Food for wild birds is zero rated, while food for caged birds is at 20%.
Category Archives: HMRC Publications
VAT stats
HMRC has published the official VAT statistics for 2019/20
The headlines are:
- Total VAT receipts in 2019-20 decreased by 1.5% from the previous financial year. There was a downward impact on receipts from the VAT deferral measure which took effect from 20 March 2020.
- The Wholesale and Retail sector continued to be the largest contributor to net home VAT liabilities.
- 62% of total net home VAT declared was paid by traders with an annual turnover greater than £10 million.
- Incorporated companies accounted for the largest share of the VAT population and annual taxable turnover. This group accounted for 72% of traders, and 91% of annual taxable turnover in 2019-20.
- Sole proprietors were the second largest group in terms of VAT population; this group accounted for 16% of VAT traders. However, the annual taxable turnover declared by this group only accounted for 1% of the total for 2019-20.
- The Professional, Scientific and technical activities sector increased by £860 million (5%), the largest year-on-year change.
- The Real Estate Activities sector decreased by £530 million (12%) and the Construction sector decreased by £160 million (3%) year-on-year, although both sectors remain in the top ten sectors in terms of contribution to VAT liabilities.
- 46.7% of traders declared annual turnover below the VAT registration threshold.
- More than half of net home VAT payments are accounted for by traders in the top 0.5% in 2019-20.
VAT – How to apply for a non-statutory clearance
One would think that it would be a relatively straightforward matter to write to HMRC to obtain a ruling (non-stat clearance) on a matter. Surely a taxpayer ought to be able to set out the issue, describe the transaction, provide a tax analysis and ask HMRC whether they consider the proposed VAT treatment appropriate. Well, of course, it is not as simple as that (this is VAT after all).
So, what are the issues and what hurdles must be cleared before HMRC engage with a written query?
Checklist
First, there is a checklist which a business must consider and include in a non-stat clearance. Inter alia, this list includes:
- Information about the transaction(s)
- The reasons why the business is undertaking the transaction
- The relevant facts about the transaction, set out chronologically as transaction steps,
- The answer sought – set out your view of the tax consequences of the transaction
- Any details that are contingent, eg; on future events or the consent of others
- Information about commercial background
- Explain the significance of the tax result in achieving the desired outcome
- Explain why you chose this form of transaction over another that could achieve the same commercial result, where you have considered alternative forms
- Information about legal points
- Outline the specific legislation at issue
- Why you believe the application of the legislation is open to possible different interpretations, summary of those different interpretations, and why the tax consequences are uncertain, including reference to our published guidance or to case law
- Any legal advice you have already received, and you are content to disclose
- Details of how you intend to use the clearance, such as for public documents
- Information about the disclosure of a tax avoidance scheme that covers all or part of the transaction
Failure to address any items on the checklist usually means no determination will be forthcoming.
An applicant must also set out what HMRC guidance (including internal guidance) legislation, case law and other information has been considered. We find it helpful to reproduce the full checklist (as HMRC advise) and provide a comprehensive response to each point in order to avoid a straightforward refusal to respond.
Genuine uncertainty
One of the main reasons HMRC refuses to provide a non-stat clearance is that it considers that there is no genuine uncertainty; in other words, “go and look at the guidance”. This is very unhelpful after time and effort, and fees cost has gone into the application. The fact that an application is required to set out what guidance etc has been considered, and why it is ambiguous in the relevant circumstances does not seem to carry very much weight. I find it is unhelpful to say, “if it wasn’t uncertain, we wouldn’t be writing to you”! We recommend that a full explanation of the genuine uncertainty is provided to forestall such a HMRC refusal to reply.
Chances
Experience insists that it is difficult to obtain a non-stat clearance which is of any value. Quite often, HMRC will reply saying that their letter is not a non-stat clearance, but then go on to address (at least) some of the issues. This sometimes provides a degree of comfort. An approach that I sometimes adopt is to say, “we believe this to be the correct VAT treatment, and one we will apply to the transaction unless you advise otherwise with reasons”. This sometimes creates a reaction.
HMRC guidance
Details of obtaining a non-stat clearance here.
Address
I find that applications are looked at quicker if they are emailed: nonstatutoryclearanceteam.hmrc@hmrc.gsi.gov.uk. However, there is a 2mb size limit which is often unhelpful. If emailing, an applicant should state that you confirm that you understand and accept the risks involved in using email (otherwise this can cause delays).
Postal address
HM Revenue & Customs, Non-Statutory Clearance Team, S0563. 5th Floor, Saxon House, 1 Causeway Lane, Leicester , LE1 4AA
What HMRC will not rule on
- Incomplete information
- When there is no genuine uncertainty
- When they consider it planning advice, or approval of a planning arrangements
- HMRC believes that the intention is to avoid tax
- There is a statutory clearance applicable to the transaction
- Whether activities constitute a business
- Whether a transaction represents a Transfer Of a Going Concern (TOGC).
