The VAT Guide Sections 9-18

Foreword

This notice cancels and replaces Notice 700 (March 2000). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

Further help and advice

If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday.

If you have hearing difficulties, please ring the Textphone service on 0845 000 0200.

If you would like to speak to someone in Welsh, please ring 0845 010 0300, between 8.00 am and 6.00 pm, Monday to Friday.

All calls are charged at the local rate within the UK. Charges may differ for mobile phones.

Other notices on this or related subjects

Notice 700 is the main reference guide to VAT. It includes frequent references to more specialised publications. See Section 1 of the notice for more information.

You can find helpful introductory information in:

• Notice 700/15 The Ins and Outs of VAT; and
• Notice 700/21 Keeping records and accounts.

9. Output tax: business and non-business use

9.1 Disposal of business assets

If you dispose of goods which form part of the assets of your business - for example, you sell them, give them away or take them into private use - this is normally a supply for VAT purposes and, where it is a taxable supply, you will have to account for VAT on the disposal.

However, special rules apply if you sell your business as a going concern. See paragraph 26.10 for details.

VAT may also be due on stocks and assets on hand when you deregister. See Notice 700/11 Cancelling your registration, unless you are selling the business as a going concern (for which you should see paragraph 26.10).

9.2 Use of goods or services in your business

If you use goods or services in your business, which the business itself has made or acquired, no VAT is normally due. This is because you do not make a supply.

However, your use of goods is treated as a taxable self-supply if you:

• are partly exempt (see paragraph 13.1) and use certain printed matter which you have produced (see Notice 706/1 Self-supply of stationery);
• are a motor manufacturer, vehicle converter or vehicle dealer and use a motor car in your business (see Notice 700/64 Motoring expenses);
• put a car on which you claimed input tax (because it was to be used as a taxi, for self drive hire or giving driving instruction) to some other use; or
• use your own labour to construct a building (other than dwellings or certain other residential buildings) or to increase the floor area of an existing building by 10% or more (see Notice 708 Buildings and construction).

9.3 Private use of goods, including road fuel, and services

9.3.1 Goods

When goods that belong to your business are put to a private use outside the business, you make a taxable supply. This includes goods that you have produced yourself, as well as goods from your stock and any other business assets.

Private use includes:

• your own personal use of business assets; and
• use outside the business by anyone else, such as an employee, a relative or a friend.

Here are some common examples of private use:

• you use goods owned by your business for private purposes;
• you give or lend someone an item from your business; and
• your employees use goods that are assets of your business, at weekends or for holidays.

If the goods are put to permanent private use, so that they are no longer business assets, the supply is one of goods. If there is no consideration for the supply, VAT is due on the cost of the supply (see paragraph 7.6).

If the private use is temporary, the supply is one of services. If there is no consideration for the supply, VAT is due on the cost of the supply. Over any period of time, this is the amount of depreciation on the goods plus any other standard-rated costs related to the goods multiplied by the proportion that the private use forms of the total use.

There are special rules for accounting for VAT on the private use of road fuel. See Notice 700/64 Motoring expenses for details.

9.3.2 Services

When services that you acquired wholly for business use are put to a private or other non-business use, you make a supply of services and must account for output tax.

Examples of the type of services affected are:

• computer software; and
• building construction and refurbishment, particularly to domestic premises, which are carried out for the purpose of business but whose use changes over time.

Not affected are continuous supplies of services, where you should normally apportion input tax between business and private or non-business use.

To calculate the output tax due, you may use the accounting convention you use for depreciating similar business assets, or any other fair and reasonable method of valuing the cost to you of the private or non-business use.

10. Input tax: introduction and general rules

10.1 What is input tax?

Input tax is the VAT you are charged on your business purchases and expenses, including:

• goods and services supplied to you in the UK;
• goods you import from outside the EC;
• goods you acquire from a taxable person in another EC member state (see Notice 725 The Single Market);
• goods you remove from a warehouse;
• any services listed in Section 31 which you receive from abroad; and
• overheads and research and development costs.

This guidance explains the basic rules about input tax. It is in four sections:

10.2 What can I reclaim as input tax?

You can normally reclaim input tax that relates to:

• supplies you make which are liable at the standard rate, reduced rate or the zero rate (see Section 3);
• supplies you make which are outside the scope of UK VAT but which would be taxable supplies if they were made in the UK; and
• supplies of services you make to a person who belongs outside the EC or supplies of services you make which are directly linked to the export of goods to a place outside the EC and the making of arrangements for such supplies, provided the supply would have been exempt by virtue of any item of Group 2, or any of items 1 to 8 of Group 5, of Schedule 9 to the VAT Act 1994.

You will find more information about supplies of services in Notice 741 Place of supply of services.

10.3 What can’t I reclaim as input tax?

You cannot normally reclaim VAT you have been charged:

• on goods and services not used for your business (see paragraph 4.6.3);
• on goods and services obtained before VAT registration (see Section 11);
• on a car, including fitted accessories and delivery charges (see Notice 700/64 Motoring expenses);
• on business entertainment expenses (see Notice 700/65 Business entertainment);
• if you are a developer, on certain articles that are installed in buildings that you sell or lease at the zero rate (see Notice 708 Buildings and construction);
• on purchases that fall within the tour operators’ margin scheme (see Notice 709/5 Tour operators’ margin scheme);
• on goods sold to you under one of the VAT second-hand schemes (see paragraph 8.5);
• on assets of a business transferred to you as a going concern (see paragraph 26.10); and
• which relates to exempt supplies (see paragraph 13.1).

10.4 How do I reclaim input tax and what amount can I claim?

10.4.1 How you reclaim

You reclaim your input tax by deducting it from your output tax when you fill in your VAT return. If your input tax is greater than your output tax, you reclaim the difference from us.

10.4.2 Amount of input tax

10.5 What are the timescales for reclaiming input tax?

You should normally claim input tax on the VAT return for the period during which the supplier’s tax point occurred or, for imported goods, the date of the importation. The timescales for EC acquisitions are given in Notice 725 The Single Market. The tax point (time of supply) will be shown on your supplier’s invoice.

10.5.1 What if I’m waiting for evidence to claim?

If you are unable to claim input tax in the proper period because you have not yet received the necessary evidence, you can claim it on a return for a later period provided you make that return within 3 years of the date that the return for the proper period was due to be made.

If you are approved to use the cash accounting scheme described in paragraph 19.3, you must not reclaim input tax until you have received the necessary evidence and you have paid for the supply. You can find full details of the scheme in Notice 731 Cash accounting.

10.6 What evidence do I need to claim input tax?

You must keep certain records to be able to reclaim input tax. See Section 19 for details.

To reclaim VAT you have been charged as input tax, you must hold valid evidence that you have received a taxable supply. You can find what counts as acceptable evidence in paragraph 19.7.

