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Happy 40th Birthday!

Yes, believe it or not there were some 40th Birthday celebrations taking place on the 1st April this year – And before we go any further, may I just personally thank some of you people out there who had the initial thoughts of “Hmm, Rickey was 40 last week was he”? It was lovely of you to think of me in that manner and literally knock a good 13 years off my age!

No, the 40th Birthday celebrations belong to that ‘not so exclusive VAT Club’. Believe it or not, Vat was introduced into the UK 40 years ago on the 1st April 1973. This was the year when “Tie a Yellow Ribbon round the Old Oak Tree by Dawn featuring Tony Orlando” topped the music charts (this was a right hit in Swinefleet Working Mens Club at the time), and Liverpool won the Football League Championship ahead of Arsenal, with Leeds United finishing 3rd. Man Utd finished in a respectable 18th place!

No, when VAT was initially introduced it was hailed as “a simple Tax”. The reality has proven to be more difficult.

For businesses, VAT has become a complicated Tax, and for virtually all businesses (with only some minor exceptions), it has been compulsory to join the VAT Club once your Sales figure within any 12 month rolling period has exceeded the figure of £79,000, (prior to 1st April 2013 it was £77,000). So, it is probably fair to say that new membership of this VAT Club is certainly on the increase and possibly rising faster than the new membership of the Ant and Dec Fan Club.

One of the all time classics illustrating the difficulties of the complex VAT Legislation was the “Jaffa Cake case” back in 1991. Yes, 1991 the year when the best selling UK single was Bryan Adams with “(Everything I do), I Do it for You” and Right Said Fred with “I’m Too Sexy” finishing as the 4th best selling single.

Now here is a bit of a brain teaser coming up. You can use this question to really impress your friends at next week’s dinner party, or down at the local Pub or at the local gym. Would you say a Jaffa cake is a cake or a biscuit? – In VAT terms, a cake is zero-rated and so is priced to all of us in the supermarkets with VAT at 0%, whilst a biscuit is classed as standard rated and so is priced including a 20% VAT rate. So, get those fingers on the buzzers at the ready.

Who said a cake? – Who said a biscuit? – The correct answer is a cake, and so there is no VAT paid (well the rate of 0%). Congratulations to you people who said a cake. A cuddly toy is on its way to you, and for you people who said a biscuit, then maybe phone a friend next time! There was also a more recent case about whether Pringles are potatoes (zero-rated for VAT), or crisps (standard rated for VAT purposes). Answers to this one must be addressed to Gary Lineker c/o Walkers Crisps.

Basically where items are subject to VAT, there can be 3 different rates. These are 0% (zero-rated – mostly on foodstuffs), 5% rate (reduced rate on domestic fuel for example), and the 20 % standard rate (tends to be the most common rate). One of the other more difficult areas of VAT a Business has to contend with where there are mixed supplies of two or more items (goods or services), with each of these items being subject to different levels of VAT. Now I can illustrate this through the use of the Agatha Christie’s novel and film ‘Murder on the Orient Express’. You won’t find this part in the book and I am quite sure they edited it out of the film version. Right let’s carry on. – One of the passengers buys a ticket for the Orient Express, complete with four course Lunch and champagne. Now this is a mixed supply, as the rail fare price is zero-rated, but the luncheon and champers is standard rated. What the VAT Legislation states is that if one of these supplies is insignificant it can be ignored, and the whole of the price can be subject to the VAT rate at which the majority of the supply relates to. So, clearly in this example, most of the price would be for the rail fare, so all of this should be subject to a VAT at a zero-rate, and so hopefully costing the traveller less money!

Another important change was just over 11 years ago, with the introduction of the VAT Flat Rate Scheme, back in April 2002. This has already been the subject of one of my previous Blogs, so access the archive section of the Blogs for a refresher for the advantages and disadvantages of this Scheme. As I did mention in the Blog, some Businesses can make money out of the VATman, so please re-look at this!

Finally, it is important to recognise that VAT is a complicated Tax and is not made any easier with the impact of EEC Legislation on the UK. I would strongly advise that if any of you Businesses out there are unsure as to the VAT treatment of certain business transactions, then please ring us and consult with us at JCL (Jones Cooper Limited), to avoid any errors or mistakes. All you clients out there do have free telephone access to ourselves, so please use us. As we all know, the VATman is very rarely sympathetic to mistakes and errors!

 

Rickey

Rickey Cooper FFA, FMAAT, ATT

JCL – Jones Cooper Limited

 

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