Category Archives: EC

VAT: Zero-rated exports. The Procurement International case

By Marcus Ward 7 November 2024

Latest from the courts

In the First-Tier Tribunal (FTT) case of Procurement International Ltd (PIL) the issue was whether the movement of goods constituted a zero-rated export.

Background

Both parties essentially agreed the facts: The Appellant’s business is that of a reward recognition programme fulfiller. The Appellant had a catalogue of available products, and it maintained a stock of the most ordered items in its warehouse. PIL supplied these goods to customers who run reward recognition programmes on behalf of their customers who, in turn, want to reward to their customers and/or employees (reward recipients – RR). The reward programme operators (RPOs) provide a platform through which those entitled to receive rewards can such rewards. The RPO will then place orders PIL for the goods.

A shipper collected the goods from PIL in the UK and shipped them directly to the RR (wherever located). The shipper provided the services of delivery including relevant customs clearances etc. on behalf of the Appellant. PIL had zero-rated the supply of goods sent to RRs located overseas. All goods delivered to RRs outside the UK are delivered duty paid (DDP) or delivered at place (DAP). As may be seen by Incoterms the Appellant remained at risk in respect of the goods and liable for all carriage costs and is responsible for performing or contracting for the performance of all customs (export and import) obligations. The Appellant was responsible for all fees, duties, tariffs, and taxes. Accordingly, the Appellant is responsible for, and at risk until, the goods are delivered “by placing them at the disposal of the buyer at the agreed point, if any, or at the named place of destination or by procuring that the goods are so delivered”.

Contentions

HMRC argued that in situations where the RPO was UK VAT registered, the appellant was making a supply of goods to the RPO at a time when the goods were physically located in the UK, and consequently there was a standard-rated supply. It issued an assessment to recover the output tax considered to be underdeclared.

PIL contended that there was a supply of delivered goods which were zero-rated when the goods were removed to a location outside the UK. It was responsible (via contracts which were accepted to reflect the reality of the transactions) for arranging the transport of the goods.

Decision

The FTT held that there was a single composite supplies of delivered goods, and these were a zero-rated supply of exported goods by PIL. The supplies were not made on terms that the RPOs collected or arranged for collection of the goods to remove them from the UK. The Tribunal found that the RPOs took title to the goods at the time they were delivered to the RR, and not before such that it was PIL and not the RPOs who was the exporter. This meant that the RPOs would be regarded as making their supplies outside the UK and would be responsible for overseas VAT as the Place Of Supply (POS) would be in the country in which it took title to the goods (but that was not an issue in this case).

The appeal was allowed, and the assessment was withdrawn.

Legislation

Domestic legislation relevant here is The VAT Act 1994:

Section 6(2) which fixes the time of supply of goods involving removal as the time they are removed
Section 7 VATA sets out the basis on which the place of supply is determined. Section 7(2) states that: “if the supply of any goods does not involve their removal from or to the United Kingdom they shall be treated as supplied in the United Kingdom if they are in the United Kingdom and otherwise shall be treated as supplied outside the United Kingdom”.
Section 30(6) VATA provides that a supply of goods is zero-rated where such supply is made in the UK and HMRC are satisfied that the person supplying the goods has exported them
For completeness, VAT Regulations 1995, regulation 129 provides the framework for the zero-rating goods removed from the UK by and on behalf of the purchaser of the goods.

Some paragraphs of VAT Notice 703 have the force of law which applies here, namely the sections on:

direct and indirect exports
conditions which must be met in full for goods to be zero-rated as exports
definition of an exporter
the appointment of a freight forwarder or other party to manage the export transactions and declarations on behalf of the supplier of exporter.
the conditions and time limits for zero rating
a situation in which there are multiple transactions leading to one movement of goods

Commentary

The Incoterms set out in the relevant contracts were vital in demonstrating the responsibilities of the parties and consequently, who actually exported the goods. It is crucial when analysing the VAT treatment of transactions to recognise each party’s responsibilities, and importantly, when (and therefore where) the change in possession of the goods takes place.

VAT Registration – New guidance for Non-Established Taxable Persons (NETP)

By Marcus Ward 8 April 2024

HMRC has published an updated version of Notice 700/1: Who should register for VAT.

Information about non-established taxable persons (NETPs) has been updated to include guidance on when they need to apply for VAT.

