Category Archives: Latest VAT news

VAT: New HMRC policy papers on tax debt

By   25 August 2020
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HMRC has published two new policy papers covering their position on VAT debts.

The first covers HMRC’s approach to tax debt and covers:

  • contact and discussion on ways to settle debt
  • tailored support offered
  • the role of agents/supporters
  • general debt advice
  • actions against taxpayers who do not engage with HMRC, or refuse to pay
  • HMRC enforcement powers
  • removal of assets
  • recovery of debt directly from a taxpayer’s bank account
  • County Court proceedings
  • use of debt collection agencies

The second provides guidance on HMRC’s support for taxpayers with tax debt and includes:

  • contact with HMRC
  • ways in which HMRC can assist
  • payments options, including Time To Pay (TTP)
  • bespoke TTP arrangements
  • how affordable payments are calculated
  • the role of honesty
  • the use of the Citizens Advice Bureau
  • treatment of assets
  • expectations of first contact with HMRC
  • what happens after a time to pay arrangement has been agreed
  • enforcement powers

Interestingly (well, it is all relevant I suppose!) HMRC say that it typically has more than half a million TTP arrangements in place at any one time, and nine out of ten are completed successfully.

Planning

There are a number of schemes and methods to legitimately defer or reduce VAT payable. These include the Flat Rate Scheme, Cash Accounting, margin schemes, global accounting. Other basic planning may involve; tax point planning, invoice timing, ad use of Bad Debt Relief (BDR).

Advice

Our advice is always to contact HMRC as soon as possible if a business has tax payment problems. In some cases, the department is surprisingly helpful. As the statistics demonstrate TTP arrangements are, on the whole, a very successful method for both sides to deal with tax debt.

Reminders

  • if HMRC has no idea of the cause of debt, and no contact has been made by the taxpayer. the usual assumption is that the taxpayer is ignoring it and the full force of debt action usually follows
  • tax debt never goes out of time, as there is no statute bar
  • paying taxes late usually results in penalties but these may be avoided if a TTP agreement is in place at the appropriate time
  • A TTP agreement usually means that HMRC will not use its enforcement powers
  • the length of TTP agreements depend on the quantum and nature of the debt, however for VAT unlikely to be beyond 12 months

These policy papers provide helpful guidance and explanation of HMRC’s approach, especially in these difficult economic times as a result of COVID 19 and Brexit.

VAT: Staff costs – The San Domenico Vetraria SpA case

By   24 August 2020
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Latest from the courts

In the San Domenico Vetraria SpA CJEU case the issue was the treatment of the secondment of staff by an Italian parent company to its subsidiary and the reimbursement by the subsidiary company of the costs incurred. Was there a VAtable supply?

Background

The issue was whether the relevant payment represented a supply of services ‘for consideration’. The parent company seconded one of its directors to its subsidiary and a charge was made based solely on a reimbursement of actual costs. The Italian domestic court ruled that the transaction was outside the scope of VAT on the basis that there was no consideration paid or received and therefore no supply of services.

Decision

The court ruled that despite the fact that the value of the payment to the parent company was limited to the parent company’s costs this did not mean that consideration for the director’s secondment was absent. Therefore, as consideration flowed in both directions, a taxable supply took place such that VAT was due, the claim of input tax made by the subsidiary was correct and the Italian authorities were incorrect to deny credit for it.

The President of the Chamber stated in the ruling that “The amount of the consideration, in particular the fact that it is equal to, greater or less than, the costs which the taxable person incurred in providing his service, is irrelevant in that regard”. It was immaterial that no profit was made, and the absence of such profit did not affect the VAT treatment.

There was a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient.

Commentary

This is a useful clarification/confirmation. The supply was not a disbursement (details here) so it was a supply by the parent company. More on inter-company charges here.

Planning

If the recipient company was partly exempt or unable to reclaim the input tax for any reason, the VAT would have represented a real cost. So, would there be a way to avoid this charge? The answer (in the UK at least) is yes. If the director had a joint contract of employment with both companies, there would be no supply. Also, if the two companies were part of the same VAT group, the “supply” would be disregarded, so there would be no VAT cost for the subsidiary.

VAT Planning – Why?

By   20 August 2020
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Why? How? Where? When? What? Who?

Why?

It is impossible for any business to do such a basic thing as set its prices properly unless it understands its VAT position and ensures that this is reflected in those prices, terms and contract terms etc. The aims of tax planning are:

  • compliance
  • business planning
  • avoiding unnecessary tax costs
  • maximising input tax claims
  • minimising VAT payable where possible
  • obtaining any refunds and retrospective claims due
  • avoiding penalties and interest

How?

