English - UK	English-Overseas	Brain Teasers
Français	What I need is...	Links
Deutsch	newsletter	email us

Commercial Angles' Newsletter - January 2002

Developing matters to watch out for

VAT on employees' expenses

The European Court of Justice has now delivered its verdict on the case reported in the October 2001 newsletter. As expected The Netherlands was found to have failed to fulfil its obligations by incorrectly allowing employers to recover input VAT on expenses incurred by employees. HM Customs & Excise are reviewing the judgement as it is very probable that the principles behind the judgement will apply in UK. The essence of the judgement is contained in the following extract:

"The Court of Justice recalled first of all that the Member States do not have any discretion as regards the extent of the right to deduct: the right applies only in respect of VAT paid on goods and services supplied to one taxable person by another taxable person.

An employee acting for his employer cannot have the status of taxable person, even where he uses his own vehicle for the purposes of the business."

Therefore a company may only claim input VAT if it possesses an invoice addressed to the company showing the amount of VAT input tax. If an employee pays the bill, the chain of the supply is broken and the company may not deduct the input VAT suffered by its employee. This could cost UK business £millions per year. Various strategies are available to minimise the impact of the ruling - e.g. opening more supplier accounts which employees are authorised to use whilst on business, issuing company credit or purchasing cards to employees on business trips, insisting that suppliers issue invoices addressed to the company and not to the employee incurring the expense. Internal procedures must be changed as soon as HM Customs & Excise issue a statement about the judgement.

Audits and Independant Professional Reviews

At present companies with a turnover below £1 million p.a. are exempt from the requirement to have their statutory accounts audited. Stephen Byers, when he was at DTI had announced that he was about to increase the audit exemption threshold for UK private limited companies from £1 million perhaps up to the maximum level permitted by EU of £4.8 million. However the events of 11 September and the subsequent need to improve terrorist finances surveillance may be the reason that the Chancellor's pre-budget speech in November contained no reference to increasing the audit exemption threshold. The Auditing Practices Board (APB) has been conducting tests on a lighter touch Independent Professional Review (IPR) that may take over from the audit for companies with a turnover below £4.8 million. The APB tests showed that IPR saved companies an average 27% of the cost when the IPR also included preparation of annual accounts. The savings increased to to 61% where only an IPR was performed. Perhaps the full budget in March will contain details of changes to audit threholds.

Future residual values of diesel cars

The April 2002 change in the taxation of company vehicles is having a big effect on the type of vehicles purchased for company fleets. The number of diesel cars registered in October 2001 was 60% higher than in October 2000. When these vehicles are sold in three years' time there is a growing worry that the used car market will not be able to absorb the greater number of diesel cars. Therefore fleet managers are worried that the residual value of diesel cars will plummet and give rise to an increase in whole-life costs for diesel vehicles. However many managers are more sanguine about the ability of the used car market to adjust to a larger number of diesel vehicles. Extending the retention period of diesel cars may be one option for bringing the bulge of used diesel cars to market more gradually.

Cost increases for importers and exporters

Importers

Customs and Excise has introduced ten new X-ray scanners for inspecting containers. The scanning is an attempt to reduce smuggling of tobacco products into the country. Although scanning a container takes only a minute or so, the introduction of the scanning procedure is leading to clearance delays of up to two days. When a container is selected for scanning, it must be transported to designated areas for inspection and it is this which gives rise to the delays. Also the charge for scanning a container is passed by the port of entry onto the importer. The scanning charge is £20 to £35 per container and allowance must be made for this charge when preparing costings. Since their introduction the scanners have already paid for themselves by uncovering 150 million cigarettes, 2 tonnes of cannabis, 5 tonnes of hand-rolling tobacco and 100 illegal immigrants.
Exporters

The New Export System (NES), the electronic processing of exports mentioned in our July 2001 newsletter, appears to be running into problems. For ordinary exporters, the problems seem to be one of costs charged by freight forwarders. Many freight forwarders say they will be charging as much for an export clearance under NES as for an import clearance and this means a big increase in costs for exporters. To protect yourself from this cost increase you may need to discuss the matter of costs with your forwarders.

Articles from previous newsletters