Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

Year end planning: do not forget about VAT

Thursday, December 2, 2010

by Nick Ryan

For most businesses December brings the approach to the year end and consideration to whether there are opportunities to implement planning measures that will assist the overall standing of the business.
Often these planning measures can encompass restructuring and reorganisation measures which can include both the acquisition and disposal of assets, movable and immovable.
It is imperative that businesses ensure that the VAT issues for any proposal are fully considered to ensure that the correct treatment is applied, that there is clarity on the overall cost to the business for the proposal and that any VAT planning opportunities are considered.
Where reorganisation occurs consideration should be given to ensuring the VAT reporting and administrative requirements are adhered to. Where new divisions or business entities are formed consider the inter company invoicing and reporting requirements and ensure they are correctly applied. Also should VAT grouping be considered? If the reorganisation results in a downsizing in divisions and/or business entities then there is a need to ensure that the VAT accounting and reporting requirements are managed to reflect these changes and that any transfers of activities are mirrored in the VAT accounting procedures for the receiving entity.
For disposals, consideration as to whether the transfer of a going concern rules can be applied should be made and, in either situation the inclusion of appropriate and protective VAT clauses in the contract should be a given irrespective of whether the transaction is viewed as straightforward.
For acquisitions, a similar position to disposal should be taken though, where property is concerned, access to the historical documents supporting the VAT treatment to be applied should be a standard practice to ensure clarity of understanding and a mutual agreement on the VAT treatment to be applied is achieved.
For property transactions, we still need to take care in the application of old rules/new rules, the potential impact of the capital goods scheme and any detrimental impact in the future where an incorrect decision is made now. As stated earlier, the VAT accounting and reporting functions should be reflective of the changes made and the reporting requirements needed.
VAT reporting and administrative requirements need to be applied to ensure compliance obligations are met and this can often be the primary area missed as the finalisation of transactions are delayed by paperwork or in signing off accounts. Remember the tax point rules at all times.