The “How?” is dependent on the specific business and its needs. We offer a flexible and tailored service from start-ups to multi-national companies. We offer:

  • solutions to ad hoc issues
  • negotiation
  • structuring and restructuring
  • contractual arrangements
  • Dispute resolution (with HMRC, suppliers, customers etc)
  • full reviews and health checks
  • training of staff and management
  • assistance with international/cross-border supplies and purchases
  • due diligence
  • cost reduction exercises
  • income maximisation programmes
  • comprehensive land and property advice
  • advice on overseas indirect/GST matters both EC and non-EC
  • accounting and documentation advice

The VAT planning process – “The four As”

  • Ascertainment
  • Analysis
  • Alternatives
  • Action

More details of this approach here.

Where?

VAT, or its derivations applies in most countries around the world. So, the answer is probably “everywhere”. This is particularly relevant with cross-border transactions. A common issue is the “Place Of Supply” (POS) rules which dictate where a supply takes place and thus the VAT liability of it.

When?

Planning needs to be done in advance of transactions.  Once a contract has been entered into without thought for the VAT consequences, the damage may have already been done.

Where there is a one-off transaction (eg; sale of premises, sale of know-how, issue of shares), this is, by definition, something of which the business has little experience.  It is an occasion to assume that advice is needed, rather than to assume that the most obvious treatment is correct.

Since the impact of a change in the pattern of a business’ activities will continue down the years, rather than being restricted to a single occasion, it is doubly important to ensure that the correct treatment is identified from the outset.

Periodic reviews are a good time to look, not only at the future, but also at the past, to see whether developments in case law reveal past overpayments which may be reclaimed.  This is particularly important since repayments are subject to the four-year capping provisions.

The essential step is to have some means of becoming aware of changes and monitoring these with VAT in mind.  The means to be adopted are various and will depend on the size and type of the business.

What?

“Right tax, right time”. This means compliance with the relevant legislation but not paying any more VAT than is necessary. As one wag once said; “You must pay taxes. But there’s no law that says you have to leave a tip.”

Since VAT is a transaction-based tax, timing is often crucial and the objective is to legitimately defer payment to HMRC until the latest time possible, thus improving cash flow and retaining the use of VAT monies for as long as possible. The converse of this of course, is to obtain any repayments of VAT due from HMRC as soon as possible. We must also consider avoiding VAT representing an actual cost and taking advantage of any beneficial UK and EC legislation, determinations, guidance, case law and Business Briefs etc available.

VAT Planning objectives

  • improve cash flow
  • improve competitive position
  • legitimately reducing VAT payments or increasing repayments
  • minimise administration/management
  • avoid unnecessary tax or compliance costs
  • avoid penalties and interest

Who?

Marcus Ward Consultancy of course!

VAT: Changes to online advertising by charities

By   11 August 2020
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In very welcome good news from the Charity Tax Group (CTG) the zero rating for charity advertising has been extended to previously standard rated supplies

Background

Certain (“traditional”) advertising services received by a charity have always been zero rated. However, the zero rating did not cover advertising that was ‘selected” or targeted”. HMRC has always been of the view that websites which use cookies which target certain potential donors fall within the exemption such that standard rating applied which commonly represented an additional cost to a charity.

Changes

However, the CTG has announced that lengthy ongoing discussions with HMRC have finally borne fruit. HMRC have indicated that they have “relaxed“ their position and now agree that supplies of digital advertising to a charity may qualify for zero rating, even if cookies are used. This is not a blanket policy, but it does broaden the availability of zero rating which will mean an absolute saving for most charities.

Exceptions

Advertising which is sent to a social media personal accounts, or where the recipient has paid a subscription for the site, continues to be standard rated.

Action

Charities should review their advertising activity for the last four years to establish whether they have a retrospective claim. Measures should also be put in place to ensure that VAT is not overpaid in the future. We can assist with making claims if required.

VAT: Whether a person “in business”. The Y4 Express Ltd case

By   7 August 2020
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Latest from the courts

In the Y4 Express Ltd (Y4) First Tier Tax Tribunal (FTT) case the issue was whether an individual was in business such that he was entitled to be VAT registered.

Background

Y4 imported goods from China on behalf of UK customers. This entailed collecting the goods from the airport, storing them and then arranging delivery of them to the final customers. Y4 had an arrangement with Royal Mail (RM) for a discounted delivery rate. RM subsequently withdrew this discount resulting in Y4 incurring increased delivery costs. In order to mitigate this, Y4 put a structure in place using an individual (Mr Man) to contract with RM for the discount and letting Y4 use the account to take advantage of the reduced rates: RM invoiced Mr Man and Y4 would arrange payment from its own funds via direct debit. Y4 dealt with Mr Man’s VAT compliance and raised self-billing documents to itself on which it recovered input tax. It was reported that Mr Man considered this as a favour to a friend rather than as a business venture with a view to making a profit, and indeed, the charges made by RM were not marked up. Mr Man was not involved with the arrangement of deliveries of Y4 carried out by RM.

