HMRC web site:
VAT Registration, Tracking, Filing and Payment
HMRC require companies (or self-employed individuals) to register for VAT if the business’s turnover exceeds or is likely to exceed the threshold specified each financial year (see the HMRC website for the current registration thresholds). A business can also make a voluntary election to register for VAT even if the turnover is less than the threshold or if it has dealings with other EU countries such that it needs to be registered.
An application to be registered for VAT can be made online and assuming that the application is successful, HMRC generally require companies/individuals to account for VAT on a quarterly basis. A company/individual can elect to file monthly VAT returns if preferred. This election may be useful where a production has very little output VAT (for example where the funding comes from investors or from abroad) so that the Return is generally likely to result in a refund being due. A monthly election enables the business to reclaim the VAT earlier helping the production cash flow.
When a business is registered for VAT, HMRC provides a unique reference number (once you have typed in the activation key posted to you) which is required to file VAT online. One of the options given is to register to pay VAT by direct debit and, if you set this up, HMRC will automatically take any VAT owed by direct debit or they will automatically refund VAT to that bank account. If a direct debit instruction is not set up then you can pay any VAT due online or at a bank provided you quote the VAT number. If a refund is due, HMRC will post a cheque to the company. HMRC website has full details of how to make payments.
VAT returns should be filed on time and payments made before the payment deadline. Failure to do so is likely to result in fines being levied and the more often you are late, the higher the fines.
VAT Schemes
Cash accounting scheme – VAT may be accounted for on a cash basis or on an accruals basis. The cash basis accounts for VAT only on items paid whereas the accruals basis accounts for VAT on invoices dated in the relevant quarter whether they are paid or not. Whichever basis a company adopts must be consistently applied each quarter. For full details of the cash accounting scheme, see the HMRC website at the following link:-
www.hmrc.gov.uk/vat/start/schemes/cash.htm
Flat rate scheme – HMRC also allows individuals or companies with turnover below a given level (currently £150,000 – March 2020) to use a flat rate VAT scheme. VAT still has to be charged on sales invoices at the usual VAT percentage rate. However, under this election the amount of the VAT then paid over to HMRC is at a reduced agreed percentage (each sector has a pre-set percentage). However, input VAT can then not be claimed, as the reduced VAT paid over to HMRC is to cover the potential input VAT. For full details of the flat rate scheme, see the HMRC website at the following link:-
www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#1
Annual scheme – Using the annual accounting scheme, you pay VAT on account throughout the year in equal quarterly (or nine monthly) payments. These payments are based on the VAT you paid in the previous year. If you have been trading for less than a year, the payments are based on an estimate of your VAT liability.
You only need to complete one VAT Return at the end of the year. If you have not paid enough VAT on account you make a balancing payment to HMRC. If you have overpaid, you claim a refund from HMRC. For full details of the accrual accounting scheme, see the HMRC website at the following link:-
www.hmrc.gov.uk/vat/start/schemes/annual.htm
VAT Rates
Most UK VAT is at the standard rate but there are one are two exceptions to this – see quick VAT guide below. Some items are currently zero rated which means that they are subject to VAT but that the VAT rate applicable is zero per cent. Other items are classed as exempt of VAT (insurance and interest charges are two examples of exempt items).
VAT Returns
When carrying out an inspection, HMRC usually concentrate on the numbers in boxes 1 and 4 (the output and input VAT being claimed) and expect the company to provide a full list of the items making up these boxes and supporting documentation such as invoices/petty cash receipts and even contracts. Output VAT should be accounted for in a separate nominal account to Input VAT and it is sometimes sensible to have a third VAT account to which payments to and refunds from HMRC are posted.
When doing a VAT return it is also important to reconcile the nominal ledger VAT accounts to the net VAT being paid/reclaimed on the VAT return for the period. Such a reconciliation would usually be as follows:-
| Output VAT per nominal ledger | £x |
| Input VAT per nominal ledger | -£y |
| Balance on VAT receipts/payments account | -£z |
| Net VAT payable per VAT Return | ————— Net £(x-y-z) ========= £(x-y-z) ========= |
Any discrepancy between the net VAT payable per the nominal ledger and the VAT payable per the VAT Return must be investigated and resolved before the VAT return is submitted.
Further information can be found on the HMRC website:
www.hmrc.gov.uk/vat/managing/returns-accounts/index.htm
Making Tax Digital
From April 2019 VAT registered businesses with a turnover above the VAT registration limit are required HMRC rules for Making Tax Digital for VAT. Businesses are required to keep their VAT records digitally and to submit their VAT return using compatible software. Before making VAT returns you will need to authorise your software to do this.
HMRC Making Tax Digital: Step by Step Guide
The following is a quick VAT Guide
*Please see the Treatment of VAT on Expenses section at the bottom of this page for clarification on what can be reclaimed by a production.
VAT on EU acquisitions
Box 2 of the VAT return requires a company to show the “VAT on EU acquisitions”. This box only applies to the VAT on goods purchased from EU companies and as such, this would not apply to most UK film or TV productions (in which case you need to put a zero in the box). Box 2 is only of relevance if you have purchased goods from an EU company and have not yet paid the vat.