Other updates include:

a definition of what a UK establishment is
when and how NETPs registers for VAT
how NETPs who are overseas sellers register for VAT
what happens when NETPs do not comply with VAT requirements
guidance for when NETPs can register voluntarily has been removed
guidance for Making Tax Digital (MTD) for VAT Returns
penalties for late notification to HMRC
new European threshold for distance selling into an EU Member State

VAT: New rules for registration and reporting in the EU from 1 January 2025

By Marcus Ward 6 November 2023

EU Member States have agreed to extend similar VAT registration thresholds utilised by domestic businesses to EU non-resident taxpayers.

VAT scheme for Small Businesses

New simplification rules will open the VAT exemption to small businesses established in other member states and help reduce VAT compliance costs. The new regime should reduce red tape and administrative burdens for SMEs and create a level playing field for businesses regardless of where they are established in the EU. The new VAT scheme for SMEs will apply from 1 January 2025.

The new scheme

Current rules on the exemption of supplies under a certain threshold:

Member States are allowed to exempt supplies by small enterprises with an annual turnover not exceeding a given threshold, different in each Member State.
Small enterprises not established in a certain Member State have, however, no access to such an exemption.

New rules on the exemption of supplies under a certain threshold

Member States will be allowed to continue exempting small businesses with an annual turnover not exceeding a given threshold, which cannot be higher than € 85,000 (maximum exemption threshold).
The new rules will open the exemption to small enterprises established in other Member States than the one in which the VAT is due. The exemption will apply if the turnover in Member State where the SME is not established is below the national threshold and if the annual turnover in all of the EU is below €100,000. This is a safeguard threshold preventing companies with large turnover to benefit from the SME exemption in other Member States. For this purpose, SMEs will be able to use the single registration window in their own Member State.

The new rules will provide exempt SMEs with simplifications in terms of registration and reporting. These rules should reduce the overall VAT compliance costs for SMEs by up to 18% per year.

Evidence of UK establishment required for certain VAT registered businesses

By Marcus Ward 2 October 2023

Businesses registered for VAT at a high-volume address will be asked by HMRC to prove they are established in the UK.

High-Volume Addresses

A high-volume address is where a single UK address is listed as the principal place of business (PPOB) for many VAT-registered businesses. We understand that many thousands of businesses are registered at single addresses in the UK.

HMRC will require proof of a place of belonging in the UK to avoid online marketplaces failing to account for output tax.

Online marketplaces

Online marketplaces are liable for the output VAT from sales on their platforms by overseas traders. HMRC understand that Non Established Taxable Persons (NETPs) have incorporated in the UK and provided UK address details to marketplaces. Since they are then no longer “overseas traders” these rules do not apply. In these situations, the NETP does not declare VAT and the marketplace does not become liable for it.

HMRC is writing to all VAT registered businesses with a PPOB at a high-volume address to ask for evidence to demonstrate that the business is actually established in the UK. If the business does not respond, by default, HMRC will consider the business to be a NETP and seek to recover VAT from the online marketplace business.

Evidence of UK establishment

HMRC will outline what specific evidence it will accept in their letter.

A VAT Did you know?

By Marcus Ward 20 September 2023

Dance classes in some EU countries are subject to different VAT rates depending on whether the dance style is considered artistic or entertainment. In the UK, belly dancing and ceroc lessons are standard rated, but ballet is exempt.

VAT: Powers of HMRC – The Impact Contracting Solutions Limited UT case

By Marcus Ward 5 September 2023

Latest from the courts

In the Impact Contracting Solutions Limited (ICS) Upper Tribunal (UT) case the issue was whether HMRC had the power to cancel the VAT registration where that person has facilitated the VAT fraud of another ie; the scope of the “Ablessio” principle. It also illustrates the impact of EU cases on UK courts.

Background

ICS’s customers were temporary work agencies, and its suppliers were approximately 3,000 mini-umbrella companies (“MUCs”) which supplied labour. HMRC decided to cancel ICS’s VAT registration number with reliance on the principle in the decision of the Court of Justice of the European Union (CJEU) in Valsts ienemumu dienests v Ablessio SIA (C-527/11) (“Ablessio”). HMRC considered that ICS was registered for VAT principally or solely to abuse the VAT system by facilitating VAT fraud, and that, in such circumstances, they were empowered by the principle in Ablessio to cancel the registration. In particular, HMRC considered that the arrangements between ICSL and the MUCs were contrived, with the effect that the MUCs failed properly to account for VAT on their supplies to ICS.

