Category Archives: HMRC Publications

New VAT guidelines for compliance

By Marcus Ward 23 September 2024

A newly published (18 September 2024) set of guidelines: Guidelines for Compliance GfC8 are aimed at helping businesses with VAT compliance controls and set out what HMRC considers good practice for accounting and compliance processes.

HMRC says that these Guidelines for Compliance (GfC) set out its recommended approach and are designed to help businesses understand HMRC expectations as they plan, carry out, and review the accounting and compliance processes that ensure VAT is accurately declared by a business.

The guide covers:

Purpose, scope and audience

General approach to VAT compliance controls

VAT reporting – manual adjustments

Outsourcing

Next steps — correcting errors and guidance

The guidelines are aimed at those responsible for the governance, controls, processing and submitting of the VAT return. Such roles may include:

VAT and tax managers
finance and IT professionals involved in VAT and tax
senior management with VAT and tax oversight, such as the designated senior accounting officer
VAT specialists who process and submit returns, whether in-house or within third party providers including shared service centres
agents

VAT: Zero-rating for residential caravans

By Marcus Ward 16 September 2024

HMRC have issued guidance in relation to The Value Added Tax (Caravans) Order 2024. This will come into force on 30 September 2024.

Since 2013 caravans that meet certain size criteria and are manufactured to meet BSI standard 3632 are considered to be residential caravans. Such residential caravans are the only caravans that qualify for zero rate VAT.

The BSI standard in place on 6 April 2013 was BS3632:2005. In 2015 when the BSI updated the standard, the updated reference to BS3632:2015 was added into the legislation. This standard was updated again in 2023, so the legislation needed to be updated in order to maintain the zero rate for residential caravans. The amended legislation provides for the continuation of the zero rate, which will also apply to caravans meeting any updated version of BS3632 published by the BSI in the future.

Legislation

The Statutory Instrument amends The VAT Act 1994, Schedule 8, Group 9, item 1, which applies zero-rating to caravans manufactured to any version of BS3632. The effect of this is to extend the zero-rate to caravans manufactured to the 2023 version of BS3632 and also to ensure that if the BSI updates BS3632 in future the zero rate is maintained.

It also makes a consequential amendment to item 1(b) of Group 9, to preserve the zero rate for second-hand caravans occupied before 6 April 2013.

Definition of a caravan

The term ‘caravan’ is not defined in the VAT legislation. In practice HMRC bases its interpretation on the definitions in the Caravan Sites and Control of Development Act 1960 and the Caravans Sites Act 1968.

A caravan is a structure that:

is designed or adapted for human habitation
when assembled, is physically capable of being moved from one place to another (whether by being towed or by being transported on a motor vehicle so designed or adapted)
is no more than:
- 20 metres long (exclusive of any drawbar)
- 6.8 metres wide
- 3.05 metres high (measured internally from the floor at the lowest level to the ceiling at the highest level)

More information on the VAT liabilities if various caravans here.

VAT: HMRC manual on supply and consideration updated

By Marcus Ward 9 September 2024

HMRC internal manual – VAT Supply and Consideration has been updated.

The manual provides guidance on determining the liability of the supply of goods or services effected for a consideration including:

basic principles and underlying law
identifying a supply
consideration
illegal supplies
goods or services
supplies of goods for both consideration and no consideration
supplies of services for both consideration and no consideration
definition of consideration
indicators of consideration
off-setting
compensation
payments which are not consideration
payments in specific sectors
settlement of disputes

The amendments are in respect of payments that are not consideration: Carbon offsetting which adds two new pages giving examples of outside the scope activities and commentary on other ecosystem services.

VAT: Museums and galleries – updated guidance

By Marcus Ward 16 August 2024

The HMRC guidance for galleries and museums Notice 998 has been updated to reflect changes to the VAT (Refund of Tax to Museums and Galleries) (Amendment) Order 2024.

The Notice applies to those museums or galleries that offer free admission to the public and which are eligible for refunds of VAT under the museums and galleries VAT Refund Scheme. It can be used to find out which museums or galleries offering free admission are eligible for refunds under the scheme. The VAT Act 1994, section 33A, sets out how the scheme works, but generally:

Museums and galleries offering free access are not in business in relation to this activity (their supplies are “non-business“). They may, of course, have other activities that in their own right which are business activities, eg; catering, sales of books and gifts and exhibitions for which there is a charge.

Normally, it is not possible to recover the VAT incurred on goods and services purchased to support non-business activities. Thus, VAT incurred in connection with the free admission of the public is not normally recoverable and represents a cost to these organisations.