10.7 Refunds of VAT paid in other countries

If you buy goods or services in another Member State of the European Community or in other countries, you may have to pay VAT there. This should not happen if you buy goods for export from that country, but it may apply if, for example, you take part in a trade exhibition.

You cannot treat the VAT of another EC Member State as input tax, but you may be able to reclaim the VAT from the authorities in that Member State if:

• the VAT was paid on goods or services for your business;
• you do not make taxable supplies in the other country; and
• you have no place of business or other residence there.

You may also be able to claim refunds of VAT or similar turnover taxes incurred in some non-European Community countries.

You can find more about this in Notice 723 Refunds of VAT in the European Community for EC and non-EC businesses.

10.8 What other publications may help me?

You will find it helpful to read Notice 700/15 The Ins and Outs of VAT, which provides a brief guide to input tax and output tax.

Special rules apply if you are a body covered by section 33 of the Value Added Tax Act 1994. See Notice 749 Local authorities and similar bodies.

11. Input tax: VAT paid on goods and services obtained before VAT registration

11.1 Can I recover VAT paid before registration?

VAT paid on goods and services that you received before you were registered for VAT is not input tax.

However, when you become registered you can treat this VAT as though it were input tax if you hold acceptable evidence (see paragraph 19.7) and can meet the conditions set out below.

You may only recover VAT you incurred before registration which is attributable to making taxable supplies. The partial exemption de minimis limits (see paragraph 13.1) do not apply to VAT incurred before registration.

Special rules apply if you become registered as a result of having exercised an option to tax certain property transactions. See Notice 742A Opting to tax land and buildings for details.

11.2 What are the conditions for treating VAT on goods as input tax?

You can treat as input tax the VAT on goods which you obtained or imported before you were registered if:

• the goods were supplied to the person who is now registered for VAT;
• the goods were supplied not more than 3 years before the business was registered (however, this condition does not apply if the business was registered before 1 May 1997 and you have not yet made the first return);
• the goods were obtained for the business which is now covered by the VAT registration;
• you still hold the goods or they have been used to make other goods which you still hold; and
• you compile a stock account of the goods. This must show the quantities of goods and the dates when you obtained them. If you used any goods to make other goods, or disposed of them after you were registered for VAT, the account must give details, with dates.

Remember, you cannot claim VAT incurred on goods consumed before registration such as petrol, electricity or gas.

If the person who is now registered is a corporate body, you may still be able to reclaim VAT from before it was incorporated. See paragraph 11.4 below.

If you are buying an existing business you should also read paragraph 26.10.

11.3 What are the conditions for treating VAT on services as input tax?

You can treat as input tax the VAT on services which you received before you were registered if:

• the services were supplied to the person who is now registered for VAT;
• the services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities. (If the services related partly to such taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities);
• the services were received not more than 6 months before you were registered;
• the services were not related to goods which you disposed of before you were registered (such as repairs to a machine which was sold before registration); and
• you compile an account of these services. This must describe the services and the dates when you received them. If the services related to goods which you disposed of after you were registered for VAT, the account must give details, with dates.

If the person who is registered is a corporate body, you may still be able to reclaim VAT from before it was incorporated. See paragraph 11.4 below.

11.4 What are the rules for VAT on supplies before incorporation?

If your business is a corporate body (a company, charity or association), the rules above do not allow you to reclaim any VAT on goods or services obtained before the body was incorporated. But you can treat this VAT as input tax if the:

• rules in paragraphs 11.2 or 11.3 would allow you to do so if the goods or services had been supplied to the person who is now registered for VAT;
• goods or services were obtained or imported by a person who became a member, officer or employee of the body;
• person was reimbursed for the full cost; and
• person was not a taxable person at the time of the supply or importation.

12. Input tax: subsistence, staff entertainment and domestic accommodation expenses

12.1 Subsistence and staff entertainment expenses

12.1.1 General

12.1.2 Meals

12.1.3 Hotel accommodation

When you or your employees are away from your normal place of work on a business trip, you can treat as input tax all the VAT incurred on hotel and similar accommodation.

12.1.4 Staff entertainment

You may recover VAT incurred on staff entertainment to the extent that the expenditure relates to the purpose of your business.

If you provide or pay for accommodation, meals or entertainment for anyone else, you should read Notice 700/65 Business entertainment.

12.2 Domestic accommodation

12.2.1 Employees

If your business provides domestic accommodation for employees, you can treat any VAT incurred as input tax.

12.2.2 Sole proprietors, partners and directors

13. Input tax: partial exemption

13.1 Exempt supplies and partial exemption

If you incur input tax that is related to exempt supplies as well as taxable supplies, you are termed as partly exempt and you will probably not be able to claim all your input tax.

You must be able to relate your purchases and other expenses to the supplies that you make. Although it is relatively straightforward to work out whether goods or services have been used wholly to make either taxable or exempt supplies, you will probably have also incurred input tax on overheads that you cannot directly attribute in this way.

13.1.1 Apportionment of input tax

You will have to adopt a partial exemption method to apportion your input tax. To make this apportionment the standard method uses the relationship of the value of your taxable supplies compared to the value of your total supplies. If you do not think that this is fair and reasonable, you should contact your local VAT Business Centre to seek approval to use another method.

For some traders, whose exempt input tax is minimal, there are rules that allow exempt input tax to be treated as taxable input tax and claimed in full.

You can find out more about all this in Notice 706 Partial exemption.

13.2 Capital goods scheme

If you use a capital item (see below) in your business, the VAT incurred on the cost of the item may be subject to adjustments under the capital goods scheme. Adjustments become necessary where there is a change in the extent to which the item is used in making taxable supplies. Adjustments are required over a period of time, known as the adjustment period, which, depending on the item, can be either 5 or 10 years.

Capital items include:

• computers and items of computer equipment with a VAT exclusive cost of £50,000 or more; and
• land, buildings, civil engineering works and refurbishments with a VAT exclusive cost of £250,000 or more.

The capital goods scheme does not apply to assets acquired, or expenditure on assets held solely for resale. These are not capital items.

You will find more information about the capital goods scheme in Notice 706/2 Capital goods scheme.

14. Time of supply (tax point): introduction and general rules

14.1 Introduction to Time of Supply

The information on this subject is in two sections.

This section provides general information. It explains the rules for working out the time when a supply of goods or services is treated as taking place. This is called the tax point. The section includes information on basic and actual tax points.

Section 15 provides information on some specific situations.

You must account for VAT in the tax period in which the tax point occurs at the rate in force at that time unless you use the cash accounting scheme. Notice 731 Cash accounting tells you more about the special rules for this scheme.

If your supplies fall within the tour operators’ margin scheme, you must follow the rules for the particular scheme you are using, even if these conflict with the tax point rules set out in this section. See Notice 709/5 Tour operators’ margin scheme for more information.

You will also find it helpful to read Notice 700/21 Keeping records and accounts.

