October Q&A
Is hiring golf clubs to a non-resident taxable?
Q. We hire golf clubs to private individuals. A customer came into our shop last week and insisted that the fee for hiring a set of golf clubs for a week should not be subject to VAT because he is a US resident. He produced evidence of his US address and his passport details to support his claim. Is he correct?
A. Many services supplied to private residents who live outside the EU are not subject to VAT, i.e. the place of supply is where they live. However, there is an important exception to this rule, which relates to the hiring of goods.
In such cases, the VAT charge depends on where the goods are being used and enjoyed by the hirer, i.e. the UK in this case. You should charge VAT at 20% on the hire fee.
The opposite situation could apply. If your customers hire goods and they can prove that the goods will be used exclusively outside the EU, e.g. golf clubs for a holiday in the USA, then no UK VAT should be charged under the use and enjoyment rules.
Should tips for the self-employed be declared?
Q. I am a self-employed tour-guide, do tips count as part of the profits of my self-employment and am I required to declare them?
A. The answer is yes, you’ll pay income tax and NI on these via the Self-Assessment system. Any sum you receive by way of your occupation, even if it’s a tip given to you personally, counts as a receipt of your business.
However, as a self-employed individual, you’ll be able to claim expenses that are allowable against your earnings to a greater extent than is usually available to employees.
Can we charge VAT on the sale of catering equipment?
Q. My company is a catering business and we are about to sell some equipment that we purchased when we used the flat rate scheme. We didn’t claim input tax because each item cost less than £2,000 including VAT, i.e. less than the scheme threshold for claiming input tax on capital goods. We no longer use the flat rate scheme but do we need to account for output tax on the equipment sale?
A. The starting point is that if you sell goods where input tax is blocked by the legislation on the purchase, then you don’t need to account for output tax. These sales are exempt from VAT. This situation would be relevant if, for example, you purchased a car and were input tax blocked because it was available for private use.
Unfortunately, the fact that you did not claim input tax on this equipment because you used the FRS at the time of purchase is not relevant. The scheme percentages for different trade sectors include an allowance for input tax sacrificed on both trading expenses and assets bought below the £2,000 threshold. You must still account for output tax on the full selling price.
My commercial tenant is moving out, is VAT due on a dilapidation payment?
Q. I own a commercial property which I opted to tax and have always charged VAT to my tenant on her rent. She is about to vacate the premises but must pay me £50,000 for dilapidations to return the building to its original state of repair before she occupied it. Do I charge her VAT?
A. An option to tax election means that your exempt income from either renting out or selling a building is standard-rated. However, a dilapidation payment made by a departing tenant does not relate to a supply of goods or services she has received from you as the landlord, and is a compensation payment (want of repair) linked to the condition of the building when she leaves. It is therefore outside the scope of VAT.
As a landlord, you can still claim input tax on the costs of employing builders and other professionals to repair the building following the departure of your tenant. This is because your option to tax election means you will continue to charge VAT on rent to your next tenant, i.e. it is specific to your interest in the building, not each tenant’s.
