Category Archives: HMRC Publications

VAT: Education and catering – University Of Southampton Students’ Union case

By   6 November 2020
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Latest from the courts

In the University Of Southampton Students’ Union (USSU) First Tier Tribunal (FTT) case the issue was the VAT treatment of supplies of hot food and coffee; whether the appellant was an eligible institution making principal supplies of education or vocational training and/or whether supplies of hot food and coffee closely related to such principal supplies.

Background

USSU argued that both the supply of hot food and coffee by the USSU shop are exempt via The VAT Act 1994 Schedule 9, group 6, Item 4(a) and note 1(e) as supplies made by an eligible body which makes principal supplies of vocational training, and which are closely related to the (exempt) principal supply of education by the University of Southampton or vocational training by USSU. In the alternative, exemption applies for matters closely related to supplies of education by a third party via a published HMRC concession (and its supplies were within HMRC’s conditions for such a concession).

HMRC disagreed and claimed that these supplies were not closely related to education and that USSU was not an eligible body (no ring fencing of the profits such that they were not necessarily reinvested in its own supplies of education). Therefore, the supplies were properly taxable, and they declined to pay the appellant’s claim of overpaid output tax. The respondent also cited the Loughborough Students’ UnionUpper Tribunal (UT) case.

Decision

The appeal was dismissed for the following reasons:

  • USSU did not satisfy the definition of vocational training
  • the supplies of hot food and coffee were not closely related to a supply of education or vocational training
  • USSU did not satisfy the definition of an “eligible body”

Commentary

Superficially, the claim seemed good. Para 5.5 of PN 709/1 states: “If you’re a student union and you’re supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a concession you can treat your supplies in the same way as the parent institution itself. This means that you can treat your supplies as exempt when made by unions at universities.. This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt… For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas.”

However, the Notice then goes on to add “But it does not cover food and drink sold from campus shops, bars, tuck shops, other similar outlets and certain vending machines…”

This appeal looks a close-run thing, but it demonstrates that small differences in detail can produce different VAT outcomes. We urge all Student Unions and other entities “attached” to education providers to review their position.

VAT: Post Brexit Import licences and certificates

By   5 November 2020
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From 1 January 2021 businesses importing (including bringing in from the EU which were previously acquisitions) certain goods will require licences and certificates. Additionally, there will be new rules for bringing goods into the UK. As the UK will be a third country post Brexit (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).

Licences and certificates

A business will need to obtain a licence or certificate to import some types of goods (below) into the UK and it may also need to pay an inspection fee for some goods before they’re allowed into the UK.

The Goods

The goods, with links to details, are as follows;

Further GOV.UK information on importing goods from the EU to Great Britain from 1 January 2021 here.

VAT: New HMRC guidance on duty deferment and guarantee waivers

By   3 November 2020
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HMRC has published guidance on a number of issues relating to duty and guarantee waivers:

  • How to apply for duty deferment when importing goods. This will apply to businesses bringing in goods from the EU from 1 January 2021. This means that the duty and customs payments may be delayed

We recommend any business importing goods checks all the requirements and puts plans in place to defer VAT, duties and customs payments wherever possible. Despite political promises, this significant additional red tape as a result of Brexit helps nobody and will be a costly burden.  However, at least the government have put a structure in place which will aid cashflow.

VAT: Post Brexit UK Tariffs

By   15 October 2020
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Further to my recent article on the Border Operating Model, we now know what Tariffs the UK will apply.

Currently, goods are able to move from country to country inside the EU completely Tariff free. This means that there is no need for import and export formalities which add delays and red tape. Unfortunately, as a result of Brexit, from 1 January 2021, EU/UK trade will be subject to Tariffs as the UK will be a “third country” (third country refers to any country outside the EU, and in this case outside its economic structures – the single market and the customs union).

Commercially, Tariffs add to the cost of importing goods into the UK by UK businesses and increase the price of exports to overseas customers. It is not possible to reclaim the cost of Tariffs (unlike VAT) so these will always represent a real cost to a buyer. The government has now announced what the UK Tariffs will be here.

Overview

The UK has broadly retained the existing Tariff for goods brought into the EU from third countries. However, there are some changes for; important industrial components (nuts, bolts, tubes and screws etc) some consumer products, the removal of Tariffs below 2% and the rounding of Tariffs with a decimal point.

Action

Businesses should review their exposure to these tariffs and what the related customs duty burden will be. They will also need to consider; budgets, pricing and alternative business structures – which may include manufacturing in the EU rather than the UK. We also recommend reviewing Commodity Codes, values for Customs Duties and the origin of the goods. Please also note that the use of incoterms will become increasingly important.

