In or out?
If a biscuit is covered, even partially, in chocolate the VAT is 20%, but if the chocolate is inside, say a choc chip cookie or a bourbon, it is VAT free.
Category Archives: Planning
VAT on private school fees – new webinar
HMRC have released a recorded webinar about VAT on private school fees — what you need to do, and when and how to register.
It covers:
- if you should register for VAT as an education provider
- when you should register for VAT
- how to register for VAT
- what you need to charge VAT on
- how and what to reclaim VAT on
VAT: New support for small businesses from HMRC
HMRC has launched new online guidance and interactive tools aimed at helping small business owners and those considering self-employment understand their tax responsibilities. It is aimed at supporting new and existing ‘sole traders’ and helping them to understand their responsibilities. The new interactive tool explains the records they need to keep, taxes that may apply to their business, and includes other useful information.
The resources include a step-by-step guide for registering as a sole trader and a newly developed VAT registration estimator tool to help businesses assess their VAT registration needs based on turnover.
The guidance and interactive tools are free and available directly from GOV.UK. They have been launched for information purposes only, and users will not be registered for any taxes as a result of using them. HMRC will not collect or store any information about the user.
VAT in the Digital Age (ViDA)
EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.
The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.
What is ViDA?
ViDA aims to tackle what have been identified as three main challenges:
- Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.
It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
More on e-invoicing here.
- Updated rules for the platform economy
Technological and business developments, especially in e-commerce, mean that VAT rules have struggled to keep pace. Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.
This will ensure a uniform approach across all MS and contribute to a level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
- Single VAT registration
Building on the already existing VAT One Stop Shop (OSS) model for e-commerce, the package allows more businesses selling to consumers in another MSs to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the Import One Stop Shop (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.
Commentary
Many countries worldwide already have versions of e-invoicing and real-time reporting or plan to introduce them. Businesses operating in the EU will need to consider how the new rules impact them and what changes are needed for; systems, procedures, tax declarations, along with the commercial implications.
ViDA should result in a more harmonised VAT system and the UK will need to keep in step in order to avoid becoming even more of a commercial outlier.
The UK has also confirmed a consultation on e-invoicing so lessons which can be taken from ViDA will undoubtably inform the UK process.
New Levy on gambling operators from 2025
The government has announced the introduction of a statutory levy on gambling operators.
The statutory levy is anticipated to generate £100 million for the research, prevention and treatment of gambling harms and is the first step to strengthening harmful gambling protections.
The Department for Culture, Media and Sport said that “The Levy will be paid by operators and collected and administered by the Gambling Commission (GC) under the strategic direction of the Government”.
The levy will be charged at a set rate for holders of GC operating licences, depending on the sector and nature of the gambling activity. The rate will range from 1.1% for online operators, to 0.1% of Gross Gambling Yield (GGY).
The relevant regulations will be laid before Parliament shortly, and it is intended that the levy will come into force on 6 April 2025. The government has also confirmed that it will implement online slot stake limits of £5 per spin for adults aged 25 years and older, and £2 for 18 to 24 year olds.
Society lottery operators will pay the levy as a proportion of proceeds retained after good causes and prizes paid out.
The system will be reviewed within five years with the first formal review expected by 2030.
A VAT did you know?
Children’s clothes are zero-rated. These include; hats, caps, braces, belts, garters and scarves, but not earmuffs – which are standard rated even if they are for children.
VAT: New Annual Accounting Scheme guidance published
HMRC have issued new guidance on the Annual Accounting Scheme.
A business can use form VAT600AA if it is already registered for VAT and wants to join the Annual Accounting Scheme.
VAT: DIY Housebuilders’ Scheme – The Brian Lawton case
Latest from the courts
In the First-Tier Tribunal (FTT) case of Brian Lawton the issue was whether a second claim under the DIY Housebuilders’ Scheme was valid.
Background
Mr Lawton appealed against the refusal of HMRC to pay a claim submitted in respect of the conversion of a barn into a dwelling and subsequent extensions. Unfortunately, the project faced delays and increased costs due to the Covid-19 pandemic. He claimed a refund of VAT in June 2021, which HMRC repaid. The appellant submitted a second planning application for an extension, which was approved, and the work was completed in October 2022. He then made a second VAT claim October 2022 which HMRC refused.
The issue
Whether it was possible to make more than one single VAT refund claim via the scheme when the project was split into two specific phases. Planning permission was granted for two developments, the:
- first permission was for the conversion of a barn to a dwelling
- second permission was for an extension to existing barn conversion for two bedrooms
– whether the second claim was ineligible for a refund as an extension to an existing dwelling and whether decision to disallow claim for a VAT refund was correct.
Arguments
Lawton contended that it was possible to make two separate claims due to the distinct nature of the projects, and that his first claim had been erroneous since the barn conversion was uninhabitable.
HMRC’s view was that the second claim related to an extension to a dwelling and not the actual conversion and was consequently ineligible.
Decision
Despite the FTT being sympathetic to BL’s predicament in progressing the first application development at the time of the Covid pandemic and the lockdown with the financial and economic challenges these brought about, the appeal was dismissed.
The Tribunal considered that HMRC were entitled to insist that only one claim was made under the scheme in circumstances where there has been no repayment in error or invoices and works carried out before the claim was submitted and left out of account in error or invoices issued late by a contractor.
It considered that the first claim was the only one which could be made and was restricted to the stage of development that Lawton had submitted and was covered by the completion certificate of March 2021, being “the conversion of a barn to a dwelling”.
The court emphasised that completion for VAT purposes must align with original planning permissions and agreed with HMRC’s position that extensions to existing dwellings do not qualify for refunds under the scheme.
Legislation
Commentary
This case highlights how important both timing and adhering precisely to the rules of the scheme are. The cost of a self-build can be significant and recovering any VAT incurred is important to ensure budgets are met as far as possible.
Further reading
Background to the scheme here, ten top tips here and further information and other cases on the scheme:
- Changes to the DIY Housebuilders’ Scheme
- DIY Housebuilders’ Scheme – deadline for claims extended
- The Spani case
- The Dunne case
- The Ellis case
VAT late payment interest rates reduced
HMRC has announced that late payment interest rates to be reduced after the Bank of England lowered the base rate.
The Bank of England base rate will be reduced to 4.75% from 5.0%.
The changes will come into effect on:
- 18 November 2024 for quarterly instalment payments
- 26 November 2024 for non-quarterly instalments payment
The press release is available here.
VAT: New HMRC Tax Agents Handbook
On 1 November 2024 HMRC published a new handbook for agents acting on behalf of their clients in tax matters.
The handbook contains information to help tax agents and advisers; find guidance, use HMRC’s services and contact HMRC.
HMRC is trialling this manual as an alternative to the collection of linked guidance on the tax agents and advisers: detailed information page. It covers:
- About agents and HMRC – An overview
- Appeals and penalties – How appeals, tribunals and penalties work.
- Compliance checks – Information about processes, factsheets and guidelines for compliance.
- Contacting HMRC – How to check service levels, forums, contact HMRC and raise complaints or issues.
- Guidance help – Tips for navigating guidance and using search, email alerts, feedback and archives.
- News and support – How you can keep up-to-date with latest news and information from HMRC.
- Services and registering – Links to services, how to register and what to do if your agent business changes
Tax agents have the right to represent their clients in appeals and penalty proceedings, ensuring that their clients’ interests are effectively advocated.