may well be some changes.

The closing date for comments on this is 4 May 2012 and no doubt there will be lots of pasty lovers closely watching the outcome.

Who can really be trusted to keep a secret? Accountants or lawyers?

Published on: 01 Nov 2010

When you speak with your lawyer, you can say almost anything and be confident in the knowledge that the lawyer will be able to preserve the confidentiality of your discussion.

Most people probably assume the same thing when having discussions with their accountant, especially in the context of discussing tax planning opportunities with a tax advisor.

Unfortunately, English readers should pay careful attention to the decision in a recent case, R (on the application of Prudential PLC) v HMRC, EWCA Civ 1094 if you would like the full legal citation.

This Court of Appeal decision stated that client privilege only extends between a lawyer and a client.  This means that any discussion between a client and an accountant cannot be guaranteed to be confidential.

This is an English legal case, which is binding in England and Wales only, but the judgment is based on common law, so is likely to be highly influential in jurisdictions based on the English system globally.

As the accountancy and legal professions increasingly compete, especially in the area of tax advice, this gives a significant advantage to the legal profession over the accountancy profession.

Who would you rather seek advice from: a lawyer who you are confident cannot be compelled to reveal the content of your discussion, or an expert accountant who is unable to promise confidentiality?

If you talk to a lawyer about this then they may well say they were pleased that they had this advantage over accountants.

Note of course though that if they felt like it they wouldn’t have to disclose what was said in your conversation…

It’s 2010 so should a Witch pay income tax or not? Well, according to the Romanian government…

Published on: 15 Sep 2010

“Double, double toil and trouble, fire burn, and cauldron bubble” so goes the famous Witch’s chant from Act 4, scene 1 of Macbeth but was a similar chant taking place last week when a potential Witch Tax was rejected by the Romanian Senate?

Like many countries around the world Romania suffered badly during the recession. In an attempt to balance the books the government has undertaken cuts in public sector wages as well as raising the VAT rate.

In a somewhat unusual move last week though, Alin Popoviciu and Cristi Dugulescu, two members of the ruling Democratic Liberal Party drafted a law whereby Witches would have had to produce receipts for the services they performed and hence be taxed on them.

Now whilst the image of Witches queuing up to submit their tax returns may cast an unlikely picture there are a number of interesting issues.

First of all then surely they are just self employed individuals? From a tax point of view they are no different from for example a self employed builder or a self employed accountant who both have to pay income taxes.

Admittedly, from a non tax point of view it probably elicits some interesting expressions on the face of the person who asks them what they do for a living but back to tax and there would be some questions that needed to be answered:

What about Witches training courses? Surely they would be a tax deductible expense?

Would the costs of keeping a black cat be considered a personal expense or an expense of the business?

What about the purchase of a new broom. Would it be a capital or revenue expense?

In another move which no doubt came as a complete surprise for all concerned, fortune tellers were told that they were to be held liable for any incorrect predictions that they made.

The Witches and fortune tellers needn’t have worried too much though as Romania’s Senate voted down the proposal on Tuesday.

Popoviciu allegedly claimed that the lawmakers didn’t implement the law as they were frightened of a Witches’ curse being made on them.

Benjamin Franklin once famously said “In this world nothing can be said to be certain, except death and taxes.”

Maybe the Senators that voted down the Witches tax in Romania were concerned that the two would be combined.

“There’s no such thing as a free lunch” but will there be such a thing as a free drink or cheap drink in the future?

Published on: 30 Aug 2010

Binge drinking in the UK is a major problem. City centres at the weekend can be full of people that are literally trying to drink as much as possible in as short a period of time. Violence and health issues often ensue.

As well as the disturbances to local residents there are also the costs both health-wise to the drinkers and financially to police forces, hospitals and society at large arising as a result of this binge drinking.

As a potential solution to this problem, the government is currently investigating whether to ban free or cheap drink promotions. One of the ideas being discussed is whether to make it illegal to sell alcohol below cost price. In other words to prevent businesses offering “loss leaders” on drinks so as to encourage higher spending at a later date.

If you’re an accountant, and assuming you’re not reading this in the middle of an actual binge drinking session yourself, this raises an interesting discussion on what exactly is meant by “below cost” and in particular the term “cost”.

The major alcoholic drinks manufacturers produce a range of drinks. Diageo for example produce drinks as varied as Smirnoff vodka, Johnnie Walker whisky and the famous Irish stout Guinness.

Identifying the cost of each particular drink would be challenging exercise. Whilst they no doubt have sophisticated management accounts which allocate overheads and indirect costs in certain ways, there would be a clear debate as to which was the “correct” allocation of these costs.

