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How Business Models Affect VAT Liability

July 2017

Your business model probably isn’t something you would think affects your VAT liability. And why would you? At first glance both things appear completely unrelated, however this could not be further from the truth.

By making yourself aware of your VAT obligations and how your business model impacts on them, you will be able to build yourself a business model that reduces the chance of receiving a nasty, unexpected tax bill.

But how exactly does your business model affect VAT liability? We’ve highlighted some of the key areas where it can:

Your Employees

The employment status of your employees can have a massive effect, as this determines who is accountable for VAT. This is particularly important to consider if you are starting up a new company, as establishing whether your employees will be classed as self-employed or employed will reduce the risk of building up liabilities which the taxman might want to revisit at a later time.

Where Your Stock Is

If you own a business which holds its stock overseas, it is imperative that you ascertain who is accountable for the amount of VAT due on the stock. This can vary depending on which country your stock is being held, as some countries hold customers accountable, whereas others hold the supplier.

Who You Supply

Who and where you sell to also needs to be considered. Whether you sell B2B or B2C and which country you’re selling to both dictate where the VAT is due, so keep this in mind when selling to different countries. Mixed or single supplies can also affect rates, however it’s best practice to get in contact with the relevant tax authority when transactions such as these take place, to rule out the risk of any fines or penalties.

Who Manages Transport

As you’ve probably guessed from reading the last two points, VAT becomes a lot less clear cut when it involves different countries, and this remains the case when transporting your goods. Understanding who is responsible for the goods when in transit is imperative, as the party who is responsible for the goods during this time is often where the VAT is due .

VAT can be costly and complicated business, so if you don’t know what you are doing, don’t be afraid to seek advice. It’s all too easy to make a mistake.

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