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Let's get technical: reclaiming VAT

Nick Craggs talks you through the complex business of reclaiming VAT

March 2017

A little-known fact about me is that I used to be a farmer. In fact I have a degree in it, but a career tilling the soil and feeding calves didnít work out, and the next thing you know you are wearing a suit, on an ACA training contract, and find yourself on a stock count on New Yearís Eve.
Anyway, my first job was as a bookkeeper for farmers Ė I knew a bit about farming and not too much about bookkeeping, initially. One of the earlier tests of my career was from a farmer in Northumberland. He had bought some fertiliser, and as all readers of PQ magazine know, fertiliser isnít cheap. Therefore, there was a lot of VAT on it, and the farmer wanted to claim it back. However, the problem was that the invoice was dated 3 March 2002, but I was preparing the February 2002 VAT return. So as an accountant I stood up for my fundamental principle of integrity and told him he would need to wait for the next VAT return before he could claim it back.
Sounds simple: just use stick by the date on the invoice, right?
Well, as with most things to do with VAT it isnít so simple, as the date on the invoice isnít always the tax point. The tax point is the date that dictates when we can claim back, or have to pay over, the VAT.
If the fertiliser was delivered on 3 February 2002 this would be the tax point; as the delivery is before the invoice date. This is known as the basic tax point. As ever, it isnít as straightforward as that, as if the invoice is dated within 14 days of the basic tax point this would override the basic tax point, and the invoice date would be used. So if the fertiliser was delivered on 25 February 2002, the farmer still couldnít have his VAT, as the tax point would still be 3 March 2002 as it is within 14 days of delivery.
The farmer could have got around the invoice being dated after his VAT quarter by actually paying for the fertiliser upfront. If cash is paid before delivery or the invoice date, the date of the payment will always be the tax point. However, many of the tight farmers I know wouldnít do this, as they would rather claim the VAT back, and then pay the invoice later Ė much later!
So we have a tax point that could be the delivery date, could be the invoice date, or could be the date that the goods were paid for. But wait Ė it gets more complicated!
What happens if the farmer pays a deposit on his nice shiny tractor upfront? Well, in this case there would be two tax points. There will be the date of the payment of the deposit, then the next tax point will be dependent on delivery date, invoice date, or the payment of the balance.
Let us look at an example
Farmer Giles is going to buy a new tractor for £72,000. He has agreed to pay a deposit of £12,000 on 4 June. This is a tax point as he paid cash, so the VAT will be £12,000 / 120% x 20% (or you can just use the VAT fraction of 1/6th), which is £2,000.
He takes delivery of the tractor on 25 June. He then receives the invoice for the balance, which is £60,000, on 3 July. He begrudgingly pays the invoice in November, because that is what farmers do.
His VAT return quarter ends in June, and obviously he wants to claim back £12,000 of VAT from HMRC as soon as possible. Within his VAT return quarter he has made a payment of £12,000 and taken delivery of his new tractor, which is the basic tax point.
However, Gilesís problem is that his machinery dealer has issued an invoice within 14 days of the basic tax point, so the basic tax point is overridden and the actual tax point is 3 July, outside of his VAT return, so he can only claim £2,000 of VAT this quarter. The rest of the VAT will have to wait until the next VAT return before he can claim it back.
Why donít you have a go at this example and see how much VAT Farmer Alan can claim back on his June VAT return.
Alan pays deposit on his plough of £6,000 on 20 June. The plough is delivered on 23 June and he pays the balance of £12,000 on 29 June, and then he receives the invoice on 3 July.
See me work out the answer at http://www.firstintuition.co.uk/category/aat/
ē Nick Craggs is a tutor at First Intuition

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