Apportioning overheads such as head office costs, R&D and marketing to individual products would result in a certain amount of flexibility in terms of identifying the cost figure to use for “below cost” purposes.

One solution to this inherent problem of identifying the cost of individual products has been proposed and that is setting the minimum cost of the drinks as equivalent to the duty and VAT that needs to be paid on the particular drinks.

So, the next time you’re out having a quiet drink with some non finance friends feel free to start a discussion about how much each of your drinks cost to make. You can then explain about the various possible methods of allocating indirect costs. Then again, talking about management accounting cost allocation whilst out with your friends may result in your  non finance friends starting a binge drinking session themselves…

If you’re heading to the exams next week then do you care whether this is a car or a van?

Published on: 02 Jun 2010

On the way into the office this morning I was stuck in traffic next to a Peugeot 207 vehicle which was identical to the model to the left except that it was red rather than white.

If you’re heading to the ACCA UK stream tax exams on Monday then do you care if this vehicle is a car or a van?

The vehicle is certainly a nice looking Peugeot 207 and whilst most people would say it’s a car the fact that it doesn’t have side windows behind the driver and passenger doors makes it almost certain to be treated as a van by the tax authorities.

The good news is that you’re NOT going to be examined on the detailed rules of what is a car and what is a van (or lorry or truck for that matter) so should you care about the distinction between cars and vans?

The short answer is that yes, you should care!

I’m personally pretty certain that the exams on Monday will include a capital allowance computation which involves cars or commercial vehicles such as lorries or vans.

There are some new rules being examined for the first time by the ACCA this session (see chapter 5 of our F6 ExPress notes for a quick summary) so I think this has got a good chance of being examined.

In summary, vans and lorries are commercial vehicles and are therefore eligible for the AIA and FYA within capital allowances. Cars on the other hand do NOT qualify for the AIA or FYA (unless a low emission car which gets a 100% FYA).

Also, don’t forget to look out for the CO2 emission rate of the car as if it’s >160g/km then it only gets a 10% WDA as part of the special rate pool.

On the VAT side of things then VAT can be reclaimed on lorries and vans unlike with cars where it is not possible to treat the VAT as input VAT.

Being a tax tutor I’m one of those strange people that find all of this interesting and apologies to any of you that don’t share my excitement at discussing the distinction between cars and lorries…

You’ll save paper but not VAT after 1 April.

Published on: 22 Mar 2010

I’ve just come back from a short trip to the States. Whilst in most European countries VAT is taken for granted, in the US there is considerable debate over whether a VAT system should be established.

Although there is no VAT in the US at the moment, there are in fact sales taxes present in a number of states. What is interesting is that in some shops the sales tax is shown on the price of the goods on display whilst in others the sales price is not shown on the display but instead is added at the checkout. Studies have shown that in the US people are less likely to purchase a product if the sales tax is shown on the displayed price rather than added at the checkout.

However, whilst this is interesting every good student of ACCA or CIMA knows that the price shown in the UK on business to business transactions is net of VAT (i.e. VAT exclusive – excluding VAT) whilst goods for sale to the public are generally shown gross of VAT (i.e. VAT inclusive – including VAT).

On the subject of VAT in the UK, there was a recent change announced to the VAT filing system. In an attempt to reduce the level of filing of paper VAT returns, from April 2010 all businesses with an annual turnover of £100,000 or more will have to file VAT returns electronically and also pay VAT online. In addition, any  business registering for VAT on or after 1 April 2010 will also have to file and pay online.

From an environmental point of view this is good news as the amount of paper that is used for paper return completion and submission is huge.

So, is the paperless office coming closer?

Marks vs revenue

Published on: 04 Oct 2009

We know the allocation of marks in the exam between the various taxes but what about the revenue generated?

ACCA F6 students will be well aware that the vast majority of marks available in the exam are in connection with income tax and corporation tax. Other taxes such as CGT and VAT also play an important part but not to the extent that income tax and corporation tax do.

Whilst these two taxes represent the bulk of the marks in the exam, how does it compare with the split of revenue generated by the various taxes?

HMRC have published their statistics for 2008/09 which provide the following information:

Total £439bn 100%
Income tax £148bn 33%
National insurance £97bn 22%
VAT £78bn 18%
Corporation tax £43bn 10%
CGT £8bn 2%

Over 50% of revenue is generated from income tax and national insurance alone. CGT on the other hand only generates 2% of the revenue.

I’m sure however that the key % in students minds at the moment is the 50% they need in the exams next month so good luck with your studies in the next couple of weeks!

The ExP Group