(scotland) Limited
  • 0141 636 9353
  • 0141 636 9490
  • 0141 636 9492
UK Government Promise
“VAT will be a simple tax”
(Anthony Barber
Chancellor of the Exchequer)
The Reality
(since 1973)
“VAT is like a fiscal theme park, in which factual
and legal realities are suspended or inverted”
(Lord Justice Sedley 2001)
The Solution
Promises and reality are often different in Government.
Our mission at VAT Services (Scotland) Ltd is to try to make the reality simple and
understandable for your staff, so that your business or organisation complies with VAT regulations
with as little difficulty as possible. We do this by offering:


The transition period for the UK exiting the EU may have ended on 31 December 2020 but Brexit issues for some businesses are only just beginning.

The UK government, in the last week of December, highlighted the benefits of the Free Trade Agreement it has agreed with the EU, thus allowing the benefits of zero tariffs and zero quotas. Unfortunately, from the numerous calls we have had from UK businesses which sell to customers in the EU (both consumers and businesses) and, to a lesser extent, UK businesses that acquire goods from EU suppliers it seems that despite the UK Government’s extensive advertising campaign many UK businesses are not prepared for trading with the EU post 31 December 2020.

The most common issues we encountered in the last week of December were as follows:

  • UK businesses not realising the importance of the Terms of Trade (Incoterms) they operate when they are selling or buying from customers and suppliers and in particular the importance of whether the seller or buyer is the ‘importer of record’;
  • Lack of knowledge as regards the need to register for VAT in one or more EU countries due to sales they are due to make to EU customers from 1 January 2021 onwards. In addition, although many businesses have ensured they have an UK EORI number, they do not have an EU EORI number. The UK EORI number allows a business to import goods into the UK and export goods from the UK, but they require an EU EORI number if they are going to import goods into the EU or export goods from the EU to the UK; and
  • It also appears few carriers/shipping agents have spoken to their clients in advance of 31 December 2020 in connection with the additional paperwork that requires to be in place to allow the goods to flow easily through the docks or airports for goods exiting the UK to the EU and vice-versa. In summary, few carriers/shipping agents have discussed the two bullet points above with their customers, the businesses now importing from the EU or exporting to the EU from the UK.

If you import goods from the EU or export goods to the EU we would strongly recommend you speak to one of the following as soon as possible:

  • Your accountant or auditor;
  • Your carrier/shipping agent; or
  • Contact ourselves.

The Brexit theme is very strong in this month’s VAT update with one of the two Revenue & Customs Briefs being Brexit related, and a number of HMRC updates specific to Brexit (see below).

New Revenue & Customs Briefs (“RCBs”) issued by HMRC
RCB 20/2020 – Repayment of VAT to overseas businesses not established in the EU and not VAT registered in the UK
Overseas businesses (not established in the EU) which incur VAT in the UK for their business purpose are eligible to reclaim the VAT using the overseas VAT refund scheme. To obtain VAT refunds for the period 1 July 2019 to 30 June 2020, businesses are required to submit their application for refunds together with the certificate of status on or before 31 December 2020.

HMRC is aware that businesses, or their agents and advisers, are experiencing difficulties in obtaining the required certificate of status from their official issuing authorities due to COVID-19 measures. As such, in the current circumstances, overseas businesses may not be able to submit their claims (with a certificate of status) by the deadline of 31 December 2020.

HMRC has therefore agreed that due to Covid-19, it will allow overseas businesses an additional 6 months to submit a valid certificate of status, which means the certificate of status must be submitted on or before 30 June 2021. However, businesses must still submit their application for VAT refunds and all other documentary evidence required to process the year to 30 June 2020 claims on or before 31 December 2020.

Payments will not be made until a valid certificate of status is received to validate any claims. Due to the unknown volume of businesses that this is likely to impact, HMRC cannot guarantee how long it will take to process claims, but will aim to make payments within 6 months of receiving the valid certificate of status. A copy of the RCB can be accessed HERE

RCB 21/2020 – Withdrawal of the VAT Retail Export Scheme and tax-free shopping concession
As from 1 January 2021 the following concession and Retail Export Scheme will be withdrawn:

  • The concession that allows retailers of goods at ports and airports to zero-rate sales to passengers departing to a non-EU destination; and
  • The VAT Retail Export Scheme that allows non-EU visitors to the EU to recover VAT they incur on high street purchases that they take home in their luggage, i.e. the goods exit the EU.