14.2 General information about tax points

14.2.1 Basic tax points

But whether you supply goods or services, the basic tax point is overridden if an actual tax point is created under 14.2.2 below.

14.2.2 Actual tax points

You do not have to follow the 14 day rule, but if you decide not to you must write and tell the VAT Business Centre for your area.

You may need to do this if you normally issue invoices monthly, because an extension would enable you to issue invoices shortly after the end of the month in which you make the supplies.

In your application you must say whether you want to take the last day of the month or the date of issue of the VAT invoice as the tax point. Whichever you decide, you must be consistent if the extension is approved.

To issue VAT invoices, you must send or give them to your customers for them to keep. A tax point cannot be created simply by preparing an invoice.

Remember, when a tax point is created by the issue of a VAT invoice, you must account for VAT in your return for the period covering that tax point. You cannot delay accounting for VAT until you have received payment.

14.2.3 Deposits

Most deposits serve primarily as advance payments and will create tax points under 14.2.2(a) when you receive them. But some types of deposit are not a consideration for a supply and their receipt does not create a tax point.

For example:-

Also,

Note: If you want to adopt an earlier tax point than that laid down by any of these general rules, you must write to the VAT Business Centre for your area giving your reasons.

14.3 Continuous supplies of goods and services

If you supply services on a continuous basis and receive payments regularly or from time to time, there is a tax point every time you:

• issue a VAT invoice; or
• receive a payment, whichever happens first.

If payments are due to be made at regular intervals (for example, by banker’s order or direct debit), you can issue a VAT invoice at the start of any period of up to one year (provided that more than one payment is due in the period) to cover all the payments due in that period.

For each payment you should set out the:

• VAT-exclusive amount;
• date on which the payment is due;
• rate of VAT; and
• VAT payable.

If you decide to do this, you do not have to account for tax on any payment until:

• the date on which it is due; or
• the date you receive it, whichever happens first.

Note: your customer must not reclaim, as input tax, any VAT shown on the VAT invoice until:

• the date on which the payment is due; or
• you have received the payment, whichever happens first.

The same procedures apply to continuous supplies of goods, in the form of water, gas and electricity.

14.4 Goods supplied on sale or return, approval or similar terms

When you supply goods on sale or return etc, they have not been sold and you still own them until such time as they are adopted by your customer. Adoption means that the customer indicates a wish to keep them. Until your customer does so, your customer has an unqualified right to return them at any time, unless you have agreed a time limit.

You may have fixed a time limit of adoption of less than 12 months from the date when the goods were sent.

The basic tax point is overridden by the issue of a VAT invoice as set out in paragraph 14.2.2. If you receive a payment which is not returnable, this will normally indicate that the goods have been adopted. The payment of a deposit required as a condition of delivery – which is repayable if the goods are returned - does not constitute adoption.

It is your responsibility to make sure that your customers notify you promptly when they have adopted goods.

14.5 Change of tax rate

If there is a change in tax rate or tax liability, the tax point rules are particularly important in working out what rate of VAT to charge. Section 30 gives guidance on the special procedures to follow.

15. Time of supply (tax point): other situations

15.1 Goods taken for personal or other non-business use

(see paragraph 9.3)

15.2 Taxable self-supplies

(see paragraph 9.2)

The tax point for the self-supply of:

• stationery is the date when you indicate, by any positive and recorded action, your intention to use the stationery in your business;
• a motor car can only be decided once you use the vehicle in your business (for example, as a demonstration model). The tax point is then the date when, by any positive and recorded action, you transferred the car from the new car sales stock; and
• construction services is when the service is performed (see Notice 708 Buildings and construction).

15.3 Supplies in the construction industry under contracts providing for stage payments

If you make supplies, including design, advisory and supervisory services, under such a contract, the tax point is normally the time you:

• issue a VAT invoice; or
• receive a payment, whichever happens first.

However, in some areas, there is a final tax point when the work is completed. You will find more about the tax point rules as they apply in the construction industry in Notice 708 Buildings and construction.

15.4 Supplies under contracts (other than stage payment construction contracts) providing for retention payments

The tax point for the payment of retention money is the date when you either:

• issue a VAT invoice; or
• receive any payment, whichever happens first.

15.5 Supplier’s goods in possession of buyer

15.6 Supplies of water, gas or any form of power, heat, refrigeration or ventilation

There is a tax point each time you:

• issue a VAT invoice; or
• receive a payment, whichever happens first.

15.7 Supplies made through coin operated machines

The tax point for supplies made through coin operated machines, such as vending, amusement and gaming machines, is normally the date the machine is used. Nevertheless, as an accounting convenience, we permit operators to delay accounting for VAT until the takings are removed from the machine.

However, for all other purposes the normal tax point rules apply. This means, for example, that if takings are stolen from a machine, you must still account for VAT in full on the supplies made from the machine.

15.8 Royalties and similar payments

15.9 Property

15.9.1 Leasehold

If you receive periodic payments of rent or ground rent, the tax point is:

• the date you receive a payment; or
• the date of issue of a VAT invoice if the supply is standard-rated, whichever happens first.

This also applies to any premiums you may receive.

15.9.2 Freehold

The basic tax point for a freehold sale is the date of the completion of the conveyance. An earlier tax point is created by:

• the issue of a VAT invoice (where the supply is standard-rated); or
• receipt of all or part of the purchase price before the date of legal completion - but see paragraph 14.2.3 for further guidance on deposits.

Under some contracts, further payments may become due dependent on some future event, such as the new owner obtaining planning permission. The tax point for what is a genuinely contingent element of the contract price is:

• the receipt of the payment; or
• issue of a VAT invoice, whichever happens first.

15.9.3 Compulsory purchase

Supplies of land made as a result of a compulsory purchase order are subject to the normal tax point rules. However, in cases where the amount to be paid has still to be agreed at the time the land is transferred to the purchasing authority, the tax point is the date payment is eventually received.

15.10 Zero-rated and exempt supplies

You can work out the tax point for any zero-rated or exempt supply you make using the tax point rules set out in the preceding paragraphs in Sections 14 and 15, though references to the issue of a VAT invoice do not apply to such supplies.

15.11 Supplies of credit (including credit facilities in hire-purchase transactions)

A supply of credit is treated as taking place each time you receive a payment (for example, interest) for that supply, unless the VAT Business Centre for your area has approved a written application for an earlier date to be used.

The tax point for goods supplied on credit is worked out according to the general rules in paragraph 14.2.

15.12 Imported services

If you receive from abroad any of the services listed in Section 31, the tax point is the date on which you make a payment or, if the consideration is not in money, the last day of each tax period during which the services are performed.

16. VAT invoices: general rules

16.1 Introduction to VAT invoices

The information on this subject is in two sections.

This section explains:

• the general VAT rules that apply to invoicing;
• the information that a VAT invoice must show; and
• when you can issue simplified invoices.

Section 17 gives information on some specific situations.