Reliance
Even if a business does obtain a determination, is it possible to rely on it? The answer is no (well, not always). I consider this here.
Summary
It is understandable that a business wants certainty on a transaction, and it ought to be able to rely on HMRC for confirmation of its own analysis, but obtaining such an opinion is fraught with difficulties, frustrations and (genuine) uncertainty. It seems that HMRC will go to lengths to avoid giving a decision, but they are not reticent in penalising a taxpayer once a business has made a decision, applied it, and HMRC subsequently disagree with the VAT analysis.
A wholly unacceptable situation.
VAT: New registration checking service
The Government has launched a website for checking UK VAT numbers as EU VIES will no longer be available post Brexit.
This service can be used to check:
- if a UK VAT registration number is valid
- the name and address of the business the number is registered to
If you are a UK VAT-registered business, you can also use this service to prove when you have checked the validity of a UK VAT number.
VAT: Exporting and importing businesses -prepare for Brexit
New rules from 1 January 2021.
GOV.UK has published new guidance from the Department for International Trade.
The guidance sets out what a business will need to do 1 January 2021. It will be updated if anything changes.
It covers:
Exporting to and importing from the EU
Exporting to and importing from non-EU countries
All business with goods crossing the new border will need to understand and prepare for the changes.
How to deal with VAT debt
In the current climate many businesses are struggling to make payments to HMRC. This clearly can have serious consequences and reduced income due to the Covid 19 coronavirus adds more problems.
This article looks at how to manage a VAT debt position; what can be done, and what not to do.
The first, and most important point to make is; do not ignore a tax debt. It will not go away and, in VAT there is, in most cases a four-year limit for assessing tax, but once assessed or declared, there is no time bar for collecting the debt.
HMRC look for a taxpayer to be taking steps to make a payment, or for a disclosure of the reason funds are unavailable. If HMRC’s Debt Management & Banking team have no idea of the cause of non-payment they will assume that the matter is being ignored and the full force of their powers are likely to be invoked. For background on HMRC’s VAT recovery procedures and powers see here. It is no surprise to learn that the extent of their powers is sweeping and formidable.
Is the VAT debt correct?
The first step is to establish whether a VAT debt is accurate. If it is a result of a normal return, then ensure the declaration is correct. If it is the result of an assessment by HMRC, always challenge it. In the majority of cases, we can assist with getting an assessment reduced or removed completely. A debt may be made up of a combination of; actual VAT, surcharges, penalties and interest
Time To Pay (TTP)
Such an arrangement with HMRC enables a debt to be spread over a period of time. This is usually, but not always, the most beneficial course of action. The process is that the taxpayer submits a proposal for settling the debt over a set period (a “best offer”) in instalments. HMRC may accept the offer, refuse it outright or make a “counter-offer”.
Matters to consider when submitting a VAT TTP proposal:
- The shorter the payment period proposed the more likely HMRC is to accept
- The sooner a TTP proposal is made the better
- HMRC is unlikely to agree a TTP longer than 12 months and most are for a significant shorter period
- An offer of an up-front payment also increases the chance of agreement
- An agreed TTP avoids penalties for late payment (as long as it is adhered to, otherwise penalties will apply)
- If payments are missed HMRC will withdraw from the TTP and the entire debt (plus penalties and interest) will become due immediately
- A TTP will avoid HMRC using its debt collection powers
- HMRC is likely to request sight of; cash flow forecasts, management accounts and company cash reserve details to evidence a ‘best offer”
- Also, information on; management of costs, potential sale of assets, availability of loans, other debts, ability to pay future VAT liabilities may be requested
- A business with a history of previous TTPs is less likely to be able to agree a new one
- If a formal TTP cannot be agreed, it is still beneficial for a business to make payments as and when they can be afforded. This keeps HMRC onside and may make discussions about future payment more fruitful
What HMRC expect
HMRC look for various ways a business can raise funds to pay a VAT debt, these include:
- Sale of assets
- Anticipated income, eg; large customer payment, contract or other demonstrable future income
- Bank or similar loans (including family members)
- Charge on home
- Alternative fundraising methods
The Debt Management & Banking staff have experience and knowledge of these methods and also use credit agencies.
Summary
It is always important to talk to HMRC. An ongoing dialogue can improve the debt situation and avoid HMRC taking unilateral action – which is nearly always detrimental to a business. Check that the debt is correct. Consider a TTP arrangement or alternative ways to raise funds. Talk to your advisers.
A debt is often the result of an assessment and penalties. A look at penalties (and how to avoid them) here and an article on how to survive HMRC’s enforcement powers here.
What VAT CAN’T you claim?
VAT Basics
The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:
Blocked VAT Claims
A brief overview
- No supporting evidence
In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice)” although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC may accept alternative evidence, however, they are not duty bound to do so (and rarely do). So ensure that you always obtain and retain the correct documentation.
