HMRC has issued two new documents which provide practical guidance for users of the One Stop Shop (OSS).
They cover how to pay the VAT due on an OSS return and how to use the service to submit an OSS VAT return if a business is registered for the OSS Union Scheme. A link has been added to allow a business to submit a OSS return directly.
HMRC has published details of the tax gap for 2019/20. This is the gap between the expected tax that should be paid to HMRC and what is actually paid. The headline was that the tax gap was 5.3%. which represents an estimated £35 billion.
Total tax liabilities for the year were £674 billion.
What is the tax gap?
The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.
Why is it measured?
The tax gap provides tool for understanding the relative size and nature of non-compliance. This understanding can be applied in many different ways:
Why is there a tax gap?
The tax gap arises for a number of reasons. Some taxpayers make simple errors in calculating the tax that they owe, despite their best efforts, while others don’t take enough care when they submit their returns. Legal interpretation, evasion, avoidance and criminal attacks on the tax system also result in a tax gap.
Analysis
Around £3.7 billion of the gap is estimated to be due to error and £3 billion due to the hidden economy.
The tax gap for wealthy individuals fell from £1.6 billion in 2018/19 to £1.5 billion in 2019/20
£15.1 billion of the gap is attributed to small businesses and £6.1 billion is attributed to large businesses, with £5 billion attributed to medium-sized firms.
Taxpayers paid more than £633.4 billion in tax during 2019/20, an increase of more than £100 billion since 2015/16, when the total revenue paid was £532.5 billion.
The tax gap for Income Tax, National Insurance contributions and Capital Gains Tax is 3.5% in 2019 to 2020 at £12.6 billion which represents the largest share of the total tax gap by type of tax.
VAT
The VAT gap was estimated to be £12.3 billion in tax year 2019 to 2020. This equates to 8.4% of net VAT total theoretical liability.
The VAT gap has increased from 7.0% in tax year 2018 to 2019 to 8.4% in 2019 to 2020. Growth in VAT receipts (1.8%) was slower than the growth in the net VAT total theoretical liability (3.3%).
Behaviour
HMRC estimate that the causes of the tax gap are:
Taxpayers
Tax gap by taxpayer groups:
The impact on the tax gap from the coronavirus lockdowns and economic downturn is likely to be first seen in the 2020/21 figures, which will be released next year. It will also be interesting to see how the fallout from Brexit is covered (if at all).
HMRC has published updated guidance VAT Notice 723A which sets out how a business established outside the UK can claim a refund of VAT incurred here, and how to reclaim VAT incurred in the EU VAT if a business is established in the UK.
More details of how to make post-Brexit VAT claims here.
Further to my article on VAT: Land and property simplification and HMRC’s call for evidence the ICAEW has reiterated its call for all VAT land and property exemptions to be abolished and recommends the removal of all VAT options.
ICAEW also concludes that following the UK’s departure from the EU the government is in the best position since the introduction of VAT to thoroughly review the structure of the tax.
ICAEW also suggests that all land and property transactions should subject to VAT at either the standard rate or reduced rate, other than those relating to domestic property which should remain zero rated. This approach would remove many of the complexities of the current regime, it concludes.
Commentary
This is one area of the tax that is crying out for simplification and the case put forward by ICAEW has its merits. In my view, the Government should go further and review many complexities of the tax. As one example, the rules in respect of the sale of food products is ridiculously complex and produces odd and unexpected outcomes. Also, other exemptions would benefit from reconsideration, particularly financial services and insurance, but I suspect that the current government has a lot on its plate, much of it of its own making.
HMRC published a call for evidence last year in respect of the VAT group registration provisions, specifically:
The call for evidence was used to gather information and views on the current UK rules, and on provisions that have been adopted by other countries.