Other sources of information

You will find it helpful to read Notice 700/21 Keeping records and accounts.

If you are involved in trade with other European Community (EC) member states, you should refer to Notice 725 The Single Market for guidance on invoicing requirements and keeping records and accounts for those supplies.

The rules for keeping records for Intrastat are similar to records for VAT. You will find information about them in Notice 60 Intrastat General Guide.

16.2 General information about VAT invoices

16.2.1 What is a VAT invoice and when should I issue one?

Whenever you supply standard-rated or reduced-rated goods or services to another registered person, you must give that person a VAT invoice.

A VAT invoice is a document containing certain information about what you are supplying. Paragraph 16.3 sets out the information you need to show. Your customers need VAT invoices to reclaim, as input tax, the VAT you have charged them.

You need not issue VAT invoices for supplies to customers who are not VAT registered. In practice, this will probably mean issuing a VAT invoice to any customers who ask for one, as you will usually have no way of telling whether they are VAT registered or not. You do not have to check that a customer is VAT registered before issuing a VAT invoice.

If your customer pays in cash - not by cheque - you must, if asked, clearly show on the VAT invoice that payment has been received, and the date of receipt.

16.2.2 Exceptions

You must issue a VAT invoice to a registered person unless:

• your customer operates approved self-billing arrangements or you issue authenticated receipts (see paragraph 17.4); or
• you make a gift of goods on which VAT is due (see Notice 700/7 Business promotion schemes).

You must not issue VAT invoices for any goods sold under one of the VAT second-hand schemes (see paragraph 8.5). You will find details of the special invoices you have to use in Notice 718 Margin Schemes for second-hand goods, works of art, antiques and collectors’ items.

You must not issue a VAT invoice for supplies that fall within the tour operators’ margin scheme.

16.2.3 Time limits

Normal time limits

You can extend the 30 day time limit without applying to your VAT Business Centre in the following cases:

• you are awaiting VAT invoices from your own suppliers or sub-contractors;
• an extension of the 14 day limit has already been approved;
• special accounting arrangements have been approved; and
• where you are newly registered but have not been notified of your VAT registration number - in this case you must issue the VAT invoice within 30 days from the date of advice of the VAT registration number.

In all cases other than those mentioned above, or if you have any doubt, you must apply, in writing, to your local VAT Business Centre if you need an extension of the time limit. General telephone enquiries may be directed to our National Advice Service.

16.3 What information is required on a VAT invoice?

16.3.1 General

VAT invoices must show:

• an identifying number;
• your name, address and VAT registration number;
• the time of supply (tax point);
• date of issue (if different to the time of supply);
• your customer’s name (or trading name) and address;
• the type of supply (see 16.3.2 below); and
• a description which identifies the goods or services supplied.

For each description, you must show:

• the quantity of goods or extent of the services;
• the charge made, excluding VAT;
• the rate of VAT;
• the total charge made, excluding VAT;
• the rate of any cash discount offered;
• each rate of VAT charged and the amount of VAT charged at each rate and shown in sterling; and
• the total amount of VAT charged, shown in sterling.

16.3.2 Type of supply

You must identify the following types of supply separately:

• sale;
• hire-purchase, conditional sale, credit sale or similar transactions;
• loan;
• exchange;
• hire, lease or rental;
• process (making goods from someone else’s materials);
• sale on commission (for example, by an auctioneer); and
• sale or return or similar terms.

You will find an example of a simple VAT invoice at paragraph 16.7 and in Notice 700/21 Keeping records and accounts.

16.4 Invoicing in a foreign currency

If you issue VAT invoices in a foreign currency, you must convert all values for VAT purposes into sterling (see paragraphs 16.3.1, 16.6.1 and 16.6.2). Paragraph 7.7 tells you how to do this.

16.5 Invoicing zero-rated or exempt supplies

16.6 Less detailed and modified VAT invoices

If you make retail sales, you should give your customer a VAT invoice if asked for one. However, you may be able to use one of the options described at 16.6.1 and 16.6.2 below (see also paragraph 16.2.1).

You may be liable to a financial penalty if you do not issue a VAT invoice when asked to do so by a taxable person.

16.6.1 Less detailed VAT invoice

If you accept credit cards, such as Visa/Mastercard or Barclaycard, you may adapt the sales voucher you give to the cardholder at the time of the sale to serve as a less detailed VAT invoice.

The credit card voucher should show:

• your name and address;
• the charge made, including VAT; and
• the date of sale.

You must add to the voucher:

• your VAT registration number;
• the rate of VAT; and
• a description of the goods or services supplied.

If you also issue an invoice or receipt, only one of the documents may be in the form of a VAT invoice.

16.6.2 Modified VAT invoice

Provided your customer agrees, you can issue an invoice showing:

• the VAT-inclusive value of each standard-rated or reduced rate supply (instead of the VAT-exclusive values).

At the foot of the invoice, it must show separately the total:

• VAT-inclusive value of the standard-rated or reduced rate supplies;
• VAT payable on those supplies;
• value, excluding VAT, of those supplies;
• value of any zero-rated supplies included on the invoice; and
• value of any exempt supplies included on the invoice.

In all other respects the invoice should show the details required for a full VAT invoice.

If you are asked for a VAT invoice, but are unable to use either of these options, you must issue a full VAT invoice (see paragraph 16.3).

16.7 Example of a completed VAT invoice

17. VAT invoices: particular situations and rules

17.1 VAT invoices for petrol and diesel oil (derv)

17.2 Cash and carry wholesalers

If you are a cash and carry wholesaler, you can adapt the till rolls produced by your cash registers to serve as VAT invoices, provided that you meet all the following conditions:

• you use a product coding system which clearly identifies the different classes of goods sold. The system should be based on at least 2 digits, possibly 3 if you sell a wide range of products;
• you must prepare and maintain product code lists and provide all your VAT-registered customers with up to date copies of the lists;
• you must ensure that the till roll includes all the details required for a full VAT invoice (see paragraph 16.3); and
• you must keep a copy of till rolls and product code lists for 6 years (unless your VAT office has agreed that you need only keep them for a shorter period).

If you cannot meet these conditions, you must issue a full VAT invoice when a customer asks for one, showing all the details required by paragraph 16.3.

17.3 Pro-forma invoices

Pro-forma invoices are often used to offer goods or services to potential customers. Such an offer may or may not be taken up, and the goods or services will not be supplied unless payment is received.

If you use pro-forma invoices in this way, they cannot be used as evidence to reclaim input tax, even if they show all the details required for a VAT invoice. You should ensure that they are clearly marked “THIS IS NOT A VAT INVOICE”.

17.4 Self-billing and authenticated receipts

17.4.1 Self-billing

Under a self-billing arrangement, the customer makes out VAT invoices for a VAT-registered supplier and sends a copy to the supplier with the payment.