However, HMRC will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an Order made by HM Treasury.

HMRC publish annual report and accounts 2023 to 2024

By Marcus Ward 12 August 2024

HMRC has publish its latest report and accounts.

Headlines

£843.4 billion total tax revenues collected which is a 3.6% increase on 2022 to 2023
VAT – gross revenue was £277.7 billion, less: revenue repayable of £112.2 billion – net revenue was £165.5 billion
£41.8 billion tax “protected” by tackling avoidance, evasion and error – including £13.7 billion by promoting compliance and preventing non-compliance before it occurs
83.1% taxpayers satisfied or very satisfied with its online services
HMRC app received 88.5 million logins by 3.8 million unique users, a growth rate of over 64% compared with the previous year
40 tax avoidance schemes, 39 promoters and 24 connected persons publicly named
430 new criminal cases and more than 10,200 civil investigations into suspected fraud
3,629 anti-money laundering interventions
1.5 billion suspicious or malicious events blocked by cyber security team every month
£1.9 billion tax revenue protected through enhanced repayment and identity verification controls
“Customer” satisfaction has decreased to 78.6% from the previous period and missed the low 80% target
The percentage of customer correspondence cleared within 15 working was 76.3% and again, the 80% target was missed
The telephony adviser attempts handled was a very poor 66.4% and significantly missed the 85% target
Total debt balance reduced to £44.6 billion from £45.9 billion at the end 2023.
Tax debt as a proportion of total tax revenue fell from 5.4% in 2023, to 5.1% in 2024
Tax losses were £5.6 billion, of which £5.0 billion is write-offs and the remainder remissions. ‘Remissions’ is a term used describe money owed to HMRC which it has decided not to pursue
Overall service levels on telephony and correspondence remained below service standards and it was recognised that this “caused real difficulties for some customers and agents”
Individuals’ rating of trust in HMRC has decreased since 2022 and it has continued to decrease amongst agents and small businesses since 2021

You don’t have to read all 324 pages now!

VAT: HMRC updated interest rates.

By Marcus Ward 12 August 2024

On 1 August 2024, the Bank of England reduced the rate from 5.25% to 5%. HMRC interest rates are linked to the Bank of England base rate, and consequently, it has published updated its interest rate tables which recognises the .25% decrease. This interest applies to late VAT payments and repayments.

These changes will come into effect on:

12 August 2024 for quarterly instalment payments
20 August 2024 for non-quarterly instalments payments.

VAT: Carousel fraud – How to recognise it and how to avoid been caught in it

By Marcus Ward 8 August 2024

VAT carousel fraud, also known as missing trader fraud or missing trader intra-community (MTIC) fraud, is a complex and highly sophisticated process used by organised criminals which involves defrauding governments of money that should be paid in VAT. It involves a series of transactions where goods are repeatedly bought and sold across borders, with the criminal acquiring goods free of VAT (exports of goods are tax free) and then reselling them with VAT added. The fraudster then does not pay output tax to the relevant authority, usually disappearing or closing the business without doing so. It mainly takes place in Europe, but also increasingly in South East Asia.

Round and round

If the goods are not sold to consumers (B2C) but rather, the transactions pass through a series of businesses. To perpetuate a carousel fraud, companies often create a number of sham shell companies to conceal the nature of the transactions in a complex web. The shell companies continue to trade with each other, and the transactions go round and round like a carousel. This can be almost endless. It is possible for the same goods to be traded many times between companies within the carousel fraud scheme network. Often, these transactions do not actually occur – the goods do not actually move from one party to another, but false invoices are issued.

It is common for these criminals to use the fraudulent money they have illegitimately obtained from other large scale illegal activities.

Innocent participants

Unfortunately, carousel fraud can involve innocent businesses. This often mean that these businesses suffer a VAT cost because HMRC will refuse to repay an input tax claim as the matching output tax was not paid by the missing trader. HMRC do this on the basis that the claimant knew, or should have known, that (s)he was involved in a VAT fraud (so perhaps not always so innocent).

Refusal to repay an input tax claim

This option is available to governments using the “Kittel” principle. This refers to a Court of Justice of the European Union (CJEU) case – Axel Kittel & Recolta Recycling SPRL (C-439/04 and C-440/04) where it was held a taxable person must forego his right to reclaim input tax where “it is ascertained, having regard to objective factors, that the taxable person knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT”.

The right of input tax deduction may also be denied where the taxpayer could/should have guessed that their transactions involved VAT fraud.