Background
VAT grouping is a facilitation measure by which two or more eligible persons can be treated as a single taxable person for VAT purposes. Eligible persons are bodies corporate, individuals, partnerships and Scottish partnerships, provided that certain conditions are satisfied. Bodies corporate includes all types of companies and limited liability partnerships. From 1 November 2019, grouping is additionally available for all entities, including; partnerships, sole traders and Trusts in certain cases. We consider the pros and cons of VAT grouping here.
Outcome
HMRC state that it was clear from the responses how valuable UK VAT grouping is to businesses and it is appreciated that businesses require certainty following Brexit and the impact of Covid 19. The call for evidence prompted a substantial number of responses that were generally in favour of maintaining current practices. It also set out evidence on why changes to the provisions on VAT grouping would impact business growth and international competitiveness.
Consequently, HMRC has decided that there will be no changes to the VAT grouping rules.
* a sigh of relief *
With everything else going on in the VAT world, a little continuity is welcome.
All you need to know about the new One Stop Shop (OSS)
New VAT rules will be introduced on 1 July 2021, and it is important that businesses and advisers are aware of the impact on transactions from this date. These changes have been introduced to increase the control of tax revenues as it is an area where a significant amount of tax is lost – creating an unfairness for businesses that correctly pay tax. They also aim to provide simplification for suppliers and consumers.
Who will be affected?
The new rules will impact all businesses that sell products online to consumers (B2C) in the EU, known as: distance sales. It will also affect suppliers of certain designated services and electronic interfaces.
UK online sellers not established anywhere in the EU can use the “Non-Union” version of OSS.
How OSS works
The current position
The current EU VAT rules state that cross-border sales of goods are subject to VAT in the EU Member State (MS) of dispatch. However, there are thresholds; once these sales reach a threshold in the MS of sale, a business is required to VAT register in that MS and ensure compliance and payment of VAT there.
The new rules
All sales will be subject to VAT in the MS of arrival of the goods. The existing thresholds for distance sales of goods (where the supplier is responsible for the transport of the products) within the EU will be replaced by a new EU threshold of €10,000*. To avoid a business having to VAT register in every EU MS into which it supplies goods, online sellers will be able to use the OSS electronic portal. This will enable the seller to account for, and pay, VAT in all EU MS on a single electronic quarterly return in one EU MS.
* As, since Brexit, the UK is no longer an EU MS, one the main differences is that the €10,000 annual turnover threshold for small business does not apply, so an EU VAT registration will be required for any distance sales to the EU. The business will need to nominate any single EU MS to register, submit returns, and make payments. Additionally. As a non-union OSS, depending on the chosen MS’s domestic regulations, a business may be required to appoint a fiscal representative.
Note: Even if a UK business has a turnover below the VAT registration threshold (currently £85,000 pa) so that it need not register here, it will be subject to OSS rules and need to register in an EU MS, this is compulsory.
Supplies covered by OSS
Services covered by Non-Union OSS
Examples of supplies of services to customers (a non-exhaustive list) that could be reported under the non-Union scheme are:
Electronic interfaces
From 1 July 2021, if an electronic interface, eg; marketplace, platform, etc facilitates distance sales of goods by a non-EU established seller to a buyer in the EU, the electronic interface is considered to be the seller (“deemed supplier” rather than agent) and is liable for the payment of VAT via the OSS.
IOSS
In addition to the OSS, a new scheme covering the import of goods subject to a distance sales transaction and in consignments not exceeding €150 is being introduced to simplify accounting for VAT. This is called the Import One-Stop Shop (IOSS). If the value of the consignment exceeds €150, it will usually be the end customer who will be the importer and will have to pay VAT, and any, customs clearance etc costs.
Note: The VAT exemption at import of small consignments of a value up to €22 will be removed. This means all goods imported in the EU will now be subject to VAT.
VAT rates
Businesses will need to apply the VAT rate of the MS where the goods are dispatched to or where the services are supplied. Information on the VAT rates in the EU is available on the European Commission website.
How to register for the OSS
Each EU MS will have an online OSS portal where businesses can register from 1 April 2021 and can use for transactions made on or after 1 July 2021. The single registration will be valid for all eligible supplies made by online sellers (including electronic interfaces) or supplies facilitated by electronic interfaces.