If you want to use a self-billing system for supplies made to you, you must write to the VAT Business Centre for your area, giving details of the proposed system, and explaining why you need to use such a system in your business. For a self-billing arrangement to be approved, you must satisfy certain conditions, including the need to make sure that your suppliers:

• agree to self-billing; and
• will not issue VAT invoices for the relevant transactions.

17.4.2 Authenticated receipts

You should not confuse the use of authenticated receipts with self-billing.

Authenticated receipts are used in the construction industry in place of VAT invoices for supplies of services or of goods and services made under contracts which provide for periodic payments to be made.

The receipts are only valid for VAT purposes if:

• they contain all the information detailed in paragraph 16.3;
• they are authenticated - that is, signed by the supplier; and
• no normal VAT invoice or self-billed document is issued for the supplies.

You can find more about the use of authenticated receipts in Notice 708 Buildings and construction.

17.5 Calculation of VAT on invoices – rounding of amounts

Note: The concession in this paragraph to round down amounts of VAT is designed for invoice traders and applies only where the VAT charged to customers and the VAT paid to Customs and Excise is the same. As a general rule, the concession to round down is not appropriate to retailers, who should see paragraph 17.6.

You may round down the total VAT payable on all goods and services shown on a VAT invoice to a whole penny. You can ignore any fraction of a penny.

17.5.1 Calculation based on lines of goods or services

If you wish to work out the VAT separately for a line of goods or services, which are included with other goods or services in the same invoice, you should calculate the separate amounts of VAT either by rounding:

• down to the nearest 0.1p - for example, 86.76p would be rounded down to 86.7p; or
• to the nearest 1p or 0.5p - for example, 86.76p would be rounded up to 87p.

Whatever you decide, you must be consistent.

The final total amount of VAT payable may be rounded down to the nearest whole penny.

17.5.2 Calculation based on tax per unit or per article

If you want to work out the VAT per unit or per article (for example, for use in price lists), you must work out the amounts of VAT either to:

• 4 digits after the decimal point and then round to 3 digits - for example, if the VAT is £0.0024, it should be rounded to £0.002 (0.2p); or
• the nearest 1p or 0.5p. If you decide to do this, you must not round the VAT down to “nil” on any unit or article that is liable at the standard or reduced rate - for example, if the VAT is £0.0024, it should be rounded to £0.005 (0.5p).

17.6 Calculation of VAT at retailers

Most retailers account for VAT using a retail scheme. If that is the way you account for VAT, this paragraph does not affect you.

Retailers are increasingly using sophisticated till technology to identify the VAT due on each transaction and issue an invoice. If you do not use a retail scheme, but instead calculate VAT at line level or invoice level, you must not round the VAT figure down. However, you may round (up and down) each VAT calculation.

17.7 Computer invoicing

Any invoice produced by your computer, either on paper, magnetic media or for direct transmission, must include all the information required for a normal VAT invoice.

You may be able to use a computer to:

• provide your customers with VAT invoices on magnetic tape or disc etc;
• transmit VAT invoice details by electronic means direct to your customers’ computers;
• receive VAT invoices on magnetic tape or disc etc from your suppliers; and
• receive VAT invoice details by electronic means from your suppliers direct to your own computer.

Before you do so, you must write to the VAT Business Centre for your area giving at least one month’s notice. You will have to comply with certain conditions, which an officer with experience in computer accounting systems will explain to you.

Although you must give at least one month’s notice, you may find it helpful to seek advice from our National Advice Service as soon as you decide to use computer invoicing.

17.8 Transmission of invoices

If you send your VAT invoices to your customers using a fax machine or e-mail, the normal rules regarding VAT invoices apply. Invoices received in this way are acceptable as evidence for input tax deduction, subject to the normal rules.

17.8.1 Transmission by fax

This form of transmission relies on both the supplier and the customer having fax machines.

There is a risk with this form of transmission - that the invoice may not be permanent if your customers have thermal-paper fax machines. More modern fax machines copy onto plain paper and these copies are as permanent as normal paper invoices. However, thermal paper copies deteriorate over time, and, as a result, your customers may be unable to fulfil their obligation to preserve their invoices for 6 years.

We therefore advise you to warn customers that the invoices may not be permanent if they have a thermal-paper fax machine. Preferably, this should be by a note on the VAT invoice, but it can be in any form practicable to you.

17.8.2 Transmission by e-mail

You may use this form of transmission without the requirements normally applied to businesses who transmit their invoices electronically (EDI).

However, you should notify the VAT Business Centre if you wish to use e-mail to transmit invoices under a self-billing arrangement. This is because there is a danger that the e-mail message can be corrupted during transmission, causing it to be incomplete or indecipherable. The supplier may then receive a document notifying an output tax liability which they cannot read.

Because of this risk of corruption if you use e-mail, please advise customers to contact you if any invoice they receive from you is not satisfactory. Again, this would preferably be by a note on the VAT invoice but it can be in any form practicable to you.

18. Credits and debts

18.1 Introduction to credits and debts

This section tells you what to do if you:

• allow a credit or contingent discount;
• replace returned goods;
• deal with goods which are sold to satisfy a debt; or
• wish to claim relief from VAT on a bad debt.

18.2 Credits and contingent discounts

18.2.1 Introduction

When you allow a credit or contingent discount to a customer who can reclaim all the tax on your supply as input tax, you do not have to adjust the original VAT charge provided both you and your customer agree not to do so. Otherwise, you should both adjust the original VAT charge. You should issue a credit note to your customer and keep a copy.

If both parties agree, the customer may issue a tax debit note instead of the supplier issuing a credit note. A valid debit note places the same legal obligations on both parties as a valid credit note and must fulfil the same conditions.

You will find more information in Notice 700/45 How to correct VAT errors and make adjustments or claims.

18.2.2 Valid credit or debit notes

To be valid for VAT purposes a credit or debit note must:

• reflect a genuine mistake or overcharge or an agreed reduction in the value of the supply, and be issued within one month of this being discovered or agreed;
• give value to the customer, that is, represent a genuine entitlement (or claim) on the part of the customer for the amount overcharged either to be refunded or offset against the value of future supplies; and
• be headed “credit note” or “debit note” as appropriate and show clearly all the following details:
  - the identifying number and date of issue;
  - the name, address and registration number of the supplier;
  - the name and address of the customer;
  - the reason for its issue - for example, “returned goods”;
  - a description which identifies the goods or services for which credit is being claimed or allowed;
  - the quantity and amount for each description;
  - the total amount credited, excluding VAT;
  - the rate and amount of VAT credited; and
  - the number and date of the original VAT invoice. If you cannot do this (for example, because returned goods cannot be identified with a particular invoice), you must be able to satisfy us by other means that you accounted for VAT on the original supply.

Credits for zero-rated or exempt supplies included in a credit or debit note must be totalled separately and the note must show clearly that no VAT credit has been allowed for them.

