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Can partial exemption windfall be reclaimed?
I recently read Neil Warren’s article about partial exemption (Taxation, 11 August 2022) and wonder if my client is entitled to an input tax windfall.
The situation is that my client posted many March 2021 purchases invoices into her purchase ledger for April 2021. The client is not on the cash accounting scheme so claims input tax according to invoice rather than payment date. All of the invoices related to residual input tax, mainly overhead costs or premises expenses, so only part of the VAT is claimed with partial exemption.
My client did not treat the late entries in April as a VAT error – even though the total VAT exceeded the disclosure limit of £10,000 – because they had been delayed due to the budget holder being sick with Covid, rather than any accounting error.
But here is the problem: because of a major income shift due to pre- and post-Covid trading, the client’s residual input tax recovery percentage with the standard method based on turnover was 80% in the partial exemption year ending March 2021 but only 50% up to 31 March 2022. My client therefore claimed 50% input tax on these invoices, which seems unfair.
Can my client make an adjustment on her next return to claim an extra 30% input tax, which is worth £7,000?Query 20,107 – Number cruncher.
Golfing fee: exempt or standard rated?
One of my not-for-profit golf club clients is enjoying a membership boom because three other clubs in the local area have permanently closed for the development of a housing development.
To capitalise on the boom from prospective members, the club committee decided to charge them a £500 fee which means they will be put on a joining list and will be able to join the club once there is a vacancy. The vacancies will be filled in chronological order. The new member will then pay a one-off joining fee of £1,000, which will be reduced to £750 if they have patiently waited for more than three months to join. Annual membership playing fees will be charged as well.
The joining and membership fees are exempt from VAT but we are confused about the £500 advance payment. One of our committee members thinks it is wholly VATable because it does not involve any playing of golf but our treasurer has treated it as exempt because the final result is playing golf. Then a third member said that £250 was VATable because it would always be retained by the club but the other £250 was outside the scope of VAT because it would – in some cases – be credited against the £1,000 joining fee.
We don’t want to find ourselves in the bunker with HMRC over this issue so readers’ thoughts would be appreciated.Query 20,108 – Fairway Fred.
Can train ticket be partly claimed for tax purposes?
My client, a writer, has raised a question about his weekly train fares to visit his elderly mother. Although this is a private trip, he upgrades his rail ticket to first class because he is then guaranteed a table and he can work on the train. He works for the whole journey and a first-class carriage is also quieter. He has asked if the price difference between a standard return ticket and first-class ticket can be claimed as a travel expense on his accounts and tax return? My initial reaction was ‘no way’ because the trip is not ‘wholly and exclusively’ incurred for business purposes but now I’m not sure. Do readers have any thoughts? He is a higher rate taxpayer – his business is not incorporated – so there is quite a lot of tax and class 4 National Insurance involved.
As a separate question, he is VAT registered and has agreed to do some regular editing work for a church based in Ireland. Should he charge VAT on his fees?
Query 20,109 – Journalist Joe.
Is there extra VAT on meal deals following HMRC’s brief?
My client trades as a food and drink retailer. He offers a ‘meal deal’ that includes a sandwich, packet of crisps and a cookie. The cookie and sandwich are zero rated but not the crisps so this is a mixed supply for VAT purposes.
He has always apportioned output tax according to the cost price of each item – based on supplier invoices – but I understand that he must now carry out calculations according to the ratio of individual selling prices under new HMRC rules (Revenue and Customs Brief 2/23 issued on 3 March 2023). As he makes a higher mark-up on the crisps than the sandwich and cookie, this will produce a higher output tax liability on each sale. I have three questions:
- Does the new HMRC guidance have the force of law?
- Does my client need to review his VAT returns for the last four years and make an error correction?
- A colleague has suggested that my client should change the offer to ‘buy a cookie and sandwich for £5 and get a free packet of crisps’ – ie the entire sale would then be zero rated. Is this correct?
As VAT approaches its 50th anniversary, it is incredible that such a common deal can still cause confusion. Query 20,110 – Discount Dave.
VAT 50th anniversary issue
The 6 April 2023 issue of Taxation will be a VAT 50th anniversary special issue. All the queries in this week’s Readers’ forum are therefore on VAT so that the answers can appear in that special issue. Send your replies to taxation@lexisnexis.co.uk by Monday, 11 days after print publication. Full T&Cs: tinyurl.com/RFguidelines.
