Refund cancellation CMA

Sarah Lepak BHTAAs the industry enters December, there is nothing like an in-depth look at Value Added Tax (VAT) to get people into the festive spirit.

While VAT may well be the last thing on business owners’ minds as they tuck into a mince pie, getting it wrong could result in a visit from the taxman, rather than Santa, this Christmas.

In the wake of Black Friday, when companies used the shopping day to promote low prices in a bid to boost sales and turn inventory, now seems like a good time to talk about VAT.

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For many retailers in the sector, understanding when to sell a product without VAT can be confusing. Unfortunately, that confusion can also lead to companies finding themselves in hot water with HM Revenues & Customs (HMRC) if it has been applied incorrectly.

Sarah Lepak, Head of Policy and Compliance at the British Healthcare Trades Association (BHTA), shares her expertise to ensure mobility retailers avoid finding themselves on the HRMC’s ‘naughty’ list this Christmas and beyond.

THIIS: When can a retailer sell a product as VAT exempt?

Sarah: “There are a number of myths around this topic, so let’s start by dispelling one: It’s not VAT exemption! When you sell a product to a customer without charging VAT, you are providing “VAT relief for disabled persons” – an action also known as zero-rating because what you are doing is applying 0 per cent VAT.

“You can only do this when the product is for someone who is disabled or has a long-term condition, and it is for his or her own personal use.

“The product also has to be eligible, as it has to be “designed solely for use by disabled persons”.  You must never assume that everything you sell qualifies.”

THIIS: What is the process for zero-rating products? Does the HMRC need to be informed or notified in a particular way regarding these purchases?

Sarah: “No, you do not have to inform HMRC but your customer must make a declaration which you keep with your VAT records.  HMRC will look at the declarations if they carry out an inspection.”

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Keeping accurate and up to date records is essential if HMRC carries out an inspection

THIIS: Does a retailer have to provide proof of an individual’s disability?

Sarah: “No, but you must have their declaration, which requires them to state what their disability or long-term condition is.

“The government has published a template which you can use:

“You must not sell a product without VAT if it is for short-term use. For example, someone might buy a manual wheelchair because they cannot cope with crutches whilst they are recovering from a broken leg but it is a short-term problem so they must pay the full VAT.”

THIIS: Are there GDPR implications for the information retailers collect about an individual’s illness or disability?

Sarah: “You should state in your privacy policy that you have to keep VAT relief declarations for at least six years to meet legal requirements.”

THIIS: Are there any particular rules regarding how zero-rated VAT products are advertised in shops and online? Do both VAT and non-VAT prices have to be displayed?

Sarah: “Yes, you have to provide the price both with and without VAT, as some of your customers may have to pay the full VAT and must know what the total is before they reach the till or check out.”

THIIS: Which assistive technologies are commonly sold as VAT-free that are not eligible?

Sarah: “The key here is that the item must have been designed solely for use by someone with a disability or long-term condition, or must be designed solely for use in or with such an item.

“For example, the batteries used for most mobility products can be used for other purposes as well.  They do not meet the “designed solely” stipulation so if you are simply selling someone a battery you should always charge full VAT.

“Anything designed for use by both disabled and able-bodied people will not be eligible and this means it is not always obvious whether some of the aids for daily living are eligible.

“A can opener, for example, which is actually useful for anyone lacking in hand strength, is unlikely to qualify. However, cutlery designed and shaped in a way which makes it unlikely an able-bodied person would use it will probably be eligible.”

THIIS: Which assistive technologies are commonly eligible to be zero-rated?

Sarah: “Wheelchairs are always eligible, as are class 2 pavement scooters and items like rollators (providing of course that the person buying has a disability or long-term condition).

“Riser-recliner chairs with a lift and tilt function are eligible but recliner chairs without that function are not.”

THIIS: Are there any grey areas that retailers have to navigate?

Sarah: “I mentioned above that when you simply supply a battery to a disabled person, you will need to charge the VAT.  In theory, however, if the battery is supplied as part of a wider service of repair and maintenance, it can be zero-rated.  You would need to make sure your records show it was supplied in that context or HMRC would expect to see full VAT applied.

“Class 3 mobility scooters are normally intended or adapted for use on the road (tipping them into primarily being regarded as a type of vehicle), so in that context they do not qualify for the purpose of VAT relief.  However, you can zero-rate a class 3 mobility scooter that is designed solely for use by disabled persons. Only the manufacturer can confirm the design intent.”

THIIS: What happens if a retailer is caught selling a product zero-rated which is found to be ineligible?

Sarah: “If HMRC carries out an inspection and decides you have incorrectly zero-rated, they will issue you with a demand for the VAT and they can go back a number of years.

“This can add up to a lot of money.”

THIIS: What is the BHTA’s advice to companies if they are unsure if a product can be zero-rated or not?

“You should always ask the manufacturer whether the product qualifies for zero-rating:  Has it been designed solely for use by disabled persons? HMRC will expect you to be able to show them evidence to support your decision.

“The mantra should always be: If you are in any doubt, it is always safer to charge the full VAT.”

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