Protein drinks are standard rated (they are not “food”) although they “deliver nutrition” to consumers and are derived from milk, which is itself zero rated.
Monthly Archives: February 2022
VAT: Late payment and repayment interest rates
The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:
- Late payment interest rate — 3.0% from 21 February 2022
- Repayment interest rate — 0.5% from 29 September 2009
Interest rates for all other taxes here.
Details of default surcharge here.
VAT: Fulfilment House Due Diligence Scheme registered businesses list
HMRC has issued updated guidance for businesses which need to check whether an entity which stores goods in the UK on its behalf is registered with the Fulfilment House Due Diligence Scheme (FHDDS).
The published list is alphabetical order by company name.
The list should be used if you are a business that is not established in the EU to see if the business that stores your goods in the UK is registered with the FHDDS.
If your business is outsourcing or considering outsourcing its fulfilment operations, then the fulfilment house you are using or intending to use of must be legally accredited by HMRC to do so.
Businesses that must be registered
Businesses are required to be registered if it stores any goods where all of the following apply:
- the goods were imported from a country outside the EU
- the goods are owned by, or stored on behalf of, someone established outside the EU
- the goods are being offered for sale and have not been sold in the UK before
It is illegal to operate outside of the scheme and any fulfilment company found doing so will be prevented operating a fulfilment business and may be subject to a £10,000 penalty and a criminal conviction.
VAT: Is dog grooming taught in schools? The Dogs Delight case
Latest from the courts
In the Julie Lalou t/a Dogs Delight First Tier Tribunal (FTT) case the issue was whether the teaching of dog grooming qualified as private tuition and was therefore exempt.
Background
The Appellant operated a business providing dog grooming and dog grooming courses. The appeal was concerned only with the supplies of dog grooming tuition as it was accepted that dog grooming in itself is taxable.
Technical
The sole issue in dispute in this appeal was whether the supplies fall within the private tuition exemption as for provided by The Value Added Tax Act 1994, Schedule 9, Group 6, item 2 “The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer”.
HMRC’s view was that “to be eligible for exemption dog grooming would need to be a course that is ‘ordinarily’ taught in schools and universities which it is not…”
The appellant wrote to HMRC giving a list of seven “local Colleges and Universities where the Level 3 Dog Grooming Diploma is ordinarily taught”. The appellant went on to state “There are many more within the UK” which were said to represent around 30% of English colleges. Further it was stated that the business was a City & Guilds approved centre and that the courses were not recreational.
Decision
It was accepted that the courses that the appellant taught involved her making supplies of tuition in that she transferred to her students skills and knowledge.
But, unsurprisingly, the appeal was dismissed. The appellant had failed to demonstrate that dog grooming is taught at a wide number of schools and universities
The court also determined that the appellant needed to provide some evidence of whether dog grooming was taught at schools and universities in the EU (again, something she had failed to do).
Commentary
The exemption for private tuition is fraught with complexities and the amount of case law on the subject is significant, which indicates the difficulties in analysing the VAT position. An example here. It is important to establish what is being provided and that research is carried out to consider the degree of ubiquity of the subject in education. A general guide to education here. The phrase “ordinarily taught” is rather nebulous and it would be prudent to obtain as much evidence as possible that a subject is s commonly or ordinarily taught in schools and universities if a supply is treated as exempt.
VAT: Car boot sale pitches are exempt – The Rufforth Park case
Latest from the courts
In the Rufforth Park Limited (RPL) First Tier Tribunal (FTT) case the issue was whether pitches for car boot and auto jumble sales were subject to VAT or were they a simple licence to occupy land and exempt?
Background
The appellant has been running car boot sales at Rufforth Park for the more than forty years. When RPL began the car boot sales, the VAT office was asked to confirm that it did not need to charge VAT on the fees for the pitches. It was told that it should charge VAT, and did so. After a number of years, RPL demonstrated to the VAT office that other businesses in a similar position were not charging VAT. HMRC then agreed and the VAT the company had paid was refunded with interest. The company has not charged VAT on the pitch fees since. After a routine inspection HMRC formed the view that there were a number of services that, together, formed a standard rated supply and assessed for VAT on that basis. RPL appealed against this decision.
Technical
HMRC concluded that the fees for the pitches should be standard rated because the supply of the pitches was provided with other goods and services which constituted a single overarching supply of a service, not merely the right to occupy land. The reasons were:
- Forty years of running car boot sales had built up a reputation which is a tangible benefit to stallholders. The reputation of regular events is part of the supply the stall holder receives.
- Advertising to bring buyers to the site for the benefit of stall holders is part of the supply.
- The amenities on site enable buyers better to enjoy their time at the car boot sale and are part of the supply.
- The sellers benefit from the amenities as well as the activities undertaken by RPL to attract buyers to the site to buy items from the sellers. Those activities include:
- advertising
- on site café
- toilets
- parking
- capital improvements to the site to make it more attractive to buyers
- provision of some pitches under cover
- cleaning the site after the events
- RPL had real and significant responsibilities to the sellers (although HMRC did not specify what they were)
This was said to show there was more to the supply than the exempt passive supply of land for a stall to sell items.
The appellant submitted that the supply in this case is a single supply of a pitch rental and one must look at all the circumstances in order to establish its nature. Regard must be had to the commercial and economic realities. The renting of a pitch in a car boot sale in the present case was a relatively passive activity linked to the passage of time and not generating any significant added value and so is VAT free.
Decision
The court found that that the nature of the supply provided in return for the pitch fees is a licence to occupy land within The VAT Act, Schedule 9, Group 1, Item 1 and accordingly the fees were exempt. The appeal was allowed.