ICS appealed against HMRC’s decision to cancel its registration.

The Issues

Does the principle in Ablessio apply only to a party that has itself fraudulently defaulted on its VAT obligations, or does it similarly apply to a party who has facilitated the VAT fraud of another party?

If the Ablessio principle does apply to a party who has facilitated the VAT fraud of another party, is simple facilitation sufficient, or must it additionally be proved that:

(a) the facilitating party was itself dishonest, or

(b) the facilitating party knew that it was facilitating the fraud, and/or

The First Tier Tribunal (FTT) decided that Ablessio applies both to a party that has fraudulently defaulted on its VAT obligations and to a party who has facilitated the VAT fraud of another party. Further that simple facilitation by a party of the VAT fraud of another is not sufficient to apply the Ablessio principle. However, it is not necessary to prove that the facilitating party was itself dishonest. It must, however, be proved that the facilitating party knew or should have known that it was facilitating the VAT fraud of another party.

Decision

The appeal was rejected an the FTT’s decision was upheld. HMRC powers are not contrary to UK VAT legislation.

The application by HMRC of Ablessio is not contra legem or otherwise prohibited by the VAT legislation where it is applied to deregister a taxpayer who has either fraudulently defaulted on its VAT obligations or facilitated the VAT fraud of another party and at the relevant time has also made taxable supplies unconnected with such fraud or facilitation of fraud and which would result in a liability to be registered.

Ablessio applies to the deregistration by HMRC of a person as well as to a refusal by HMRC to register a person. It also provides for the deregistration of a person who has facilitated the VAT fraud of another, where the person to be deregistered knew or should have known that it was facilitating the VAT fraud of another.

Commentary

This decision was released this month and illustrates the ongoing influence of EU legislation and cases, “despite” Brexit

EU legislation does not, by itself, fall within the scope of retained EU law (see below). However, domestic legislation implementing EU rules forms part of EU-derived domestic legislation and is preserved in domestic law.

The VAT Act 1994 is not affected by Brexit because it is an Act of Parliament and, therefore, remains effective unless it is changed by Parliament.

Overview of the impact of EU legislation

Post-Brexit, the UK could have decided that UK courts should not be bound by EU case law. However, this would have resulted in a situation where the UK courts effectively had to begin with a blank piece of paper in deciding how a piece of retained EU law should be interpreted or applied. This approach would have resulted in considerable uncertainty for business over how retained EU law would operate. In order avoid this, section 6 of the European Union (Withdrawal) Act 2018 provides that:

CJEU judgments made on or before 31 December 2020 are binding on UK courts
CJEU judgments made after that date are not binding, but the UK courts are free to have regard to them, so far as they are relevant to the matter before the court.

Going forward

Helpful guidance is provided in the e-Accounting Solutions vs Global Infosys case (not a VAT case).

The Retained EU Law (Revocation and Reform) Act 2023 means that the principle of EU-law conforming construction is a corollary of the supremacy of EU law (which is abolished under Section 3 of the Act) and will therefore no longer apply from 2024.

The principles of statutory construction under English Law require a purposive interpretation of legislation, whether or not EU law principles are engaged. This involves considering the context in which the legislation was made. Depending on the legislation concerned, this process may be guided by “external aids”. External aids referred to in the judgment include Explanatory Notes and Government White Papers, and could also presumably include references to Hansard where seen as appropriate by the courts. To the extent that domestic enactments were made for the purpose of implementing EU law, the EU law position is such an “external aid” and the UK law should be construed accordingly.

Where Parliament used the same language as the Directive, one may assume that it intended to mean the same – accordingly, the CJEU interpretation of Directive-terms informs the interpretation of the UK statute.

However, the statutory language remains paramount – “external aids”, to which EU law instruments are effectively downgraded in UK law from 2024, cannot displace unambiguous statutory language in UK enactments that is inconsistent with EU law.

VAT: eInvoicing Glossary

By Marcus Ward 1 September 2023

Further to my article on eInvoicing, I thought it may be helpful if I compiled a Glossary of terms used in connection with the subject. These definitions have been compiled from various sources and I have tried to keep them as “non-techy” as possible.

Accounts Payable Automation (APA)

An automated management of accounts payable by dealing with invoices received and payments sent. It requires integration of the invoicing process with accounting software.

Accounts Receivable Automation (ARA)

As APA but for accounts receivable (dealing with invoices sent and payments received).

