Monthly Archives: September 2018

VAT Import documents – delays with paperwork

By Marcus Ward 24 September 2018

We understand that HMRC is having difficulties after outsourcing the issuing of C79 forms.

What are C79s?

A C79 form is issued to businesses which import goods into the UK from countries outside the UK. It is used to reclaim VAT charged at the point of import. It is an important document because, unlike usual VAT claims, it is not sufficient to claim on an invoice from the supplier.

Impact

Technically, without a C79 form, the VAT on import cannot be claimed. So, a delay in issuing the documentation can have serious consequences for a business’ cashflow. It is possible to request a duplicate form, but the department which deals with these has been overwhelmed with applications and does not appear to be able to help in a timely manner. It looks like taxpayers will have to be patient and tolerate yet another HMRC “problem”. With a very long overdue move to electronic import documentation businesses may be in a better position, but, in the future…

Compare this with the implementation of MTD where something which benefits HMRC and will cause grief to taxpayers has been pushed ahead with despite the difficulties.

Brexit

Of course, early next year, we may be looking at the requirement of C79s for goods “imported” from other EU Member States, which does beg the question; if HMRC cannot cope now, how will it when the number of forms increases significantly? I strongly suspect delays at borders (for many, various reasons), delays with documentation (whether it be electronic or good old dead trees) and delays with any system operated by any of the UK authorities with responsibility, in capacity, for cross-border movement of goods and people.

Good luck everybody…

The EU VAT GAP 2018

By Marcus Ward 24 September 2018

VAT GAP Report 2018: EU Member States still losing almost €150 billion in revenues according to new figures.

What is the tax gap?

The VAT gap is the difference between the amount of VAT that should, in theory, be collected by EU authorities, against what is actually collected. The ‘VAT total theoretical liability’ (VTTL) represents the VAT that should be paid if all businesses complied with both the letter of the law and the EU bodies’ interpretation of the intention of the lawmakers (commonly referred to as the spirit of the law).

In nominal terms, the VAT Gap decreased by €10.5 billion to €147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before. The individual performance of the Member States still varies significantly.

The VAT Gap decreased in 22 Member States with Bulgaria, Latvia, Cyprus, and the Netherlands displaying strong performances, with a decrease in each case of more than 5% in VAT losses. However, the VAT Gap did increase in six Member States: Romania, Finland, the UK, Ireland, Estonia, and France.

VAT MOSS – Changes to digital services 2019

By Marcus Ward 14 September 2018

HMRC has announced new measures affecting digital services

An introduction to the Mini One Stop Shop (MOSS) here

The measures make two changes to the rules for businesses making sales of digital services to consumers across the EU. They will:

Introduce a (sterling equivalent) €10,000 threshold for total supplies to the EU in a year of sales of digital services. This change means that businesses will only be subject to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) falls below this threshold. If the businesses total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT. Businesses can continue to apply the current rules if they so choose.
Allow non-EU businesses, which are registered for VAT for other purposes, to use the MOSS scheme to account for VAT on sales of digital services to consumers in EU Member States. This group are currently excluded from using MOSS.

Operative date

The measure will have effect from 1 January 2019.

Current law

Introduction of a threshold – current law is contained in Schedule 4A, para 15(1) of the VAT Act 1994.

Inclusion of Non-Established Persons in MOSS – current law is contained in Section 3A of the VAT Act 1994 and in Schedule 3B of the VAT Act 1994.

Please contact us should you have any queries.

VAT DIY Housebuilders’ Scheme Top 10 Tips

By Marcus Ward 14 September 2018

If you build your own home, there is a scheme available which permits you to recover certain VAT incurred on the construction. This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim. As always with VAT, there are traps and deadlines, so here I have set out the Top Ten Tips.

An in-depth article on the DIY Housebuilders’ Scheme here

The following are bullet points to bear in mind if you are building your own house, or advising someone who is:

Understand HMRC definitions early in your planning

Budgeting plays an important part in any building project. Whether VAT you incur may be reclaimed is an important element. In order to establish this, it is essential that your plans meet the definitions for ‘new residential dwelling’ or ‘qualifying conversion’. This will help ensure that your planning application provides the best position for a successful claim. One point to bear in mind, and which I have found often produces difficulties, is the requirement for the development to be capable of separate (from an existing property) disposal.

Do I have to live in the property when complete?

You are permitted to build the property for another relative to live in. The key point is that it will become someone’s home and not sold or rented to a third party. Therefore, you can complete the build and obtain invoices in your name, even if the property is for your elderly mother to live in. However, it is not usually possible to claim on a granny annexe built in your garden (as above, they are usually not capable of being disposed of independently to the house).

