Today's Guardian alleges that Lord Ashcroft used one of his companies in Belize to pay for a massive opinion poll in the UK andavoided paying VAT in the process.
The ploy used by Ashcroft (invoice to company/person based abroad so as to be classified as an export of services and attract zero rate VAT) actually makes no real commercial sense IF he had a legitimate business in the UK carrying on normal copommercial activities.
Let me explain, if a UK-based company (and registered for VAT in the normal way) had commissioned the survey, the invoice(s) would have been sent to them by Populus/YouGov and would have had VAT added to the bill (lets say £250,000 +15% Vat = +/- £37,500 VAT).
The £37,500 would have been classified as input tax and be able to be offset against any sales made by the registered company which would have attracted VAT in the normal manner (also known as output tax). The difference between the two wouold be the net VAT payable or repayable by C&E.
So, purchase costs of 400,000 + 70,000 VAT Sales of 600,000 + 105,000 VAT
VAT return would state 1005,000 -70,000 = 35,000 payable to C&E.
Now the interesting bit, even if the company was not doing too well and was trading at a loss, the company would still be able to claim VAT back on its purchases and be eligible for a refund of VAT
i.e. purchase costs of 400,000 + 70,000 VAT, sales of 200,000 + 35,000 VAT = £35,000 repayable by C&E.
Hence why 'export' the transaction when you can claim it back? Unless, UK-based company controlled by Ashcroft was not engaging in normal commercial activities relating to the polling.
OR, that the UK based company (ies) controlled by Ashcroft were engaged in what could be VAT-exempt activities (such as finance etc) and therefore would not have been able to claim the VAT back. Even then, a lot of companies that engage in VAT exempt activity structure their tax affairs so that they can claim VAT back on their purchases/running costs etc
There is a lot more to this than meets the eye.
Let me explain, if a UK-based company (and registered for VAT in the normal way) had commissioned the survey, the invoice(s) would have been sent to them by Populus/YouGov and would have had VAT added to the bill (lets say £250,000 +15% Vat = +/- £37,500 VAT).
The £37,500 would have been classified as input tax and be able to be offset against any sales made by the registered company which would have attracted VAT in the normal manner (also known as output tax). The difference between the two wouold be the net VAT payable or repayable by C&E.
So, purchase costs of 400,000 + 70,000 VAT Sales of 600,000 + 105,000 VAT
VAT return would state 1005,000 -70,000 = 35,000 payable to C&E.
Now the interesting bit, even if the company was not doing too well and was trading at a loss, the company would still be able to claim VAT back on its purchases and be eligible for a refund of VAT
i.e. purchase costs of 400,000 + 70,000 VAT, sales of 200,000 + 35,000 VAT = £35,000 repayable by C&E.
Hence why 'export' the transaction when you can claim it back? Unless, UK-based company controlled by Ashcroft was not engaging in normal commercial activities relating to the polling.
OR, that the UK based company (ies) controlled by Ashcroft were engaged in what could be VAT-exempt activities (such as finance etc) and therefore would not have been able to claim the VAT back. Even then, a lot of companies that engage in VAT exempt activity structure their tax affairs so that they can claim VAT back on their purchases/running costs etc
There is a lot more to this than meets the eye.
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