If credit notes are issued without VAT adjustment, they should state “This is not a credit note for VAT”. Even if you and your customer decide not to adjust the VAT on credit notes which pass between you, you will still need to adjust your records of outputs and inputs in order to complete your VAT return. Paragraph 19.6 explains how you should record any credits allowed.

18.2.3 Tax rates

The rate of VAT to be used for a credit or debit note is the one which was in force at the time of the tax point of the original supply.

Section 30 tells you what to do if you have to issue a credit note because of a change in tax rate.

18.2.4 Accounting for credit or debit notes you issue or receive

If you have to make an adjustment, you must adjust:

• the records of the taxable supplies you have made; and
• your output tax for credits allowed.

The accounts or supporting documents must make clear the nature of the adjustment and the reason for it.

You should make any VAT adjustment arising from the issue or receipt of a credit or debit note in the VAT account for the period in which you enter the adjustment in your business accounts. You can only make adjustments to your VAT account for credits which occur within 3 years of the end of the accounting period in which the original supply took place.

If the VAT credits you allow your customers exceed the VAT you charged on your sales in any tax period, you will have a minus figure to enter into the output tax box (Box 1) of your return. You must make it clear that it is a minus figure by writing it in brackets.

18.2.5 Bankruptcy, insolvent liquidation and administrative receivership

The tax point for credit or debit notes issued by - or on behalf of - insolvent traders, is the date on which the supply was originally made or received.

18.2.6 Cancelled registrations

The tax point for any credit or debit note you issue or receive after the date of cancellation of your registration is the date of the original supply. If this happens after you have already rendered your final VAT return you should contact the VAT Business Centre for your area to arrange for any adjustments to be made.

We will not make any repayment where credit/debit notes do not meet the conditions for validity at 18.2.2 above.

18.2.7 Self-billed debit notes

If you operate an approved self-billing arrangement and you have to issue a debit note, you cannot do this for VAT purposes by reducing the value of the supply on the self-billed invoice. You must issue a separate debit note showing the amount of the adjustment to the value of the supply.

18.3 Replacement of returned goods

The following rules apply when you replace returned goods.

18.4 Goods sold in satisfaction of a debt

A supply takes place when a registered person’s business assets - including property - are sold in satisfaction of a debt. When this is a taxable supply, the proceeds of the sale are treated as tax-inclusive and tax must be accounted for as follows.

18.4.1 Goods sold by auction

Within 21 days, the auctioneer must send:

• the tax and a statement on Form VAT 833 to the VAT Central Unit in Southend; and
• a copy of Form VAT 833 to the debtor.

You can get Form VAT 833 by telephoning our National Advice Service.

The auctioneer must also issue a VAT invoice containing the information in paragraph 16.3 but giving the name, address and VAT registration number of the supplier. The auctioneer need not be registered to issue this and should not ask the supplier for a VAT invoice.

18.4.2 Goods not sold by auction

The seller (the person with the right to sell the goods) must account for the tax and issue the documents described in paragraph 18.4.1.

18.4.3 Exceptions

This procedure does not normally apply to sales by:

• Liquidators. As the company in liquidation remains in being, although controlled by the liquidator, sales are made by the company. The company must account for the tax in the normal way.
• Trustees in bankruptcy. A bankrupt person’s property is vested in the trustee, who then carries on the business in their own right and must account for the tax in the normal way.
• Administrative receivers. An administrative receiver usually acts as the agent of the company. If so, tax is accounted for in the normal way. If the administrative receiver is not the company’s agent, the procedure at 18.4.1 must be used.

18.5 Can I claim relief from VAT on bad debts?

You may be able to claim relief from VAT on bad debts provided various conditions are met.

The conditions have varied over time. The present rules mean that you can claim relief on any debts which are more than 6 months old if you have:

• paid the VAT to Customs and Excise;
• written off the debt in your accounts; and
• sent a notification to the purchaser.

For supplies made after 1 May 1997, claims must be made within 3 years and 6 months.

If you make a claim and later receive payment, you must refund the appropriate amount to us.

See Notice 700/18 Relief from VAT on Bad Debts for a fuller explanation and details of all the conditions that need to be met. This includes information on when relief is available on supplies made between 1 October 1978 and 26 July 1990.

No relief is available on supplies made before 1 October 1978.

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Customs and Excise
Business Services and Taxes
Customer Focus Team
New King’s Beam House
22 Upper Ground
LONDON
SE1 9PJ

If you have a complaint or suggestion

If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.

If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.

You can contact the Adjudicator at:

The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP

Phone: (020) 7930 2292
Fax: (020) 7930 2298
E-mail: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/

Update 2 issued February 2004

This leaflet amends certain paragraphs in Notice 700 April 2002 edition with new or revised information on a number of VAT questions including updates resulting from implementation of EC VAT Invoicing Directive.

It also updates the information given in Amendment 1 (May 2002) to the April 2002 edition regarding VAT on road tolls.

2 Administration of VAT

2.3 Tax avoidance

Delete first two sentences from “Tax avoidance is ------” up to “----------- tax simplification measures” and replace with “Tax avoidance is the use of contrived arrangements or structures to achieve a tax advantage - an increase in tax recovery, a reduction in the tax due or a tax deferral - contrary to the purpose and spirit of the legislation. Tax avoidance puts at risk Government revenues. It can also give a business an unfair advantage over others and threaten tax simplification measures.”

8 Output tax: particular situations

8.3 Delivery charges (postage and packing etc)

Paragraph 2, after the second boxed text. Delete “Your supply of delivery services is standard-rated if the goods are sent to an address in the UK and zero-rated if they are sent elsewhere" and replace with "If you supply delivery services see Notice 744B Freight transport and associated services."

8.9.3 Gifts on which VAT is not due

Delete paragraph 1 and the two bullet points following it from “VAT is not due on ----” up to “ a -------- your employees.” and replace with:

VAT is not due on:

• any business gifts made to the same person in any 12-month period, where the total cost does not exceed £50;
• a free meal to one of your employees.

9 Output tax: business and non-business use

9.2 Use of goods or services in your business

Paragraph 2. Delete first bullet point “are partly exempt (see paragraph 13.1) and ------------------- produced (see Notice 706/1 Self-supply of stationary);”

10 Input tax: introduction and general rules

Insert new Section 10.6A as follows:

10.6A Repayment of input tax if you do not pay your supplier

For supplies received on or after 1 January 2003 you are required to repay any input tax you have reclaimed if you have not paid your supplier within six months of:

(a) the date of supply (usually taken as the invoice date), or if later

(b) the due date for payment.

Notice 700/18 Relief from VAT on Bad Debts contains more detailed information on this.

12 Input tax: subsistence, staff entertainment and domestic accommodation expenses

After Chapter 12 and its sections, insert new Chapter 12A as follows:

12A Input tax: mobile phones provided to employees

12A. 1 VAT on the purchase and connection of a Mobile Phone

Where a business provides its employees with mobile phones for business use then, regardless of whether it allows private use, it can treat as input tax all the VAT it incurs on purchasing a phone and on standing charges for keeping it connected to the network providing the charges do not contain any element for calls.