Contractors

Despite the name of the scheme, you are able to use contractors to undertake the work for you. The only difference here will be the VAT rate on their services will vary depending on the nature of the works and materials provided.

What can you claim?

A valid claim can be made on any building materials you purchase and use on the build project. Also, services of conversion charged at the reduced rate can be recovered. However, input tax on professional services such as architect’s fees cannot be recovered.

Get the VAT rate right

It is crucial to receive goods and services at the correct rate of VAT. Services provided on a new construction of a new dwelling will qualify for the zero rate, whereas the reduced rate of 5% will apply for qualifying conversions. If your contractor has charged you 20% where the reduced rate should have been applied, HMRC refuse to refund the VAT and will advise you go back to your supplier to get the error corrected. This is sometimes a problem if your contractor has gone ‘bust’ in the meantime or becomes belligerent. Best to agree the correct VAT treatment up front.

Aid your cash flow

If you wish to purchase goods yourself, it will be beneficial to ask your contractor to buy the goods and combine the value of these with his services of construction. I this way, standard rated goods become zero rated in a new build. If you incur the VAT on goods, you will have to wait until the end of the project to claim it from HMRC.

Claim on time

The claim form must be submitted within three months of completion of the build, usually this is when the certificate of practical completion is issued, or the building is inhabited. although it can be earlier if the certificate is delayed.

Use the right form

HMRC publish the forms on their website

Using the correct forms will help avoid delays and errors.

Send everything Recorded Delivery

You are required to send original invoices with the claim. Therefore, take copies of all documents and send the claim by recorded delivery. Unfortunately, experience insists that documents are lost…

Seek Advice

If you are in any doubt, please contact me. Mistakes can be costly, and you only get one chance to make the claim. Oh, and don’t forget that this is VAT, so any errors in a claim may be liable to penalties.

VAT – No more compensation for delayed refunds?

By Marcus Ward 7 September 2018

HMRC has announced its intention to do away with the 5% repayment supplement payable when it repays VAT late; it is not good news and I am quite cross.

Background

What is the repayment supplement?

Repayment supplement is a form of compensation paid in certain circumstances when HMRC does not authorise payment of a legitimate VAT claim within 30 days of receipt of the VAT Return.

If a business submits a repayment return and HMRC does not make the repayment within 30 days, it is required to add interest at 5% to the amount of the claim. A repayment claim arises when input tax is greater than output tax for a period. This may be due to many factors, such as; sales being VAT free, a large VAT bearing purchase or an adjustment to previous declarations. The 30 day period is paused for “the raising and answering of any reasonable inquiry relating to the requisite return or claim” by HMRC.

Additionally, HMRC may make an extra ex-gratia payment to make good any serious disadvantage suffered if a repayment is delayed to an exceptional extent, and the repayment supplement is less than the interest which might otherwise have been earned.

The proposal

In a consultation on draft legislation for Finance Bill 2018-19 the government has announced that it intends to replace the 5% supplement with payment of simple interest. This currently stands at 0.5% pa and therefore a substantially lower payment would be due to a taxpayer.

Technical

The relevant legislation covering the repayment supplement is contained in The VAT Act 1994 Section 79

Commentary

The entire point of the supplement is to focus HMRC’s mind on making the payment at the appropriate time, just as the default surcharge does for submitting a VAT return and paying VAT for a business. This is fair. To withdraw the repayment supplement does away with any incentive for HMRC to make repayments on time and this must represent an imbalance. To effectively withhold money from a business to which it is properly entitled is plain wrong. It can often significantly impact on cashflow and cause serious problems for a business.

It is quite often a fight to obtain a repayment supplement and in my personal experience HMRC do as much as possible to resist making these payments. It is no surprise that they are trying to wriggle out of their responsibility.

Let us hope that representations to HMRC against this plan are successful.

Right, I’m going to cool off…

VAT – When is chocolate not chocolate (and when is it)?

By Marcus Ward 4 September 2018

Latest from the courts

In the First Tier Tribunal (FTT) case of Kinnerton Confectionery Ltd the issue was whether a product could be zero rated as a cooking ingredient, or treated as standard rated confectionary (a “traditional” bar of chocolate.)

Background

The product in question was an allergen free “Luxury Dark Chocolate” bar. It was argued by the appellant that it was sold as a cooking ingredient and consequently was zero rated via The Value Added Tax Act 1994, section 30(2) Schedule 8. HMRC decided that it was confectionary, notwithstanding that it could be used as a cooking ingredient.