HMRC disallowed the input tax claimed as it considered that the individual was not in business, so no VAT was due on the charge made to Y4. This was on the basis that the individual was not carrying on an ‘economic activity’.

Decision

The FTT agreed with the respondent and upheld the decision to disallow Y4’s claim for input tax. This was on the basis that Mr Man was not in business so could not make supplies to Y4, which in turn meant that there was no input tax for Y4 to claim.

Commentary

The issue of whether an entity is “in business” goes back to the earliest days of VAT. I have considered the issue and recent case law here here here here and here.   HMRC relied heavily on the age-old (well, 1981) tests in the Lord Fisher case:

  • Is the activity a serious undertaking earnestly pursued?
  • Is the activity an occupation or function, which is actively pursued with reasonable or recognisable continuity?
  • Does the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies?
  • Is the activity conducted in a regular manner and on sound and recognised business principles?
  • Is the activity predominantly concerned with the making of taxable supplies for a consideration?
  • Are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them?

The judge found that the tests were not met by Mr Man and, even if they were, the evidence; the self-billing documents, were insufficient. It was also found that a penalty was due, although the quantum was reduced to reflect the cooperation of the taxpayer during the enquiries.

This appeal further demonstrates the ambiguity that often surrounds the definition of a business, and/or an economic activity (the EU legal definition). This is often an issue for charities and NFP bodies, but can extend to other areas such as in this case.

VAT: New HMRC guidance on amendments to leases due to COVID 19

By   7 August 2020
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HMRC has published guidance: Revenue and Customs Brief 11 (2020) on how some arrangements between landlords and tenants affect VAT (and Stamp Duty Land Tax). HMRC recognises that such changes have become more frequent as a result of the COVID-19 pandemic.

As a result of the current pandemic, many tenants are suffering a loss of income and want to vary the terms of their lease with their landlord. The brief provides guidance on the appropriate VAT treatment of the most common lease variations, specifically those:

  • which vary the amount of rent a tenant pays
  • where a lease extension is being agreed

As always with VAT, the correct treatment will depend on the actual agreements which the landlord and tenant enter into.

Examples

Examples of lease variations are:

  • period of reduced rent
  • rent-free period
  • rent holiday

In the guidance HMRC give examples of four examples of lease variations, but the main issue in all of them is what the tenant does in return for the variation; if anything.

VAT Treatment

Generally speaking, if a tenant makes no payment there is no supply, and so no change in the tax liability of the supply made by the landlord to the tenant. However, in cases where the tenant does something in return for a reduction in rent (which equates to consideration, albeit non-monetary) this is usually a supply by the tenant to the landlord. An example of this is; if the tenant agrees to carry out work to the building for the landlord’s benefit.

In such cases the rent reduction is equal to the value of that supply and the landlord must account for the VAT as though the rent was still being paid (if they have opted to tax the property).

Value of landlord’s supply

If the tenant does nothing in return for a reduction in the rent payable, output tax is only due on the reduced or deferred amount of rent received by the landlord- assuming an option to tax is in place.

Invoices

If both supplies are taxable at the standard rate, the amounts of VAT due on each supply are likely to be similar and the landlord and tenant will need to issue VAT invoices to each other. The input tax claimable is dependent on the overall partial exemption status of the parties. It is not possible to “net-off” the value of the supplies.

Commentary

There have been no changes to legislation or HMRC’s approach in these cases, but the guidance id a helpful reminder that VAT (and SDLT) must be considered in any lease variations.

VAT: Post Brexit – low value consignments. New rules

By   27 July 2020
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From 1 January 2021 there will be changes to the VAT treatment of low value consignments (LVC). These are goods with a value up to £135 – the threshold for customs duty liability. The HMRC guidance states that VAT will be collected at the point of sale rather than on import.

The changes are intended to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports.

