What is VAT and why is it so complex?

VAT (Value Added Tax) is a transaction-based tax with complex rules that vary by sector, region, and transaction type. Specialist legal advice helps businesses stay compliant and avoid costly mistakes.

What are my VAT obligations?

Every business and every project will have a large number of transactions, both purchases and sales, which should be understood for VAT, captured in the VAT record and reported to HMRC. The VAT on sales must be recorded correctly by the seller. The VAT claimed on purchases must be recorded correctly, including identifying incorrect VAT charges by suppliers, identifying when to claim and when not to claim (including partial exemption and Capital Goods Scheme adjustments), and identifying when purchases are treated as sales under the various reverse charge mechanisms. There are also obligations regarding when to register for VAT and when to deregister, when to submit and pay returns, how invoices are laid out and how VAT returns are submitted (Making Tax Digital or MTD). Does that mean everything HMRC tells you to do is an obligation? If you think HMRC is wrong, you can stand your ground and argue your case, preferably with an experienced adviser in support.

What is a VAT investigation?

HMRC will investigate a business to ensure it’s VAT records and liabilities are correct. This will happen routinely (every few years), or because HMRC has concerns (every year or so), or because there is a specific question HMRC wish to answer.

What VAT reliefs are available?

Reliefs don’t really exist in VAT as they do for direct taxes. There are different rates of VAT with different advantages and disadvantages, some of which allow no VAT to be accounted for on a sale. There are simplifications and special methods, where for example complex VAT calculations can be avoided or made more practical. There are also exceptions where VAT registration can be avoided. Planning a project to capture a balance of these various advantages can save time and money.

What are VAT penalties?

HMRC have a variety of ways of penalising a taxpayer who has put a foot wrong, such as failure to notify HMRC of a requirement (e.g. applying for VAT registration on time), failure to submit a VAT return or pay a VAT liability on time, making an error in calculating VAT liabilities on sales or recovering VAT on purchases, or compounding these mistakes with deliberate or evasive behaviours. A taxpayer can also be assessed for interest for VAT which HMRC considers it did not receive on time. There are ways to reduce or eliminate penalties, but the right approach from the earliest stages will produce the best result.

How has Brexit affected VAT?

Since Brexit, businesses importing and exporting goods face new VAT rules, including import VAT, OSS compliance, and specific challenges for Northern Ireland, which now operates a separate VAT regime.

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VAT

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VAT is one of the most complex areas of UK tax law. Our specialist team offers clear, practical legal advice on VAT, helping businesses, individuals and professional advisers make sense of ever-changing rules and obligations.

We advise on all aspects of VAT, including property transactions, construction projects, corporate reorganisations, business sales, cross-border trade, and more specialist areas such as hotels, aircraft, and yachts. We also support clients facing HMRC investigations, tribunal appeals, and compliance issues in regulated sectors such as financial services.

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The VAT landscape has changed significantly in recent years. From the UK’s departure from the EU in January 2021 - introducing new challenges for importers and exporters, particularly with Northern Ireland’s distinct VAT regime - to the One Stop Shop (OSS) rules affecting UK businesses selling to EU consumers, keeping up with VAT obligations can be a struggle.

In addition, the construction sector has had to get to grips with significant changes, introduced on 1 March 2021, to the way in which VAT is accounted for within the construction supply chain.

Our experience means we will provide clear, practical VAT advice to all organisations, individuals and professional advisers to help them navigate the complexities and opportunities thrown up by this awkward tax. We can help you deal with all VAT-related issues including VAT planning and registration, HMRC investigations, maximising reliefs and mitigating penalties.

Our expertise

VAT planning >

HMRC investigations and reviews >

VAT opportunities and due diligence >

VAT penalties and disputes >

Registering for VAT >

FAQs >

VAT planning advice for business

How do you address VAT issues for your projects?

With VAT experience stretching back decades, we can respond to occasional queries or we can help shape a project efficiently for VAT.

Example: One of our team helped a property developer mitigate an unexpected £180,000 VAT liability on a new public building that he was required to construct after having bought a publicly-owned property in order to use the land for a new housing development. We have also helped businesses and entrepreneurs when purchasing aircraft and yachts, helping one save $10m in VAT.

VAT support during HMRC investigations and reviews

These can be daunting for even the most experienced business. We will help you every step of the way, regardless of whether the investigation is routine or has more serious implications.

Example: One of our specialists successfully helped a construction firm to resolve several HMRC VAT-related enquiries relating to a number of complex multi-million pound projects. We have helped numerous businesses facing HMRC VAT inspections, including specific HMRC challenges appealed to Tribunal.

Identifying VAT opportunities and conducting due diligence

Regular reviews of your VAT obligations can often reveal opportunities for saving money and avoiding pitfalls, if you know where to look – which our team does.

Example: A member of our VAT team saved millions of pounds for both buyers and sellers of businesses by recovering input tax as fully as possible and ensuring that VAT liabilities were not created unnecessarily when a business is bought or sold. This has also involved resolving VAT risks.