12A.2 VAT on Mobile Phone Call Charges

12A.2.1 Business only

If a business does not allow its employees to make private calls, all of the VAT incurred on the call charges is input tax. Customs will accept this is the case where a business has imposed clear rules prohibiting private use and enforces them. However we realise that in practice businesses with such a policy often tolerate a small amount of private calls. We are prepared to treat such minimal use as being insignificant for VAT purposes and it will not prevent a business treating all the tax it incurs on calls as input tax.

12A.2.2 Charges for private calls

If a business charges its employees for any private calls they make, then it may treat the VAT incurred on the calls as input tax, but must account for output tax on the amounts it charges.

12A.2.3 Free private calls

If a business allows its employees to make private calls without charge, then it must apportion the VAT incurred on the call charges. It is not appropriate for businesses to adopt an alternative treatment of accounting for output tax on the private use.

12A.2.4 Apportioning calls

Businesses can choose any apportionment method that suits their individual circumstances providing the method chosen produces a fair and reasonable result. For example businesses could analyse a sample of bills taken over a reasonable period of time and use the same ratio for future VAT recovery on mobile phone bills.

12A.3 Fixed monthly charges

Where the phone package allows the business to make a certain quantity of calls for a fixed monthly payment and there is no separate standing charge, then it must apportion the VAT on the total charge for the package. Similarly, where the contract is for the purchase of the phone and the advance purchase of a set amount of call time for a single charge, the apportionment will also apply to the whole charge.

16 VAT invoices: general rules

Delete the whole Section 16.2.2 “Exceptions” and replace with:

16.2.2 Exceptions

You must issue a VAT invoice to a registered person unless:

• your customer operates self-billing arrangements (see Notice 700/62 Self-Billing) or you issue authenticated receipts (see paragraph 17.4); or
• you make a gift of goods on which VAT is due (see Notice 700/7 Business promotion schemes).

You must not issue VAT invoices for:

• any goods sold under one of the VAT second-hand schemes (see paragraph 8.5). You will find details of the special invoices you have to use in Notice 718 Margin Schemes for second-hand goods, works of art, antiques and collectors’ items; or supplies that fall within the tour operators’ margin scheme.

Insert new Section 16.2.4 as follows:

16.2.4 Must my invoice be written in English?

No. You may, if you wish, write your invoices in a language other than English. But you must be able to provide English translations of specific invoices within 30 days if asked to do so by a visiting officer. These rules apply to both electronic and paper invoices.

16.3.1 General

Paragraph 1. After “VAT invoices must show:” delete sixth bullet point.

Also delete seventh bullet point and replace with:

• a description which identifies the goods or services supplied; and
• the unit price (see paragraph 16.3.2).

Paragraph 2. Insert ‘the’ after “For each description, you must show:” (i.e. before the colon). Delete ‘the’ at the start of each bullet point.

Insert ‘and’ after fifth bullet point. Delete sixth bullet point.

Delete the whole Section 16.3.2 “Type of supply” and replace with:

16.3.2 Unit price

The requirement to include unit price on an invoice applies to countable goods or services. For services the countable element might be, for example,

• an hourly rate;
• or a price for standard services.

If the supply cannot be broken down into countable elements, then the total tax exclusive price will be the unit price. Additionally, the ‘unit price’ may not need to be shown at all if it

• is not normally provided in a particular business sector; and
• is not required by the customer.

Insert new Section 16.3.3 as follows:

16.3.3 Example of a VAT Invoice

You will find an example of a simplified VAT invoice at paragraph 16.7 and in Notice 700/21 Keeping records and accounts.

Delete the whole Section 16.4 “Invoicing in a foreign currency” and replace with:

16.4 Invoicing in a foreign currency

If you issue VAT invoices in a foreign currency for supplies of goods or services that take place in the UK, you must convert the total amount of VAT payable into sterling (see paragraphs 16.3.1 and 16.6.2). Paragraph 7.7 tells you how to do this.

16.6.1 Less detailed VAT invoice

Delete both instances of ‘£100’ in the boxed text (i.e. “is £100 or less” and “exceeds £100 and ------ invoice”) and replace with ‘£250’.

Second row on the “Then you ----” side of the table. Delete ‘shown in sterling’ at the end of fourth bullet point.

16.6.2 Modified VAT invoice

Paragraph 2, second bullet point. After ‘VAT payable on those supplies’ insert ‘shown in sterling;’

17 VAT invoices: particular situations and rules

VAT invoices for petrol and diesel oil (derv)

17.1 Delete both instances of ‘£100’ in boxed text (i.e. “£100 or less” and “more than £100”) and replace with ‘£250’.

17.4.1 Self-billing

Delete paragraph 2 including bullet points from “If you want a self -------------” up to “will not ------- transactions”. Replace with:

“If you want to use a self-billing system for supplies made to you, you must meet the conditions set out in Notice 700/62 Self-Billing.”

17.7 Computer invoicing

Delete paragraphs 3 “Before you do so -------” and 4 “Although you must -----“ and replace with:

“Before you do so, you will have to comply with certain conditions as set out in Notice 700/63 Electronic Invoicing.

If you do not use advanced electronic signature, or electronic data interchange (EDI) systems you may find it helpful to seek advice from our National Advice Service as soon as you decide to use computer invoicing.”

17.8.2 Transmission by e-mail

Delete the whole Section 17.8.2 “Transmission by email”

Insert new Section 17.9:

17.9 Using a third party to transmit invoices

You may, if you wish, ‘outsource’ the physical responsibility for the issuing of your sales invoices to a third party. But you must remember that all the legal obligations relating to the contents, storage and production of the invoices raised remain with you.

You can find out more about the conditions you will need to meet if you are using a third party to issue your invoices electronically at section 8 of Notice 700/63 Electronic Invoicing.

18 Credits and debts

18.2.2 Valid credit or debit notes

Insert new sentence at end of last paragraph as follows:

“If you issue invoices to persons in another Member State, credit or debit notes which amend those invoices must contain all the information required to be included on an invoice.”

18.2.4 Accounting for credit or debit notes you issue or receive

Paragraph 1. Delete “If you have to make an adjustment, you must adjust:” and replace with: “When you issue a credit note or receive a debit note, you must adjust:”

Paragraph 4. Delete last sentence “You must make it clear that it is a minus figure by writing it in brackets.” and replace with,

“You must make it clear that it is a minus figure by:

• writing it in brackets if you use a paper return; or
• inserting a minus sign ‘-’ before the figure if you use an electronic return. (See also paragraph 20.4.2)”

18.2.7 Self-billed debit notes

Delete the whole Section 18.2.7 “Self-billed debit notes.”

