VAT enforcement measures for overseas retailers

One of the measures included in the Finance Act 2016 concerns the introduction of new powers to help combat the growing problem of overseas traders selling goods in the UK using online marketplaces (such as Amazon and eBay). This measure was first announced by the government at Budget 2016.

HMRC has now published an update which has shown a ten-fold surge in VAT registration applications from internet retailers during 2016. In 2015 there were a total of 695 VAT registrations from overseas retailers compared to 7,185 VAT registrations in 2016. This figure is expected to continue to grow in 2017 as awareness of the new measures to tackle VAT abuse gain traction.

Under the new rules, HMRC now has power to force overseas retailers to appoint a UK-based VAT representative or provide a financial guarantee. If the overseas retailer fails to comply then the online marketplace used by the overseas retailer can be jointly and severally liable for unpaid VAT. This will only happen if and when the overseas trader does not comply with HMRC’s directions. HMRC will then put the online marketplace on notice that it may be liable for the VAT in respect of the overseas trader’s future sales through its marketplace.

The notice will also set out a period of time (normally 30 days) during which the online marketplace can take steps so it does not become liable, either by securing the VAT due from the overseas business or by removing it from its marketplace. After this period of time, the online marketplace will be held liable if no such action has been taken.

Many of these online retailers have operated as if they were a UK business with the goods being stored and dispatched directly from UK warehouses. HMRC has also been taking action to seize goods from UK warehouses where goods have been stored and overseas traders have not paid the VAT due to HMRC. The new measure is expected to bring in additional VAT revenues of £875m by 2021.

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Business Valuation in Distress

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.