Partial exemption standard method
HMRC have announced two optional changes to the VAT partial exemption standard method taking effect from 1 April 2009:
- Instead of a quarterly calculation based on sales in each quarter, RSLs and other taxpayers can now provisionally apply the prior year's recovery percentage to the residual VAT incurred in each quarter of the current year.
- An annual adjustment calculation based on the true percentage is still required after the end of the year. However, if a taxpayer wishes, you can make an 'early' adjustment calculation and include it on the return for the 4th quarter for that year, instead of on the return for the first quarter of the following year.
This is a welcome simplification of the rules for those using the standard method. While this change does not affect those using special methods, there is no reason why amendments to special methods could not be sought to gain a similar advantage.
Withdrawal of concession for supply of agency staff
As widely reported recently, HMRC have confirmed the withdrawal of the staff hire concession, whereby employment bureaux were allowed to charge VAT only on their fee or commission. From 1 April 2009, where an employment bureau acts as principal in making a supply of staff, then VAT will be due on the full value of the supply.
This will mean increased costs for social housing bodies, who typically are unable to recover more than a small percentage of their VAT costs. RSLs and similar bodies may therefore wish to consider alternative arrangements with providers of temporary labour.
It is still possible for other (non-employment) businesses to second staff VAT-free where salary, PAYE etc, obligations discharged by recipient and no mark-up made or other financial gain is derived, or where joint contracts of employment are in place.