18.5 Can I claim relief from VAT on bad debts?

Paragraph 2. Bullet point 3. After “sent a notification to the purchaser” insert in brackets (this condition does not apply to supplies made on or after 1 January 2003).”

19 Records and accounts

Insert new Section 19.3A as follows:

19.3A Flat rate scheme

19.3A.1 What is the flat rate scheme?

The Flat Rate Scheme (FRS) offers small businesses an alternative to the normal transaction based method of VAT accounting. The aim is for small businesses to spend less time and money keeping VAT records and calculating the VAT payable to Customs.

When authorised to use the FRS you do not have to identify and record the VAT on your sales and purchases to calculate the VAT you owe to us. You record the VAT inclusive total of all your business supplies - including exempt supplies - and apply the flat rate percentage to it in each period. The result is the VAT you owe to us. Input tax is not normally claimed by businesses on the scheme, it is taken into account when the flat rates are calculated.

19.3A.2 Who can join the scheme?

The scheme is open to small businesses whose VAT exclusive annual taxable turnover does not exceed £150,000 and whose total VAT exclusive turnover (including the value of exempt and non-taxable income) does not exceed £187,500 a year.

19.3A.3 How is the flat rate calculated?

We calculate the flat rate percentage from the net tax paid by businesses. This is different for different trade sectors and so the flat rates vary. You can find further details about the flat rate scheme, including the table of flat rates and an application form, in Notice 733. There are special rates for businesses using FRS during their first year of VAT registration. They use a rate which is 1% below the usual rate because they generally claim back more VAT than businesses who have been registered longer for VAT.

19.3A.4 Advantages and disadvantages

Advantages:

• no need to separate out gross, VAT and net in your accounts;
• no more problems about what ‘input tax’ you can and cannot reclaim;
• you always know how much of your takings will need to be paid in VAT;
• less chance of mistakes, so fewer worries;
• less work doing the books so you can get on with running your business; and
• can be used in conjunction with the annual accounting scheme and has its own version of cash accounting and retail schemes.

Disadvantages:

• you cannot claim input tax, so the business loses some cash flow in VAT on stock waiting to be sold;
• the lesser detail of VAT records kept while using the scheme may make it more difficult to monitor whether the scheme is still a help to the business; and
• the scheme cannot be used in conjunction with the tour operator’s margin scheme or the margin schemes for second-hand goods, works of art, antiques and collectors’ items.

You can find further details about the flat rate scheme including the table of flat rates and an application form in Notice 733.

19.5.1 General

Paragraph 3. Section (d), bullet point 1. After “goods you import by post – other ------------- of £2000 or less” insert in brackets “(see also paragraph 19.8.1 (b))” before ‘;and’.

19.6 Record of credits allowed to customers

Delete last two paragraphs after boxed text including the bullet points from, ‘When you make a tax…’ onwards. Replace with, “See also paragraph 18.2.4 for information on how to account for credit or debit notes you issue or receive.”

19.7.5 Other circumstances

Update to Amendment 1 (May 2003) of Notice 700. Under “This excludes tolls charged by the:” Insert “Clifton Suspension Bridge" after “Cleddau Bridge”.

19.8.1 General

Paragraph 3. Section (b), bullet point 1. After “goods imported by post - other ------------- of £2000 or less” insert in brackets “(see also paragraph 19.5.1 (d))” before ‘; or’.

19.14 Example of a VAT account

Example of a VAT account. Title of the example. Delete “1 January 2001 to 30 March 2001” and replace with “1 January 2003 to 31 March 2003”.

On the VAT payable – Output tax side of the table. Lines 9 and 10. Delete “Annual adjustment: Retail Scheme D” and replace with “Annual adjustment: Retail Scheme - Apportionment Scheme 1”.

20 VAT returns and payment of tax: introduction and completion of returns

Delete the whole Section 20.6 “Annual accounting scheme” and replace with:

20.6 Annual accounting scheme

20.6.1 Eligibility

This scheme allows eligible businesses to submit one VAT return a year instead of the usual four. You will have to make interim payments by electronic means based on your actual or estimated annual VAT liability.

The scheme is open to small businesses who:

• have been VAT registered for less than 1 year and don’t expect the VAT exclusive turnover in the next year to be more than £150,000; or
• have been VAT registered for more than one year and don’t expect the VAT exclusive turnover in the next year to be more than £600,000.

20.6.2 Interim payments

If you have been registered for 12 months or more you will make 9 interim payments of 10% of your previous year’s VAT liability.

If you have been registered for less than 12 months you will make 9 interim payments of 10% of your expected VAT liability.

Payments start at the end of month 4 of your annual accounting year and the ninth payment is paid at the end of month 12. You then have 2 months to send in your return and balancing payment. We then calculate payments for the next year, which will start again at the end of month 4.

20.6.3 Advantages of the scheme

The advantages of the scheme are:

• an eligible business can choose an annual accounting year that best suits its business needs;
• your annual VAT return and balancing payment will be due 2 months after the end of the annual accounting period;
• you will be able to manage your cash flow with more certainty by paying a set amount each month;
• we will notify you how and when to make your payments;
• you can choose which electronic method to make your interim payments by - BACS, CHAPS, bank giro, direct debit or standing order.

20.6.4 Points to consider

You will also need to consider the following:

• repayment traders will not have to make interim payments but will not get a repayment until the annual return is sent in;
• you must continue to keep your business records on a regular basis, do not try and write them all up at the end of the year.

Further details about the scheme, including the application form for joining, are in Notice 732.

26 Changes in circumstances

26.1 Introduction to changes in circumstances

Delete paragraph 4 “If you wish --------- listed in paragraphs 26.2 and 26.3.”

26.3 What changes require amendment of registration?

Paragraph 2, after the second bullet point “giving the date -------- took place. Insert a new paragraph as follows “You may render yourself liable to civil penalty if you fail to notify any of the above changes within the prescribed time limit. See Notice 700/1 Should I be registered for VAT? for further details.

26.14 Example of Form VAT 902

Delete the whole Section 26.14 “Example of Form VAT 902”.

35 Index

Index F

Insert “Flat rate scheme” after ”Fishing rights”. Same subject, on the ‘References in this notice’ side of the table, insert 19.3A. Same subject, on the ‘References in other publications’ side of the table, insert 733.

Index H

Subject: ‘Handicapped people’. Delete “ - see Disabled”. Same subject, on the ‘References in other publications’ side of the table, insert ‘371, 701/6, 701/7, and 744A’.

Index I

Index I. Subject: ‘Input tax’. Insert “- mobile phones provided to employees” after “- goods dwellings and residential buildings”. Same subject, on the ‘References in this notice’ side of the table, insert ‘12A’.

Index M

Insert “Mobile phones provided to employees” after “Mobile homes – see Caravans”. Same subject, on the ‘References in this notice’ side of the table, insert ‘12A’.

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