Operator CPC Training
Over the next few weeks, we’ll be looking at fiscal law which will include the subjects of basic accountancy procedures, taxation and road charging.
We’ll start with a look at VAT and the various associated accounting procedures a well informed road transport manager will need to be familiar with.
What Is VAT?
Value Added Tax (VAT) is a tax that’s charged on the supply of most goods and services, although there are some exceptions. VAT law is governed by a number of directives established in the European Union.
The 6th VAT Directive in 1977 was brought into effect in the UK by the Value Added Tax Act 1994. Copies of the various VAT acts and statutory instruments are available from HMSO.
It is the responsibility of a VAT registered operator to ensure that tax is charged and collected on behalf of the UK government via company sales invoices.
A taxable customer can be either an individual or a company. Anyone who has a taxable turnover above a set amount, usually referred to as a taxable threshold, is legally required to be registered for VAT. The threshold is usually reviewed annually and set by the government.
Once registered, HMRC will issue a registration number. This number is unique to the company and contains a series of 9 digits which will be the reference number for returns and other HMRC enquiries. Sales invoices must also display the registration number.
Companies whose turnover is below the taxable threshold do not need to register for VAT. However, it may be in their interests to do so in order to offset sales and purchase invoice taxes.
Registered individuals or companies will be required to pay their VAT dues quarterly. As mentioned above, the amount due is calculated by subtracting the VAT payable (input tax on purchases) from the VAT on services (output tax on sales).
For example, in the first quarter of 2013, ABC Hauliers generated £50,000 of VAT from their sales and had to pay VAT on purchases totalling £30,000. The amount due to HMRC would therefore be £20,000.
Accounting For VAT
The procedures for accounting for VAT will mainly depend on the circumstances of the transaction. Let’s take a look at some examples below:
• If the operator and the place of supply are located within the same EU member state, the operator will be responsible for the accounting and charging of VAT.
• If the place of supply is located within a different EU member state due to the location of the customer, then it will be the responsibility of the customer to account for the VAT as a reverse charge.
• An operator may need to be prepared to register for VAT in another EU member state if the place of supply moves to where the transport of the goods for a private individual begins.
• If the place of supply is outside of the EU then it is classed as being outside of the scope of VAT and no tax will be charged.
• For cabotage operations within the EU, the haulier will have to register or appoint an agent in the host country and charge VAT at the host country’s rate
From 1st January 2010, the general rule is that the place of supply is the place where the customer is based for the purpose of receiving the supply. It does not matter where the goods are being transported, moved from or to, or where any related service physically takes place.
There are currently three rates of VAT applicable in the UK; the standard rate of 20%, a reduced rate of 5% for domestic fuels and a zero rate for items or services which are not subject to tax.
Whenever standard rated goods or services are supplied to another registered person or company, a VAT invoice must be issued. VAT invoices must contain the following information:
• An identification number
• The company name, address and VAT number
• The time of supply
• The date of issue (see tax point date below)
• The customer’s name and address
• The type of supply
• A description which suitably identifies the goods or services supplied
If a VAT invoice is issued which includes supplies that are either zero rated or exempt, it is essential that those items show clearly that there is no VAT payable and that their values must be totalled separately.
Output Tax – Sales Invoices
Output tax is the VAT due on any sales invoices that contain a taxable supply at the standard rate of VAT to the customer.
Input Tax – Purchase Invoices
Input tax is the VAT charged on business purchases and expenses. It is the amount the supplier will charge on their invoices for goods or services.
In order to reclaim VAT charged on purchase invoices, operators will need to provide documented evidence that they have invoiced customers and received purchase invoices from their suppliers in the stated time period. It is therefore essential to ensure that sales and purchase paperwork is kept in order.
Time Of Supply (Tax Point)
It is common for VAT invoices to refer to a tax point date. This is usually the date the invoice was generated. A VAT invoice must be raised and sent to a customer for their own records.
When the tax point is entered on the invoice, the VAT for that particular date must be accounted for within the correct quarterly return, even if the invoice refers to services outside of that time period.