Background

The VAT Team was recently engaged by a full-service accountancy firm to give the VAT department the capacity to support the firm’s audit function. Being a full-service accountancy firm, priding themselves on their proactive service, they needed additional specialist VAT capacity to review the VAT affairs of some of their more complex clients.

The VAT Team was able to support the in-house VAT provision, by working directly with the audit partners to identify potential clients that would benefit from a VAT specialist review of the VAT section of the audit documentation.

VAT dilemma

There are a number of time sensitive opportunities resulting from some temporary “pandemic cost easing” measures brought in by the government over the past two years to lessen the devastating impact of the pandemic on businesses.

Unfortunately, many opportunities are being missed for clients due to a significant number of firms without proper VAT specialist capacity to both identify and advise on these opening the door for specialist VAT consultancy firms to undertake advisory projects that hold high client satisfaction potential and will ultimately undermine the Firm’s “full-service” reputation.

For those firms that do have a larger VAT team, this represents a fantastic business development opportunity for them not only to engage the client on the VAT work but also gain a foot in the door for other services by demonstrating a more proactive approach.

In this particular case the client, who was partially exempt, had completed a major renovation of one of their buildings and as a result had a capital goods scheme item. The business in question received exempt income which was largely unaffected by the pandemic but suffered a significant loss of taxable income due to lack of events going on in the building and the closing of the bar housed within. This resulted in a loss of input tax recovery for the business for the affected years as well as a costly VAT bill owed to HMRC as a result of the capital good scheme adjustment required due to the decrease in taxable income since the start of the pandemic.

The solution

Upon reviewing VAT calculations as part of the audit VAT work and learning about the client’s income streams, we were able to identify that the client was a perfect candidate for a temporary “covid special partial exemption method” in which pre pandemic income levels could be used for the VAT recovery calculation.

We were able to work through the options available to the client and correspond with HMRC on the client’s behalf to obtain agreement from HMRC for use of a temporary partial exemption method. This resulted in the client obtaining a refund of the previous year’s restricted VAT recovery under partial exemption and capital goods scheme adjustment payment. In addition, the client is now benefiting from the use of the method, which allows a greater recovery of VAT and no significant payment of VAT under the capital goods scheme in the current year.

The result

By identifying the potential during the audit and before another firm contacted the client, The VAT Team protected the firm’s reputation as a proactive auditor, increased client fees income for the firm and increased client satisfaction. It also guarded against client defection to another firm and any potential threat of litigation for not identifying that the client would be suitable for using the scheme and obtaining a significant VAT refund.

If you would like to explore how you and your clients could benefit from using The VAT Team’s specialist white labelled VAT support, please contact us.