February Q&A

Is VAT payable on cash stolen by employee?
Q. We are retailers and have discovered that a member of staff has been understating our sales by taking, say, £30 cash from a customer, and only recording the sale as £25 in the till. Must we account for VAT on the £5 shortfall? Does it make a difference if the stolen cash is never recovered from the employee?

A. The key fact is that you have sold goods to a customer for £30 including VAT. Assuming the goods are standard rated, this means you have an output tax liability of £5 on the sale, i.e., £30 x 1/6. You must include £5 in Box 1 of your VAT return. This outcome is not changed by the fact that your dishonest employee has recorded a lower figure in the till and taken the money.

You must calculate how much cash has been stolen and treat the shortfall as an output tax underpayment on your past returns, going back a maximum of four years. This is the error correction period for both under and overpayments of VAT. If the amount of VAT underpaid is less than £10,000, you can adjust it on your next return, rather than complete a FormVAT652 to disclose it separately to HMRC.

Can we claim VAT on goods purchased from Italy?
Q. We trade as a restaurant and want to buy an oven from Italy. Is there any way we can claim the Italian VAT being charged on the sale?

A. You should not be charged Italian VAT because the goods are being exported from Italy to a country outside the EU. This is a zero-rated sale as far as Italian VAT is concerned. The Italian supplier will need to complete an export declaration to get the oven out of Italy.

When the oven arrives in the UK, your business will be declared as the importer and 20% VAT will be payable to HMRC based on its value. If the oven is expensive, it might be worth you getting an EORI number from HMRC – which takes about three days to be issued – and then asking the agent who you appoint to elect for postponed VAT accounting, so that no VAT is payable on arrival, with reverse charge entries being made on your next VAT return, i.e. to pay output tax in Box 1 and claim input tax in Box 4 of your return.

If you do pay VAT on arrival, then HMRC should post a C79 import VAT certificate to your main place of business so that you can claim input tax on your next return.