Acknowledgement Of Receipt

The acknowledgement of receipt of an EDI message – the syntax and semantics are checked, and a corresponding acknowledgement is sent by the receiver.

Advanced Electronic Signature

A digital signature based on an advanced certificate uniquely identifying the signer. The signature keys are used with a high level of confidence by the signatory, who has sole control of the signing key.

Agreed Format

The electronic data format that businesses have agreed to treat as the data format of the original electronic invoice for tax purposes.

Audit Trail

The system which traces the detailed transactions relating to any item in an accounting record.

Authentication

The process of verifying a claim that a system entity or system resource has a certain attribute value.

Authenticity Of Origin

Assurance of the identity of the supplier or issuer of the invoice and that the document is the true original.

B2B

Business to business.

B2C

Business to consumer

Biller Portal

Invoice providers’ web portal where invoice receivers can log on with a username/password to check and manage their invoices.

Billing Service Provider

A provider offering services to senders and receivers which involves the sending, collection and administrative processing of eInvoices.

Certification Service Provider

An entity which issues digital certificates or provides services related to electronic signatures.

Clearance

A tax authority approval being a precondition for the validity of a document.

Clearance Model

A tax authority is involved in the invoice data exchange between the vendor and the customer as a third party. It allows the tax authorities a real-time insight into the business transactions. The eInvoice must be approved by the tax authority before being sent to the recipient.

Continuous Transaction Controls (CTC Reporting)

Obligations requiring a taxpayer to submit relevant data to the relevant tax authority before, or shortly after, a transaction.

Data Integrity

Checks that data has not been changed, destroyed, or lost in an unauthorised or accidental manner.

Digital Certificate

A file or electronic password that proves the authenticity of a device, server, or user via cryptography and the public key infrastructure.

Digital Reporting Requirements (DRR)

The obligation for a taxable person to submit digital data on their transactions to HMRC.

Digital Signature

A technique used to validate the authenticity and integrity of a digital document, message or software.

eAccounting

The requirement for a taxable person to submit digital business records to a tax authority platform.

eArchiving

Storing electronic documents as evidence for a prescribed period of time according to the relevant HMRC regulations.

Electronic Data Interchange (EDI)

An intercompany communication of business documents in a standard format. EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.

eInvoice

Details here.

eReceipt

Electronically issued customer receipts.

EU eInvoicing

Details/how to here.

Format

The method of presentation of electronic data in an electronic document.

Four Corner Model

A process where suppliers and customers have one or several service providers that ensure the correct processing between them.

Invoicing Directive

The eInvoicing Directive which requires EU entities to receive and process all electronic invoices – compliant with the European standard.

Mandatory eInvoicing

The obligatory use of eInvoicing by business which is imposed by the country’s authorities. Around 80 countries mandate eInvoicing.

Pan-European Public Procurement On-Line (Peppol)

An EDI protocol, designed to simplify the purchase-to-pay process between government bodies and suppliers. It facilitates electronic ordering, invoicing and shipping between government organisations and businesses.

Periodical Transaction Reporting

An obligation for a taxpayer to submit transactional data on a monthly, quarterly or annual basis.

QR Code

eInvoice verification which allows users to verify the authenticity of an eInvoice based on the QR code appearing on it. The QR code is used to provide information related to a particular invoice.

Qualified Electronic Signature

An electronic signature which is compliant with EU Regulation 910/2014 for electronic transactions within the internal European market. It enables verification of the authorship of a declaration in electronic data exchange over long periods of time.

Post Audit eInvoicing

An invoice is sent to the tax authorities only after the transaction has been completed. The business must guarantee the authenticity and integrity of the invoice and archive the document to satisfy audit requirements. This is being overtaken by the Clearance Model (above).

Readability

The ability of a tax administration to interpret the content of an eInvoice.

Real-time reporting

An obligation for a taxpayer to submit fiscal data to a tax authority platform immediately, or shortly after, a transaction.

Transactional Data

Information that is captured from transactions. It records the time of the transaction, the place of supply, the value of the supply, the payment method, discounts if any, and other quantities and qualities associated with the transaction.

Three Corner Model

A process where invoice senders and receivers are connected via a single service provider for the sending and receiving of messages.

Two Corner Model

A process where invoice senders and receivers are connected directly for the sending and receiving of messages.

UN/CEFACT

The United Nations’ Centre for Trade Facilitation and Electronic Business has a global remit to secure the interoperability for the exchange of information between private and public sector entities.