- Incorrect supporting evidence
Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing. A full guide is here.
- Input tax relating to exempt supplies
Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here.
- Input tax relating to non-business activities
If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here.
- Time barred
If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.
- VAT incurred on business entertainment
This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable.
- Car purchase
In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.
- Car leasing
If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.
- A business using certain schemes
For instance, a business using the Flat Rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on TOMS users
- VAT charged in error
Even if you obtain an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.
- Goods and services not used for a business
Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for business use. This may be because the purchase is for personal use, or by anther business or for purposes not related to the business.
- VAT paid on goods and services obtained before VAT registration
This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and services received within six months of registration if certain conditions are met.
- VAT incurred by property developers
Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked. Details here.
- Second hand goods
Goods sold to you under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.
- Transfer of a going concern (TOGC)
Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.
- Disbursements
A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here.
- VAT incurred overseas
A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant VAT body in those States. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.
Input tax incurred on expenditure is one of the most complex areas of VAT. It also represents the biggest VAT cost to a business if VAT falls to be irrecoverable. It is almost always worthwhile reviewing what VAT is being reclaimed. Claim too much and there could well be penalties and interest, and of course, if a business is not claiming as much input tax as it could, this represents a straightforward cost.
A VAT did you know?
Bye bye old VAT returns.
HMRC has revealed that it will retire the existing VAT online filing system for VAT 100 forms from April 2021.
From that date, only the MTD method is possible and the original (the XML submission where a business logs into the HMRC portal) will be discontinued.
VAT: Is the supply of football pitches an exempt right over land? The Netbusters case.
Latest from the courts.
In the First-tier Tribunal (FTT) case of Netbusters (UK) Limited the issue was whether the supply was the standard rated provision of sporting facilities, or an exempt right over land.
Background
Netbusters organised football and netball leagues and provided the playing facilities (artificial pitches for football and courts for netball). The hire of the facilities was for a defined period of time and no other party had the right to access the pitches during those times. The hire could be a block, or one-off booking. The appellant contended that the supplies were exempt via VAT Act 1994, Sch 9, Group 1 – “The grant of any interest in or right over land or of any licence to occupy land…” However, item 1 Note (para m) excludes the “the grant of facilities for playing any sport or participating in any physical recreation” in which case they become standard rated. To add complexity, Note 16 overrides the exception for sporting facilities (so they are exempt) if the grant of the facilities is for:
“(a) a continuous period of use exceeding 24 hours; or
(b) a series of 10 or more periods, whether or not exceeding 24 hours in total, where the following conditions are satisfied—
(i) each period is in respect of the same activity carried on at the same place;
(ii) the interval between each period is not less than one day and not more than 14 days;
(iii) consideration is payable by reference to the whole series and is evidenced by written agreement;
(iv) the grantee has exclusive use of the facilities; and
(v) the grantee is a school, a club, an association or an organisation representing affiliated clubs or constituent associations.”
I have a simplified flowchart which may assist if you, or your clients, need to look at these types of supplies further.
Another issue was whether Netbusters’ league/tournament management services which were, in principle, available independently of pitch hire, but in practice rarely were provided in that way, were separate supplies or composite. There was a single price payable for both pitch hire and league management services.
The appellant contended that its supplies were exempt via VAT Act 1994, Sch 9, Group 1 or that Revenue and Customs Brief 8 (2014): sports leagues, is applicable which states “HMRC accepts that the decision of the FTT is applicable to all traders who operate in circumstances akin to Goals Soccer Centres plc. This includes traders who hire the pitches from third parties such as local authorities, schools and clubs…”
HMRC argued that there was no intention to create a tenancy and the agreements between the parties did not provide for exclusive use of the premises, so the supplies fell to be standard rated.
Decision
The appeal was allowed; the supply was a singe exempt supply because the objective character of the supplies were properly categorised as the granting of interests in, rights over or licenses to occupy land. It was found to be significant Netbusters (or its customers) had the ability to exclude others from the pitches during the period of the matches.
It was therefore unnecessary to consider whether Netbusters’ supplies grants of facilities satisfy all the conditions set out in Note 16 (although the FTT were disinclined to do this anyway as a consequence of the way respondent prepared its case).
Commentary
The issue of the nature sporting rights has a long and acrimonious history both in the UK and EU courts. Any business providing similar services are advised to review the VAT treatment applied.
VAT: Check UK trade tariffs from 1 January 2021
HMRC has published information on Tariffs.
You can use this service to check the UK Global Tariff that will apply to goods imported post-Brexit. It also shows the difference between what you pay now and what you’ll pay from 1 January 2021.
The UK Global Tariff will apply to all goods imported from 1 January 2021 – which will include bringing in goods from EU Member States. (currently acquisitions, not imports).