OSS Requirements
A business that uses the OSS will be required to:
Summary
The OSS is not compulsory, however, as the alternative is to VAT register in every EU MS where goods are received, it is a simplification in that respect – the previous distance selling rules were cumbersome and antiquated.
Further information
Full details of the OSS and IOSS from the EC here
Brexit update
HMRC has published updated, detailed guidance for the rules of origin for goods moving between the UK and EU.
It is important to understand the impact of the rules and how they impact a business. Specifically, to ensure advantage is taken of zero tariffs when dealing with cross-border goods. The rules apply to both imports and exports and clearly, incurring unnecessary tariffs is to be avoided if possible.
Background
The UK moved to trading based on a new Free Trade Agreement (FTA) – the Trade and Cooperation Agreement (TCA) between the UK and the EU post-Brexit.
To export tariff-free under the TCA, goods must meet the UK-EU preferential rules of origin. This means that there must be a qualifying level of processing in the country of export to access zero tariffs. This applies to EU origin goods imported and moving through the UK from a Member State to another EU Member State, as well as goods imported from the Rest of World.
These rules are set out in the TCA and determine the origin of goods based on where the products or materials (or inputs) used in their production come from. Their purpose is to ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries.
HMRC has announced that bodies covered by The VAT Act 1994, Section 33 such as; Local Authorities, Academies, Transport Authorities and the Police can use Postponed Accounting for imports.
Normally, a body cannot account for import VAT on its VAT return if it import goods that it knows will be used solely for non-business purposes. However, this no longer applies to a body that is eligible to reclaim import VAT through a VAT refund scheme (Section 33). Section 33 entities when completing its customs declaration, should select the “making an immediate payment or using a duty deferment account” option.
Section 33 bodies
These entities have special VAT treatment which is effectively the opposite of normal VAT rules. To avoid a cost to the taxpayer, these entities are permitted to specifically recover input tax that relates to non-business activities. Nobody said that VAT was straightforward and in these cases, the VAT rules are inverted!
We act for many Local Authorities and Academies. Please contact us should you, or your clients, have any queries on this matter.
The European Commission has issued a new tool which enables businesses to check on the VAT rate for specific supplies. It is based on commodity codes but there are drop down menus for detailed descriptions. The tool covers both goods and services. There are both a simple and advanced search functions and the database also covers other taxes:
Claiming VAT in another country
If a UK business wishes to claim VAT incurred in a country outside the UK it will need a Certificate of Status (a “Certificate of Status of Taxable Person”). This certificate, known as a VAT66A, may be obtained from HMRC and certifies that an entity is in business (engaged in an economic activity).
Changes from 8 March 2021
HMRC has announced HMRC changes to the way it issues VAT66As to UK businesses. From 8 March 2021, HMRC will send the certificate by email. A small, but helpful nod to 21st Century technology. A business must first complete an informed consent form before HMRC will correspond by email. The VAT66A only lasts for 12 months, so it is prudent to set a reminder to renew.
However, and there is usually a however, some countries require a “wet stamped” document to support a claim, in which case, HMRC will continue to issue these by post. It makes sense to check what actual documentation each country in which a claim is made requires, as it does vary. It is usually also necessary to make a claim in the language of the country in which the VAT was incurred.
Who can request a certificate of status?
The authorised persons (director or secretary) of the businesses which is registered in the UK for VAT, or an agent which has a letter of authority from a UK VAT-registered business – form 64-8 to act on its behalf.
Requesting a certificate
Send an email to vat66@hmrc.gov.uk with “VAT certificate of status request” in the subject line and the following information:
Agent application
Write ‘VAT certificate of status – agent request’ in the subject line of the email, and provide the following information:
HMRC say that a certificate will be sent within 15 working days of an application.
Oh for the days of a single electronic application to HMRC which covered all 27 Member States…