Decision

The judge stated that what was crucial was how the chocolate bar was held out for sale. In deciding that the chocolate bar was confectionary the following facts were persuasive:

the Bar was held out for sale in supermarkets alongside other confectionery items and not alongside baking products
it was sometimes sold together with an Easter egg as a single item of confectionery
although the front of the wrapper included the words “delicious for cakes and desserts”, it contained no explicit statement that the Bar was “cooking chocolate” or “for cooking”
the back of the wrapper made no reference to cooking. It also stated that the portion size was one-quarter of a bar. Portion sizes are indicative of confectionery, not cooking chocolate
Kinnerton’s website positioned the Bar next to confectionery items, and did not say that it was cooking chocolate, or that it could be used for cooking
neither the wrapper nor Kinnerton’s website contained any recipes, or any indication of where recipes could be found
the Kinnerton brand is known for its confectionery, not for its baking products. All other items sold by Kinnerton are confectionery, and the brand is reflected in the company’s name
the single advertisement provided as evidence positioned the Bar next to confectionery Items, and did not say that the Bar was “cooking chocolate”; instead it made the more limited statement that it was “ideal for cooking”
consumers generally saw the Bar as eating chocolate which could also be used for cooking

Commentary

Clearly, the FTT decided that consumers would view the chocolate bar as… a chocolate bar, so the outcome was hardly surprising. This case demonstrates the importance of packaging and advertising on the VAT liability of goods. Care should be taken with any new product and it is usually worthwhile reviewing existing products. This is specifically applicable to food products as the legislation is muddled and confusing as a result of previous case law. This extends to products such as pet food/animal feedstuffs which while containing identical contents have different VAT treatment solely dependent on how they are held out for sale. And we won’t even mention Jaffa Cakes (oops, too late).

VAT – Catering at a university campus; exempt?

By Marcus Ward 3 September 2018

Latest from the courts

In the First Tier Tribunal (FTT) case of Olive Garden Catering Company Ltd (OGC) the mian issue was whether catering which was provided to the University of Aberdeen (UOA) students was an exempt supply. The specific issue was whether the catering was a supply “closely connected to education” which in turn depended on which entity was actually making the supply to students. For exemption to apply, OGC would need to be a principal in purchasing the food and other goods and an agent of UOA (pictured above) in delivering the catering (the exemption could not apply to a supply by OGC to the students).

Background

The central issue was whether the supply of food and staff by the appellant to UOA was a single supply of catering services at the standard-rate for VAT purposes (HMRC’s case) or that the main supply was for food at the zero-rate, with the supply of staff being a separate supply and eligible for staff wages concession which was the appellant’s stance. I comment that the procurement as principal and the delivery of catering as agent is common practice in the education sector and this case focussed on whether the relevant documentation actually reflected the economic reality.

Decision

The HMRC internal VAT manual VTAXPER64300 sets out the general principles for determining the VAT treatment of supplies made under a catering contract, which in turn depend in some situations on the capacity in which the caterer supplies its service, whether as principal or agent in the agreement. Of relevance in this case were the following statements:

(1) In general, it has been established practice that agency contracts are most often used in the education sector.

(2) Under agency contracts for the provision of catering it is accepted that:

The client makes a taxable supply of catering to the consumer, or the catering is subsumed within an overall exempt supply, eg; of education
VAT is not charged to the client on wages of the catering staff employed at the unit
VAT is charged on any management fee plus taxable stock and other services
Schools may only exempt supplies which are closely related to the overall provision of education

(3) This contributes to fair competition with in-house providers, and the contract catering industry acknowledges the value of that.

In respect of the contract for the supply of catering services, UOA was the principal and OGC was the agent by reference to the control exercised over; menu specifications, pricing, and the premises in which catering was carried out. The relevant contracts set out that the terms were set by UOA and were indicative of its status as the principal in the catering contract. The judge stated that the catering contracts between UOA and OGC appeared to be an agency contract with OGC acting as the agent. Consequently, the food produced OGC and served by its staff at UOA’s halls of residence was potentially a supply of food in the course of catering that can be subsumed within the overall exempt supply of education by UOA.

Commentary

A win for the appellant, but only after comprehensive consideration of all points and the substantial detailed documentation by the judge. There has been a run of Tribunal cases on the agent/principal point (not just in education and which I have covered in previous articles) and this case serves to demonstrate that each case will be determined on its merits. There can be no blanket VAT treatment and certain factors will point one way and others to a different VAT treatment. In my experience, HMRC are always eager to challenge agent/principal treatment and it is an area which has an enormous tax impact on a business. I always recommend that any contracts/documentation which cover potential agent/principal issues are reviewed to avoid unwanted attention from HMRC. Slight adjustments to agreements often assist in reaching the desired tax treatment. Don’t leave it to chance!