Commentary
Yet another case demonstrating the uncertainty in this area. Superficially, there is little difference in the facts of this case to those in the Upper Tribunal (UT) case of Zombory-Moldovan (trading as Craft Carnival) which found that supplies of pitches at craft fairs were standard rated. However, the court found that this case could be distinguished on its facts. Which may be summarised as:
- there was no formal contract between RPL and its sellers
- it was not possible to book in advance
- there was no selection of sellers. Anyone who arrived and paid would get a space, allocated by RPL
- the advertising on the company’s website, local TV, and Facebook provided only basic information to both buyers and sellers about times and prices
- RPL had no obligation to put on the car boot sales or the auto jumbles. Sellers have no right to attend. If there was no sale, they would have no recompense.
- no tables, chairs or electricity were provided, even for an extra fee
- there was no provision of security
- the toilet and refreshment facilities were basic
- the Appellant had carried out such maintenance as is required but had not attempted to enhance the facilities
- whilst the car boot sales and auto jumbles might be efficiently run, they are simple events involving only the Appellant’s land and its employees and not requiring any particular organisational or management skills. Well run is not the same thing as “expertly organised and expertly run”.
It is important when considering these two decisions to establish precisely what is being supplied, as small differences in facts can affect the VAT treatment. The more “basic” the supply, the more likely that exemption will apply, but it is a question of small degrees of difference.
VAT: Latest on early termination and compensation payments
HMRC has published a new Revenue and Customs Brief 2(2022) which replaces Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments.
It introduces a revised policy on early termination payments and compensation fees. Following representations from industry the Brief issued in September 2020 was suspended in January 2021. HMRC has reviewed the policy in the light of those representations and is adopting a revised policy which will take effect from 1 April 2022. The new policy will result in fewer early termination payments being subject to VAT than in the 2020 guidance.
The new Brief also advises businesses that adopted the treatment outlined in Brief 12 (2020) on what action they should now take.
Background
Whether a payment is for a VAT supply depends on whether anything is being done in return for a consideration. Where a party agrees to do something in return for a fee there is a supply. How that fee is described does not affect whether there is a supply for VAT. What matters is whether something is done and if there is a direct link between what is done and the payment received, and reciprocity between the supplier and the customer (see VATSC05100).
Previous HMRC guidance stated that when customers are charged to withdraw from agreements to receive goods or services, these charges were not generally for a supply and were outside the scope of VAT.
Following the Court of Justice of the European Union (CJEU) judgments in Meo (C-295/17) and most recently in Vodafone Portugal (C-43/19), it is evident that some of these charges are additional consideration for the supply of goods or services. Most early termination fees and some cancellation fees are therefore liable for VAT if the goods or services for which the fees have been paid are liable for VAT, even if they are described as compensation or damages.
The main impact of the revised policy is that fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply. For example, if a customer is charged a fee for exiting a mobile phone contract early, or if they terminate a car hire contract early, it will be liable for VAT.
The new guidance can be found at VATSC05910, VATSC05920 and VATSC05930.
VAT: Bad Debt Relief. The Regency Factors case
Latest from the courts
In the Regency Factors plc Court Of Appeal (CoA) case the issue was the validity of the appellant’s claim for Bad Debt Relief (BDR) on amounts it had not received after the issue of an invoice.
Technical
BDR is a mechanism which goes some way to protect a business from payment defaulters. Under the normal rules of VAT, a supplier is required to account for output tax, even if the supply has not been paid for (however, the use of cash accounting or certain retail schemes removes the problem of VAT on bad debts from the supplier). The specific relief for unpaid VAT is via the BDR scheme.
A guide to BDR here.
Commentary on the Upper Tribunal (UT) hearing in this case here.
Background
In the CoA case the issue was whether the appellant met the conditions in The VAT General Regulations 1995, Reg 168 for claiming BDR via The VAT Act 1994, section 36.
Regency provided a factoring service to its clients for which it is paid a fee. VAT invoices for those fees were issued to clients when the invoices which are being factored are assigned to Regency for collection.
Regency appealed against a decision of the Upper Tribunal (UT) which dismissed Regency’s appeal against VAT assessments made by HMRC to withdraw BDR which Regency had claimed in its VAT returns.
The UT held that the BDR claim was not valid because
- there was no bad debt; and
- Regency had failed to comply with the procedural requirements for the making of a claim.
Regency appealed against the decision of the UT on the second point.
Decision
The CoA decided that as Regency’s record keeping was insufficient to support a BDR claim. Specifically, although it did keep the records required by Regulation 168 (2), it did not keep a single VAT BDR account which is required by Regulation 168 (3). The ruling commented that this requirement was a legitimate feature of the scheme as it enables an inspector to check the claim easily. It is not acceptable for a claimant to simply have a pile of unsorted documents which may, or may not, evidence a valid claim.
The court also said that it was possible for HMRC to allow a discretionary claim (clearly, they did not use that discretion in this case) and that the legal requirement was not a barrier to Regency making a proper BDR claim. The appeal was dismissed.
“In short, Regency had the opportunity to prove its claim for bad debt relief in the FTT… but it failed to do so. It is not entitled to a second opportunity”.
Commentary
As always with VAT, accurate record-keeping is essential. As the tax is transaction based, it is vital to keep comprehensive evidence of those transactions and associated payments. Failure to do so may result in:
- assessments and penalties
- give HMRC the opportunity to refuse otherwise legitimate input tax recovery
- refuse other VAT claims (in this case BDR).
- confusion and uncertainty which often creates costs in time and other resources, and extended relations with HMRC, which is in no business’ interest.
If Regency had taken “one step further” with its record keeping, BDR would have been paid by HMRC.