Reverse Charge VAT
When you buy services from an overseas supplier you need to apply what HMRC call the ‘reverse charge’ VAT. In such circumstances, you calculate the VAT at the UK standard rate on the acquisition and add this figure to box 1 (output VAT) and box 4 (input VAT). The net effect of this on the VAT payable is zero as the additional box 1 and box 4 figures cancel each other out. For a full explanation of reverse charge VAT, you should refer to the HMRC website.
www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14000.htm
Sales from a UK Company to a Company Abroad
Where a UK company performs a service in the UK for an overseas company then the general rule is that VAT should be charged. However, if the overseas company is in the EU and is VAT registered then provided the sales invoice records the VAT number of the EU company, VAT does not have to be charged. In this circumstance the value of the sale needs to be included in box 6 of the VAT return (total outputs) and also in box 8 (EU sales). Where a figure is included in box 8, a company also has to file an additional quarterly return to HMRC which provides the VAT numbers to support all the EU sales. This additional return can be filed online.
Where a UK Company provides services to a company outside the EU, the charging of VAT depends on where HMRC determine the place of supply to be.
If you supply services to a business customer, the place of supply is where the customer belongs.
If you supply services to a non-business customer, the place of supply is where the supplier belongs.
It can therefore be assumed generally that if the place of supply of your service is not in the EU you don’t have to charge VAT or include the sale on your VAT Return. However, the supply of the following services have special rules which apply, details of which are on the HMRC website.
- Hiring out a means of transport
- Land and property services
- Events
- Intermediaries
- Work carried out on goods
- Transport
Where it can be demonstrated that the invoice relates to the sale of rights to a non-EU country, VAT does not need to be charged. In the case of Film and TV production companies, services provided in the UK can often be considered to be sale of rights. Where, for example, a company in the USA contract a UK company to give it US broadcast rights in return for part-funding a film, VAT would not apply.
In another example, where a US company pays a UK company to do some filming on its behalf in the UK, this is a contact which could be considered to be a deal wherein the UK company films and then transfers the rights to this footage to the US company. Provided the contract supports this interpretation, VAT would not be payable.
When in doubt, a Production Accountant should consult HMRC via their helpline for advice as to whether the ‘sale of rights’ exemption applies.
Partially Exempt Outputs
Some sales/income sources are defined as exempt for VAT purposes which means that they are not taxable and no VAT is due to HMRC. The definition primarily relates to income that does not arise from trading e.g. government grants, interest and finance income. There is no output VAT on a partially exempt output but HMRC will disallow some of the Input VAT if a company has any partially exempt outputs in a quarter. For example, if in a VAT Return, a company has partially exempt outputs of £1000 and standard rated outputs of £3000, one quarter of the turnover is partially exempt and HMRC will disallow one quarter of the Input VAT that is reclaimable in that quarter.
There are de-minimus thresholds that apply and usually a production company that is making taxable supplies will not have to apply the partial exemption test where exempt input tax is not more than £625 per month, or where exempt input tax not more than 50% of the total input tax in quarter.
Non-Sterling VAT
Where a company incurs VAT in another EU country this VAT can usually (but not always) be reclaimed back from that country. This is achieved either by using a VAT recollection agency (who will charge a fixed fee and a percentage of the VAT refunded) or you can apply for the refund online using one of the options in your company’s VAT website (the site you use to file online VAT returns).
Treatment of VAT on Expenses
Disbursements (items where ownership transfers to the production, e.g. props). The VAT can be reclaimed by the production, regardless of the contractual status of the person submitting the expenses.
Personal Expenses (travel, accommodation, meals etc.).
- The production can only reclaim VAT where the expenses are for an employee, or a non VAT registered freelancer, as long as the production keep the original receipts.
- Where the individual is a VAT registered freelancer, the production cannot reclaim the VAT, but the freelancer can. Therefore, the freelancer must submit an invoice for the net amount, with their VAT charged on top. Then the production can reclaim the VAT from the freelancer’s invoice.
- Where freelancers are on the flat rate VAT scheme, they may be reluctant to invoice for the net amount of the expenses as they may feel they are out of pocket as they cannot reclaim the VAT on these expenses. However, they benefit from the output VAT mark up and cannot therefore expect to be reimbursed for input VAT lost.
A business might pay for subsistence, road fuel or other motoring costs incurred by self-employed people working for it. If it does the tax incurred is input tax of the business provided:
- the individual is engaged on the same basis as an employee; in other words they are paid on a fixed rate basis, being unassociated with the trading profits of the business;
- the individual incurs the expenditure only in respect of their “employment” by the business. Where someone like a self employed salesman represents a number of firms at the same time, their subsistence does not relate to any one “employer” and none of those firms can treat the VAT incurred as input tax;
- the individuals receive no payment from the end customer;
- the business pays them back at cost, including VAT, dealing with the expense in the normal business accounts.
These guidelines also apply to actors, extras and other casual workers engaged in film, TV or similar productions.
Fuel Receipts
Where claiming VAT on fuel receipts, fuel scale charge rules should apply.
https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit13400