This Retail Export Scheme and sales of goods by retailers at ports and airports is only withdrawn in Great Britain and not Northern Ireland. Under the Northern Ireland Protocol, Northern Ireland retailers at the ports and airports will still be able to zero-rate their supplies when the goods are to be taken out of the EU. Likewise, the Retail Export Scheme will still be available to non-EU customers who will be taking the goods out of the EU. As Great Britain is no longer part of the EU, the VAT Retail Export Scheme will still apply for goods bought by passengers in Northern Ireland travelling to Great Britain.

It is possible that non-EU passengers may purchase goods in Great Britain prior to 31 December 2020 and leave Great Britain on or after 1 January 2021. These purchases will still qualify for the VAT Retail Export Scheme if they leave Great Britain on or before 31 March 2020. A copy of the RCB can be accessed HERE

HMRC Updates
Businesses trading in Northern Ireland
HMRC released the following guidance on 3 December 2020 that if you are a VAT-registered business you should tell HMRC if any of the following apply to you:

  • your goods are located in Northern Ireland at the time of sale;
  • you receive goods in Northern Ireland from VAT-registered EU businesses for business purposes; or
  • you sell or move goods from Northern Ireland to an EU member state.

The reasoning for telling HMRC is so that:

  • you will be eligible to use VAT simplifications when you trade with the EU;
  • your suppliers are able to zero rate goods that they dispatch to you from the EU; and
  • your trade with the EU will remain acquisitions and dispatches when accounting for VAT.

From 1 January 2021, when you are trading with the EU and sell goods in Northern Ireland, you will need to:

  • put an ‘XI’ prefix in front of your VAT number when communicating with an EU customer or supplier (your invoices will show XI in front of your VAT number - for example, XI 123456789 - instead of GB); and
  • complete an EC Sales List if you are selling goods from Northern Ireland to VAT-registered customers in the EU.

Full details of HMRC’s guidance can be accessed HERE

Option to defer VAT owed for the period 20 March 2020 to 30 June 2020 until 31 March 2022
Instead of paying the full amount owed to HMRC by the end of March 2021, a business can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022. The scheme will allow you to:

  • pay your deferred VAT in instalments without adding interest; and
  • select the number of instalments from 2 to 11 equal monthly payments.

To qualify to use this scheme you must:

  • still have deferred VAT to pay;
  • be up to date with your VAT returns;
  • opt in before the end of March 2021;
  • pay the first instalment before the end of March 2021; and
  • be able to pay the deferred VAT by Direct Debit.

If you opt to use the scheme, you can still have a time to pay arrangement for other HMRC debts and outstanding tax. Unfortunately, you cannot opt in yet. The online opt in process will be made available by HMRC in early 2021. Importantly, you must opt in yourself, your agent cannot do this for you. Current details can be accessed HERE

HMRC is a preferential creditor for some debts in an insolvency procedure from 1 December 2020 onwards
Where there is an insolvency procedure HMRC is deemed to be a preferential creditor for the following debts of a company or individual (from 1 December 2020):

  • Value Added Tax;
  • PAYE;
  • Employee National Insurance contributions (NICs);
  • Students loan repayments; and
  • Construction Industry Scheme deductions.

In summary all deductions made from an employee’s salary, VAT and CIS deductions are now ‘ring-fenced’ with HMRC as a preferential creditor in any insolvency procedure. Full details, as outlined by HMRC, can be found HERE

Change of VAT liability if B2C professional services to EU customers from 20% to outside the scope of VAT from 1 January 2021
The list of professional services in VAT Notice 741A, section 12 will be ‘outside the scope’ of UK VAT from 1 January 2021 if supplied to EU customers B2C. They were previously subject to UK VAT at 20% under the general B2C rule. For example, a UK accountancy firm preparing a UK tax return for a client living in Spain would, up to 31 December 2020, charge UK VAT at 20% on this service. However, from 1 January 2021, the supply of this service will be ‘outside the scope’ of UK VAT.