Handling VAT penalties and disputes

The prospect of facing a VAT-related penalty can cause great anxiety. Our team has considerable experience in negotiating with HMRC to reduce or even abolish the penalty.

Example: One of our team helped a recruitment business avoid paying a £54m VAT liability by working closely with HMRC which resulted in the business avoiding the VAT risk. In another case, we successfully defended a hotel against a charge that it had reduced its VAT by too much for long-stay guests. HMRC conceded on the steps of the Tribunal.

Registering for VAT

We will help you to comply with all the rules around registration – for instance, when you need to register, whether you need to register and the recovery of VAT on pre-registration costs.

Example: we regularly answer queries from small companies on flat-rate schemes, disaggregated businesses, VAT registration threshold issues and so on.

Examples of recent VAT advice and client successes

We assisted a UK PLC (over $10 billion worldwide capitalisation) with its cross-border supplies, including successfully resolving HMRC investigations and reducing its UK VAT liabilities. The saving in UK VAT has been millions of pounds each year.
We steered a client away from a significant VAT bill on a £30m property development project and into a safe position. We acted under high time pressure, but our advice enabled the project to proceed on time.
Wright Hassall has assisted the government to provide post-Brexit VAT advice to numerous small and medium sized enterprises throughout the West Midlands, from those below the VAT registration limit to multi-million pound international businesses.
Businesses using the VAT margin scheme to trade in second-hand items, works of art, antiques or collectibles have been hard hit by the Brexit changes. This affects businesses with all levels of turnover, who trade with the EU or Northern Ireland. There are some solutions and we have successfully advised many businesses who have been able to adapt and save their enterprises.
Online trading has increasingly become the target of anti-avoidance rules over the years. While this is necessary, it has meant higher and higher burdens. We supported an online platform in its evolution to address these new rules and take on itself the pressures faced by the online traders using its platform.

FAQs

What is VAT and why is it so complex?

VAT (Value Added Tax) is a transaction-based tax with complex rules that vary by sector, region, and transaction type. Specialist legal advice helps businesses stay compliant and avoid costly mistakes.
What are my VAT obligations?

Every business and every project will have a large number of transactions, both purchases and sales, which should be understood for VAT, captured in the VAT record and reported to HMRC.

The VAT on sales must be recorded correctly by the seller. The VAT claimed on purchases must be recorded correctly, including identifying incorrect VAT charges by suppliers, identifying when to claim and when not to claim (including partial exemption and Capital Goods Scheme adjustments), and identifying when purchases are treated as sales under the various reverse charge mechanisms.

There are also obligations regarding when to register for VAT and when to deregister, when to submit and pay returns, how invoices are laid out and how VAT returns are submitted (Making Tax Digital or MTD).

Does that mean everything HMRC tells you to do is an obligation?

If you think HMRC is wrong, you can stand your ground and argue your case, preferably with an experienced adviser in support.
What is a VAT investigation?

HMRC will investigate a business to ensure it’s VAT records and liabilities are correct. This will happen routinely (every few years), or because HMRC has concerns (every year or so), or because there is a specific question HMRC wish to answer.
What VAT reliefs are available?

Reliefs don’t really exist in VAT as they do for direct taxes. There are different rates of VAT with different advantages and disadvantages, some of which allow no VAT to be accounted for on a sale.

There are simplifications and special methods, where for example complex VAT calculations can be avoided or made more practical. There are also exceptions where VAT registration can be avoided. Planning a project to capture a balance of these various advantages can save time and money.
What are VAT penalties?

HMRC have a variety of ways of penalising a taxpayer who has put a foot wrong, such as failure to notify HMRC of a requirement (e.g. applying for VAT registration on time), failure to submit a VAT return or pay a VAT liability on time, making an error in calculating VAT liabilities on sales or recovering VAT on purchases, or compounding these mistakes with deliberate or evasive behaviours.

A taxpayer can also be assessed for interest for VAT which HMRC considers it did not receive on time.

There are ways to reduce or eliminate penalties, but the right approach from the earliest stages will produce the best result.
How has Brexit affected VAT?

Since Brexit, businesses importing and exporting goods face new VAT rules, including import VAT, OSS compliance, and specific challenges for Northern Ireland, which now operates a separate VAT regime.

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Kevin Hall

Key contact

Kevin is a VAT specialist. He provides clear, practical advice to businesses and their advisers to help them navigate the complexities thrown up by this awkward tax.

Phone

01926 884623

Email Address

kevin.hall@wrighthassall.co.uk

Meet the team

"Kevin has been a tremendous support over several years, guiding us through some intricate complexities in managing the UK VAT rules. He has always made himself available and has been patient and knowledgeable in providing his advice. His assistance has been most valuable to us."

George Trollope Vice President, Global Taxation, AngloGold Ashanti