Due diligence

It is crucial that businesses carry out comprehensive due diligence/risk assessment to avoid buying goods that have been subject to carousel fraud anywhere along the supply chain. It is not enough to avoid a refusal to repay input tax to say to HMRC that a business just “didn’t know” about a previous fraud. The scope of verification of a transaction will depend on its size, value, and the type of business, eg; whether it is a new or existing business partner. Transactions with regular suppliers should also be verified, although there should be be a lower risk of VAT fraud.

HMRC sets out in its internal manuals guidance on due diligence and risk assessment which is helpful. The following quote sets out the authorities’ overview:

“The important thing to remember is that merely making enquiries is not enough. The taxable person must take appropriate action based on the results of those enquiries. Therefore, for example, if the taxable person has undertaken effective due diligence/risk assessment on its supplier and that due diligence/risk assessment shows one or more of the following results in relation to the supplier:

only been trading for a very short period of time,
managed to achieve a large income in that short period of time,
a poor credit rating,
returned only partly completed application or trading forms,
contacted the taxable person out-of-the-blue etc,

and yet the taxable person still goes ahead and trades without making any further enquiries, this could lead to the conclusion that the due diligence/risk assessment was casually undertaken and of no value”.

Carousel VAT fraud investigations

HMRC carries out serious VAT investigations via the procedures set out in Public Notice 160 in cases where they have reason to believe dishonest conduct has taken place. These are often cases where larger amounts of VAT are involved and/or where HMRC suspect fraudulent behaviour. If a business is under investigation for carousel VAT fraud it will receive a letter from HMRC. The consequences of a carousel VAT fraud conviction are serious, and a recipient of such a letter is strongly advised to contact a specialist carousel fraud barrister immediately to provide expert legal guidance.

The Reverse charge (RC) mechanism

Governments take the threat of carousel VAT fraud very seriously and are continually implementing new measures to deter the schemes. The UK has introduced changes to the way that VAT is charged on mobile telephones, computer chips and emissions allowances to help prevent crime (it was common to use these goods and services in carousel fraud).

The RC mechanism requires the purchaser, rather than the supplier, to account for VAT on the supply via a self-supply. Therefore, the supplier does not collect VAT, so it cannot defraud the government.

The future

VAT policy is consistently updated, so businesses must be aware of these changes to ensure compliance. Technology is being progressively used to fight fraud, and again, businesses need to be aware of this and the obligation to upgrade their own technology to comply with, say; real time reporting, eInvoicing, and other innovations. Compliance technology is increasingly employed to detect inconsistent transactions which means that a business must be compliant, because if it isn’t it will be easier for the tax authorities to detect. Even if non-compliance is unintentional the exposure to penalties and interest is increased.

How to pay duties and VAT on imports – updated guidance

By Marcus Ward 22 July 2024

HMRC has updated its guidance on how to pay Customs Duty, Excise Duties and VAT on imports from outside the UK.

The document covers, inter alia:

The update includes the removal of references to the Customs Handling of Import and Export Freight (CHIEF) system, as all import declarations must now be made through the Customs Declaration Service.

VAT: Fulfilment House Due Diligence Scheme registered businesses list updated

By Marcus Ward 18 July 2024

HMRC has updated its tool to check if businesses that stores third party goods in the UK is registered with the Fulfilment House Due Diligence Scheme for traders based outside of the UK.

The scheme applies to a business which stores any goods that:

were imported from a country outside the UK
are owned by, or stored on behalf of, someone established outside the UK
are being offered for sale and have not been sold in the UK before

If the scheme applies, failure to apply means a business:

will not be allowed to trade as a fulfilment business
will risk a £10,000 penalty and a criminal conviction

To apply

Apply online for the Fulfilment House Due Diligence Scheme.

A business cannot use an agent to apply on its behalf.

New HMRC VAT Registration Estimator tool

By Marcus Ward 15 July 2024

HMRC has gone live with a new digital tool which estimates what registering for VAT might mean for a business.

A business must VAT register if its turnover exceeds £90,000 in any 12 month rolling period. However, a business may register for  VAT if its taxable turnover is less than £90,000, this is known as voluntary registration.

This new tool can be used to estimate what VAT might be owed or reclaimed by a business when it registers for VAT. It can also be used multiple times to compare different situations that could apply to a business in the future.

As usual for VAT, there are penalties for failure to VAT register, or registering late. Not only must a business pay the VAT due from when it should have registered, it will receive a penalty depending on how much it owes and how late the registration is. The rates based on the VAT due are:

up to 9 months late – 5%
between 9 and 18 months – 10%
over 18 months = 15%.