Brief summary

  • LVC Relief, which relieves import VAT on consignments of goods valued at £15 or less will be abolished
  • Online marketplaces, where they are involved in a sale, will be responsible for collecting and accounting for VAT
  • If no online marketplace is involved, the overseas seller will be required to register in the UK
  • LVC B2B sales will be subject to the new rules. However, where the business customer is VAT registered in the UK VAT will be accounted for by the customer by a reverse charge
  • Although the new rules mean that there will no longer be any VAT to collect at the border, Customs declarations will still be required at import, although these will be simplified
  • For goods imported by UK VAT registered businesses which are not covered by the provisions will be able to use postponed VAT accounting
  • Sales made by persons who are not in business are outside the scope of the new measures. This includes gifts and consignments sent from consumer to consumer

VAT: New government guide to imports and exports from/to the EU post Brexit

By   20 July 2020
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On 13 July 2020 the Government published new guidance which sets out procedures for businesses moving goods between GB and the EU from 1 January 2021. These do not cover the movement of goods between GB and Northern Ireland which are covered by different rules.

On 1 January 2021 the transition period with the EU will end, and the UK will become a “third country” and as such, it will be required to operate a full, external border, in a manner similar to the UK’s current position with the Rest of World (ROW). This means that controls will be placed on the movement of goods between GB and the EU for the first time in decades.

The principles of the so-called “Core Model” will apply to all goods movements between GB and the EU, regardless of the mode of transport of the movement.

HMRC has stated that, to afford industry extra time to make necessary arrangements, it has taken the decision to introduce the new border controls in three stages up until 1 July 2021.

The guidance covers the core process of;

  • customs declarations
  • customs duty
  • import VAT
  • safety and security declarations (imports and exports)

It sets out actions that businesses should take now (especially in light of the coronavirus position), as they will be required regardless of the outcome of continuing negotiations (which, let’s face it, are likely to amount to nothing).

Some other changes will affect only specific goods movements, eg; foodstuffs which will include the need for special certifications, entering the country via specific locations, and undergoing
additional checks at the border.

If not already in place, businesses need to:

  • apply for a GB eori number
  • apply for a duty deferment Account
  • prepare to pay or account for VAT on imported goods
  • ensure drivers have correct International Driving Permits
  • consider commercial arrangements
  • consider incoterms
  • obtain the Commodity Code of goods
  • establish the customs value of goods
  • consider how customs declarations to HMRC systems will be made and the use of an Customs intermediary

The EC has published a new version of the Guidance on Customs on 14 July 2020.

This a comprehensive guide is absolutely essential reading for any business which imports or exports goods cross border (transactions known as acquisitions and dispatches from/to the EU pre-Brexit). The publication demonstrates that there will be considerably more red tape and delays which will not reduce in the future. The marketability of GB goods in the EU is unlikely to increase and, if there is no alternative to importing goods from the EU, the cost and time taken to purchase will grow.

Good luck everybody!

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VAT: New EU Action Plan – The “Tax Package”

By   16 July 2020
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The EU has announced on 15 July 2020 a new Action Plan for fair and simple taxation. The Tax Action Plan is a set of 25 initiatives the European Commission will implement between now and 2024 to make tax “fairer, simpler and more adapted to modern technologies”. Full details of the ‘Tax Package” here.

The main areas may be summarised as:

  • a single EU VAT registration to replace non-resident registrations to eliminate the need for non-resident VAT registrations. The registration number would enable a taxpayer to provide services and/or sell goods anywhere in the EU
  • plans to complement existing national and international programmes on co-operative compliance including agreements with third-countries (including the UK post Brexit)
  • reforms of VAT on Financial Services including measures for e-digital economy (Fintech) and financial and insurance outsourcing
  • proposals to change Tour Operators Margin Scheme (TOMS) rules to simplify what is recognised as a complex and distortive VAT area
  • platform economy; a review of the role of marketplaces in collecting VAT on behalf of individuals on their platforms
  • simplification of the place of supply of passenger transport services (said to be for for greener taxation)
  • advances in e-payment facilities for VAT for small and medium sized businesses
  • extension of MOSS to all B2C sales across the EU (in addition to the proposals announced in respect of the 2021 extension for Distance Selling)
  • measures to combat cross-border VAT fraud including improved analysis of EU level data and a move to automated VAT data sharing
  • a reduction of the regulatory burden for e-commerce Distance Sales of goods subject to excise
  • consideration of the treatment of crypto-assets and e-money which is considered a threat to tax transparency and which poses “substantial risks for tax evasion”
  • proposals for reducing tax disputes and monitoring the effectiveness of the dispute resolution mechanisms in Member States

This list is not exhaustive and is a guide only.

The Commission says it aims “to lead the transition into a greener and more digital world that is compatible with the principles of our social market economy”. And that “Fair, efficient and sustainable taxation is central in delivering on those ambitions”. It added that this “will be even more important in the months and years ahead, as the EU and the global community seek to recover from the fallout of the COVID-19 crisis”.

Comment

How these intended changes impact the UK after Brexit remains to be seen, however, in an increasingly worldwide marketplace lead by technology, it is difficult to understand how the UK can live in isolation.

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