Postponed VAT Accounting available from 1 January 2021
Normally when goods are imported into the UK import VAT and any duty would ordinarily be paid unless the business importing the goods has a VAT and duty deferment account. However, as a result of Covid-19 HMRC has introduced postponed VAT accounting that allows UK businesses to account for import VAT on their VAT returns and therefore not have a negative cashflow position. The rules and regulations can be complex but HMRC have summarised them in a document that can be accessed HERE

This document contains additional background information as follows:

  • Who can account for import VAT on their VAT Return;
  • When you can account for import VAT on your VAT Return;
  • When you must account for import VAT on your VAT Return;
  • Using someone to import goods on your behalf;
  • How to complete your customs declaration in order to account for import VAT on your VAT Return;
  • If you import goods in consignments not exceeding £135 in value; and
  • What you need to do next.

In order to account for your import VAT on your VAT return from 1 January 2021 onwards you will require to download your postponed import VAT statement online. Unless you have delayed your customs declaration, each statement will show the total import VAT postponed for the previous month. Statements will become available to view in the first half of each month, i.e. in the first half of February 2021, the statement for January 2020 will become available. As a business will only be able to access a statement for 6 months it is critical you download and keep a copy of each statement for your VAT records. To access your import VAT statement, you will need a Government Gateway ID and password which is linked to your EORI number. Full details can be accessed HERE

From 1 January 2021 sanitary products will be zero-rated
The sale of sanitary products is at the reduced rate of VAT (5%) up to and including 31 December 2020. However, from 1 January 2021, the sale of sanitary products is zero-rated. It should be noted that although there is no VAT to be paid to HMRC there is no requirement for shops to decrease the price these products are sold at. Therefore, it is possible some shops may not pass this decrease onto customers and retain the VAT saving for themselves.

First-Tier Tribunal (‘FTT’) case
FTT found the assessment raised against Kang and Mang Limited was correct
[2020] UKFTT 471 (TC) – Kang and Mang Limited v HMRC – HMRC won

The background facts to this FTT were as follows:

  • Kang and Mang Limited was incorporated on 10 December 1993 and was registered for VAT. It originally traded as H Q Foods Limited, in the supply of frozen food and paper products to the fish and chips industry. It ceased that business activity and began to trade as an Investment Company, holding freehold commercial and residential properties.
  • In August 2016 Kang and Mang Limited purchased residential properties from Dudley Estates Limited for £315,000. The seller charged VAT of £63,000 on the purchase price, which Kang and Mang Limited paid on completion.
  • The property consists of a former public house, converted into residential flats, and was still used for that purpose when purchased by Kang and Mang Limited.
  • The seller’s completion statement showed VAT as chargeable, but no copy VAT invoice. There was no copy of an Option to Tax by the sellers from HMRC. This was not surprising as HMRC would not issue an Option to Tax in connection with residential property.
  • The completion statement also showed that SDLT had been paid to HMRC on a VAT inclusive price of £388,000, resulting in an overpayment of £3,150 SDLT.
  • In summary, the sale of a building which is comprised of dwellings (residential property), which are not new builds, is an exempt supply.
  • The seller had therefore incorrectly charged VAT on the sale of the residential properties, although Kang and Mang Limited were unaware of that at the time of purchase.
  • Following completion of its purchase of the residential properties, Kang and Mang Limited submitted an input tax claim of £63,627 for VAT period 09/16. This figure represented the £63,000 VAT charged by the seller and VAT on legal fees paid by the appellant to its solicitors.

This FTT hearing was an appeal by Kang & Mand Limited, against HMRC’s assessment of £63,627 for over claimed input tax for the period 09/16, on the purchase in July 2016 of the residential properties.

The assessment was made by HMRC as the sales of the properties were exempt supplies. In addition, Kang and Mang Limited were unable to provide the required evidence to support the VAT reclaim in relation to the purchase of the residential properties, i.e. a VAT invoice issued by the seller and a copy of the seller’s Option to Tax.

At the FTT on 17 February 2020 Kang and Mang Limited accepted the appeal had no foundation and requested an adjournment/extension of time to allow it to recover the VAT paid in error to the seller and then repay it to HMRC. However, nine months passed and the FTT had not heard from Kang and Mang limited. As such on 17 November 2020 the FTT upheld the assessment against Kang and Mang Limited.

This case highlights the need to properly consider the correct VAT position before a transaction is executed. In this instance there was a sale of existing residential properties which is an exempt (and not a taxable) supply.


Contact us

Should you wish further information on the above, please do not hesitate to contact us using the details outlined below.

Gary Moore
Direct line 0141 636 9353
Mobile 07812 061582
Email This email address is being protected from spambots. You need JavaScript enabled to view it.