VAT incurred on overseas business entertaining

HMRC have at last announced a change in policy regarding VAT incurred on overseas business entertaining.

HMRC agreed this change was required some 18 months ago following from European Court decisions. These related to the efforts of Danfoss and AstraZeneca to reclaim VAT when entertaining business customers from overseas.

HMRC’s new guidance is contained in Revenue & Customs Brief 44/10. The UK law will soon be changed and taxpayers will be able to include claims for VAT on the cost of entertaining overseas customers on future VAT returns. HMRC appear to have taken a strict view on the type of expenditure on which a VAT deduction is permitted. Only basic hospitality such as sandwiches in the office or a basic lunch out of the office where the lunch is strictly for business purposes will be eligible for a VAT deduction. Evening meals and golf days, for example, will remain ineligible.

Those businesses that submitted claims in time for the period 1 August 1988 – 30 April 1997 will need to evidence that the hospitality provided was strictly for business purposes. Those that did not get claims in on time can only claim for the last 4 years, provided they have the necessary records on file.

The claim for the input VAT must be made as a voluntary disclosure to HMRC, making it clear that the error (in not reclaiming the VAT when it was due) was made because of the HMRC practice of blocking the input tax on entertaining.

It is important to note that the scope of this change is limited to entertaining overseas customers. The VAT incurred by reference to most general entertaining costs will therefore continue to be irrecoverable. And where the costs do relate to overseas clients, HMRC are expected to seek confirmation as to any output VAT that may due, in respect of ‘private use’ elements of the costs. So claims are unlikely to be straight forward. Nevertheless, for some businesses, this could be an opportunity to reclaim significant amounts of VAT, and to reduce costs going forwards.

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The Tax Man

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Business Valuation in Distress

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FD in The Cupboard

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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.