There is no doubt that VAT can be an over-complicated tax.

There have always been calls to simplify it – however, until the day that these calls are effectively implemented, there is one piece of advice that businesses should always take heed of:

“VAT advice always should be sought in advance of a transaction actually being made.” 

In fact, ideally the advice should be sought some time ahead of the transaction so that sufficient effort can be made to ensure the most beneficial VAT treatment possible can be applied.

Too often a business will consider VAT at the very last stages of a transaction or even after the event.

This can be fatal in respect of large value transactions or those where a great deal of expenditure has been incurred in respect of a transaction.

These comments are therefore most pertinent to property developers, or business looking to sell their premises.

VAT can sometimes simply delay or even derail a transaction.

For example, if VAT is considered late then the advisors of a business purchasing a building may ask to see the vendor’s ‘Acknowledgment’ of its decision to charge VAT.

They might refuse to pay the VAT until they have sight of this document, and in our experience – this could cause all sorts of problems for the vendor who (if they cannot find the relevant documentation) might be forced to rely on action from HMRC, which might take several weeks or months to be actioned.

However, a lack of proactive VAT advice may mean that a business is either condemned to charge VAT on a transaction unnecessarily or even repay significant amounts of VAT that it had previously claimed.

This can happen in instances where say the concepts of ‘Transfer of a Going Concern’ or ‘Capital Goods Scheme’ or other VAT issues have not been considered in advance.

VAT is complex, but it can be effectively dealt with if advice is sought early.

It is understandable that a business may not want to incur professional fees – however, if the work is incurred prior to a transaction happening then the fees incurred can provide value to the business by giving it flexibility in the way VAT is dealt with.

If the matter is dealt with after a transaction has already happened, then it is possible that significant advice will still be required in order to ensure that the VAT rules have been complied with, but it is more likely that the actual VAT treatment will be set in stone.

In other words in VAT terms – it is always better to consider a future which it might be possible to change than a past where the VAT treatment is absolutely certain.

For more information on VAT consultancy, contact our VAT team.