Unstructured Invoice Document

An invoice that is created manually or automatically from a system and is not in a database. An Unstructured Document may contain data, but the data is not organised in a fixed format. Consequently, it is difficult to find and capture the data for use.

VAT Listing

An obligation for a business to submit VAT transactional data according to a domestic format. The data includes: information on values and recipients, as well as data which is required to be included on an invoice. The data are submitted on a periodic basis, often jointly with the VAT return.

Web Payment

An online service that manages the transfer of funds from a customer to the merchant of an e-commerce website.

Web Publication

A method of exchanging invoices with a buyer by placing an original electronic invoice on an agreed web site, in a secure closed environment operated by the supplier.

VAT: B2B and B2C – The distinction and importance

By Marcus Ward 1 August 2023

A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.

Status of the customer:

B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.

To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.

If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.

A supplier needs to identify where his customer belongs in order to establish the place of supply.

VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.

Digital Euro introduction delayed

By Marcus Ward 21 June 2023

The European Commission’s proposal for the introduction of a digital Euro has been delayed.

The adoption was planned for 28 June 2023, but this has now been postponed. There is currently no news on a new date.

What is digital Euro?

As a digital form of central bank money, the digital Euro will offer greater choice to consumers and businesses in situations where physical cash cannot be used. However, the digital euro would be a complement to cash, which should remain widely available and useable.

A digital Euro would offer an electronic means of payment that anyone could use in the euro area. It would be secure and user-friendly, like cash is today. As central bank money issued by the ECB, it would be different from “private money”, but you could also use a card or a phone app to pay with digital euro. It is intended to provide an anchor of stability for our money in the digital age.

Further details here.

VAT: Place of supply – The Sports Invest case

By Marcus Ward 5 May 2023

Latest from the courts

In the First-Tier Tribunal case of Sports Invest UK Ltd the issue was the place of supply (POS) of a football agent’s services (commission received for a player’s transfer).

The POS is often complex from a VAT perspective and depends on the place of belonging (POB) of the supplier and the recipient of the supply. These rules determine if VAT is charged, where VAT is charged and the rate of VAT applicable, additionally, they may impose requirements to register for VAT in different jurisdictions.

Background

Sports Invest was a football agent based in the UK. It received fees in respect of negotiating the transfer of a player: João Mário from a Portuguese club: Sporting Lisbon to an Italian club: Internazionale (Inter Milan). The appellant signed a representation contract with the player which entitled it to commission, and a separate agreement with Inter Milan entitling it to a fee because the player was permanently transferred.

The Issues

To whom did Sports Invest make a supply – club or player? What was the supply? Was there one or two separate supplies? What was the POS?

As appears normal for transactions in the world of football the contractual arrangements were complex, but, in essence as a matter of commercial and economic reality, Sports Invest had agreed the commission with the player in case it was excluded from the deal. However, this did not occur, and the deal was concluded as anticipated. Inter Milan paid The Appellant’s fee in full, but did this affect the agreement between Sports Invest and the player? That is, as HMRC contended, did Inter Milan pay Sports Invest on the player’s behalf (third party consideration) such that there were two supplies; one to the player and one to the cub?

The FTT stated that there was no suggestion that the contracts were “sham documents”.

VAT Liability

The arrangements mattered, as pre-Brexit, a supply of services by a business with a POB in the UK to an individual (B2C) in another EU Member State would have been subject to UK VAT; the POS being where the supplier belonged. HMRC assessed for an element of the fee that it saw related to the supply to the player. The remainder of the fee paid by the club was accepted to be consideration for a UK VAT free supply by the agent to the club (B2B).

Decision

The court found that there was one single supply by The Appellant to Inter Milan. This being the case, the supply was B2B and the POS was where the recipient belonged and so that the entire supply was UK VAT free. There was no (UK) supply to the individual player as that agreement was superseded by the contractual arrangements which were actually put in place and the player owed the agent nothing as the potential payment under that contract was waived.

The appeal against the assessment was upheld.

Commentary

The court’s decision appears to be logical as the supply was to the club who were receiving “something” (the employment contract with the player) and paying for it. The other “safeguarding” agreement appeared to be simple good commercial practice and was ultimately “not required”. This case highlights the often complex issues of; establishing the nature of transactions, the identity of the recipient(s), agency arrangements, the POS and the legal, commercial and economic reality of contracts.