VAT: New guidance on the border with the EU post-Brexit

By   14 October 2020
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This month the government have issued new guidance: The Border with the European Union Importing and Exporting Goods on the Border Operating Model. This provides comprehensive guidance on the movement of goods from 1 January 2021 and adds to previous guidance.

This is important information for any business moving goods between GB, the EU and NI and needs to be considered for tax planning and general preparation for Brexit. These rules will likely come into force regardless of whether the UK has negotiated an agreement with the EU.

The introduction comes in three stages:

  • Stage One – January 2021
  • Stage Two – April 2021
  • Stage Three – July 2021

Stage One

Business will need to:

  • understand the requirements of EU Member States. The necessary processes must have been done and documentation completed to comply with these requirements
  • obtain a GB EORI number to move goods to or from the UK
  • if undertaking any EU customs processes, businesses will need an EU EORI
  • importers; check which goods are on the controlled goods list- if they are on the controlled goods list, a full customs declaration is required
  • if importing non-controlled goods, decide whether to delay the customs declaration for up to six months or complete full customs declarations on import
  • decide how to complete customs formalities: Most businesses are expected to use a customs intermediary
  • consider obtaining a Duty Deferment Account (DDA). A DDA allows holders to delay customs duty, excise duty and import duty, to be paid once a month rather than on individual consignments
  • check to see if a facilitation would be of benefit. There are a number of facilitations, including the Common Transit Convention
  • if importing live animals or high-priority plants, business needs to be prepared for submitting additional documentation and checks taking place at point of destination
  • exporters; be prepared to submit customs export declarations
  • hauliers; be ready to use the “Check an HGV is ready” service

Stage Two

If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:

  • to submit pre-notification and the relevant health documentation

Stage Three

Businesses must:

  • meet full customs requirements including submitting declarations, regardless of whether it is a controlled or a non-controlled good
  • pay VAT and excise duty where necessary
  • submit safety and security declarations
  • be prepared for customs compliance checks either at port or an inland site
  • be prepared for relevant SPS goods to enter GB via a Border Control Post either at port or an inland site, accompanied by sanitary and phytosanitary (SPS) documentary requirements

General

From 1 January 2021

  • Customs Declarations – Importers and exporters will have to complete UK and EU customs declarations after the end of the transition period. Some locations will require pre-lodgement of customs declarations prior to the movement of goods, which will particularly affect ‘roll on-roll off’ (RoRo) movements
  • Customs Duties – Importers will need to ensure that any customs duties applicable to their goods under the new UK Global Tariff are paid. Importers will need to determine the origin, classification and customs value of their goods. There are options available to defer any payment that is due
  • VAT will be levied on imports of goods from the EU, following the same rates and structures as are applied to Rest of World (RoW) imports. VAT registered importers will be able to use postponed VAT accounting. Non-VAT registered importers have the same options available to report and pay import VAT as they do for customs duties

Businesses will need to review their processes for dealing with cross-border goods, both between the EU and Northern Ireland. This includes; customs declarations, compliance, provision of data, obtaining a duty deferment account and GB/EU EORI numbers as necessary. We also advise liaising with suppliers and customers to ensure, as far as possible, that transactions are as seamless as possible in these challenging times.

VAT: New HMRC list of customs agents and fast parcel operators

By   1 October 2020
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HMRC has published a list of agents and fast parcel operators who can help submit customs declarations.

Most businesses use customs agents to deal with customs procedures on their behalf. This need will increase post-Brexit. This publication shows agents and fast parcel operators who can do this, although firms on the list are not approved or recommended by HMRC.

It can be complicated to submit import and export customs declarations, so it may be better to use a company which specialises in this area to avoid potentially costly errors and to ensure compliance. It may also be beneficial in terms of costs.

The lists include:

  • customs agents and brokers
  • freight forwarders
  • shipping companies
  • fast parcel operators (eg; couriers or next-day parcels services)
  • agents who specialise in a certain industry, eg; fresh foods or pharmaceuticals

Other preparations required for Brexit here.

VAT: New HMRC guidance for businesses trading with the EU

By   1 October 2020
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HMRC has produced some help for business which will trade with other EU Member States from 1 January 2021 after Brexit. This includes videos and other information. it is divided into the following categories:

  1. Exporting and sending goods outside of the UK
  2. Importing and bringing goods into the UK
  3. The customs clearance process
  4. Webinars for exporters of animals and products of animal origin to the EU
  5. Related content

The guidance sets out what a business needs to do if it:

  • exports goods to the EU (currently called dispatches)
  • imports goods from the EU (currently called acquisitions)
  • moves people, data and services between the UK and the EU

It is said that the videos (on You Tube) are to help a business understand more about the decisions and processes in dealing with other countries. The actions will be required regardless of the outcome of negotiations with the EU and whether or not the government secures a Free Trade Agreement.

VAT and Customs Duties: How to use a Customs Warehouse

By   24 September 2020
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With the reality of Brexit fast approaching, businesses should be planning for a No-deal outcome.

One result of Brexit is likely to be the increase in the number of importers using a Customs Warehouse (CW). If a business imports goods from outside the UK (which will include other EU Member States from 1 January 2020) and it wants to store the goods to delay duty payments, this can be done in a CW.

HMRC has, this month, as a result of the anticipated increase, updated guidance on the use of a CW. Interested parties may wish to consider this publication.

Overview

There are two types of customs warehouse where you can store your goods.

  • Public warehouse

This is a warehouse operated by a business whose purpose is to store other people’s goods. They are the warehousekeeper and you are the depositor.

  • Private warehouse

This is a warehouse operated by a business to store its own goods. That business is the warehousekeeper and the depositor.

Paying duty and import VAT

A business will need to pay any Customs Duty due and import VAT when it removes its goods from a CW to free circulation (not at the time the goods enter the UK).  This a different procedure to duty deferment and often improves cashflow.

Placing goods in a CW

A business is responsible for:

  • correctly declaring the goods – if it uses an agent, it must give them clear written instructions about declaring the goods
  • ensuring that the goods are sent directly to the CW named on your declaration, within five days of Customs clearance
  • providing the warehousekeeper with all the details of the customs declaration
  • ensuring that the CW is approved for the type goods being deposited including chilled, frozen or requiring special storage needs, eg; chemicals
  • goods being correctly declared on removal from the warehouse

Removing goods from a CW

  • when a business releases goods to free circulation, it is ‘discharging’ or removing them from a CW and will pay any VAT and duty due
  • customs declaration will be required to remove the goods or declare them to another procedure
  • a business will be notified electronically of the entry number and it can remove the goods after it has made the declaration

Further details on managing a CW here.

VAT: Transfers of going concerns (TOGCs): additional condition

By   21 September 2020
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Reallocation of VAT registration number (VAT 68 action) conditions of reallocation

When a business is transferred as a going concern it is possible for the transferee to take the VAT registration number of the transferor. We do no generally advise such an action as the transferee inherits any VAT “issues” of the transferor, but there may be occasions where it is desirable.

Details of TOGCs including the conditions here.

The additional new condition for the reallocation of the VAT number in a TOGC is that the transferor may not have a VAT debt.

Details of VAT 68

  • the transferee must complete the form if it wants to keep the registration number of the previous owner. The transferee must also complete a form VAT 1. The previous owner must not complete a form VAT 7 to deregister
  • once the transfer of the registration number has been allowed, it cannot be revoked
  • the conditions that the new and previous owners must agree to are set out on the application form and are legally binding. This means that the transferee will be liable for any outstanding VAT from the previous owner’s registration. The transferor will no longer be entitled to any repayments of VAT or unclaimed input tax, even if these amounts refer to periods before or after the transfer
  • the previous owner must cancel any Direct Debit that they have set up to pay their VAT

Full conditions

The following conditions should be met as both a matter of law before reallocation can be allowed.

  • a TOGC must have taken place
  • a VAT 68 must have been completed correctly by all parties
  • the transferor must not have already deregistered
  • the transferee must not already be registered
  • where the transferor is a corporate body, it must not have been dissolved before the VAT 68 was signed
  • a group registration must not be involved
  • the transferor must be neither liable nor eligible to remain VAT-registered following the transfer
  • the transferor must not be the subject of a Notice of Direction in respect of disaggregation.
  • the transferor must have no VAT debt. This includes amounts declared (both due or not yet due), penalties and other applied charges – the new condition
  • any assessment notified to the transferor covering periods before the date of transfer must be paid
  • any assessment raised, or due to be assessed, against the transferor, or any voluntary disclosure made by the transferor, must be paid with no indication of an appeal
  • any penalty incurred by the transferor for periods prior to the date of transfer must have been paid, with no indication of an appeal
  • any interest incurred by the transferor for periods prior to the date of transfer must have been paid with no indication of an appeal
  • no civil penalty has been or is intended to be imposed on the transferor

HMRC internal guidance on this matter VATREG30100 here