Category Archives: Technology

VAT: MTD reminder

By Marcus Ward 4 October 2022

HMRC have announced that the existing Making Tax Digital (MTD) online portal closes on 31 October 2022.

What businesses need to do now (or they could face a penalty)

If businesses haven not signed up to MTD and started using compatible software already, they must follow these steps now:

Step 1

Choose suitable MTD-compatible software they can find a list of software on GOV.‌‌‌UK.

Step 2

Check the permissions in their software – once they have allowed it to work with MTD, they can file their VAT returns easily. Go to GOV.‌‌‌UK and search ‘manage permissions for tax software’ for information on how businesses should do this.

Step 3

Keep digital records for their current and future VAT returns – a business can find out what records they need to keep on GOV.‌‌‌UK.

Step 4

Sign up for MTD and file their future VAT returns using MTD-compatible software – to find out how to do this, go to GOV.‌‌‌UK and search ‘record VAT’.

Businesses who file quarterly or monthly VAT returns must complete these steps in order to file their returns due after 1‌‌‌ ‌‌November.

Exemption from MTD for VAT

There are exemptions from MTD and they my be applied for here.

VAT: Exempt insurance intermediation. The Staysure case

By Marcus Ward 8 June 2022

Latest from the courts

In the Staysure.Co.UK Limited First Tier Tribunal (FTT) case the issue was whether services of service of generating insurance leads for the appellant fell within the insurance exemption or whether the reverse charge (please see guide below) should be applied.

Background

Staysure is an FCA regulated insurance broker based in the UK which provided travel insurance for people aged 50 or over, home insurance, cover for holiday homes and motor vehicles. It received services from an associated company belonging in Gibraltar.

The services amounted to:

the provision of insurance leads online and offline

placing targeted advertising in the press, television and online

owning and operating the domain and related website: staysure.co.uk

providing insurance quotations via a bespoke quote engine which employed complex algorithms to produce a personalised price for each customer and resulted in an offer which was competitive from the customer’s perspective while also maximising profit for Staysure, the underwriter, and the service provider

reporting on where prospective customers were falling out of the quotation and lead selection process, and in so doing demonstrate opportunities for further product development

If the services were not covered by the relevant exemption, they would be subject to a reverse charge via The Value Added Taxes Act 1994 section 8 by Staysure. As the recipient was not fully taxable, this would create an actual cost when the charge was applied. HMRC considered the service taxable and:

registered Staysure on the strength of the deemed self-supply

assessed for the input tax which was created by the reverse charge.

The assessment was circa £8 million, penalties of over £1 million plus interest. This was on the basis that HMRC concluded that the supply was taxable marketing rather than exempt intermediary services.

Decision

The court decided that the marketing and technology was used to find clients and introduce them to the insurer. The supplier was not supplying advertising, but qualified leads produced by that advertising. The quote engine was not merely technical assistance, but a sophisticated technology which assessed the conditions on which customers might be offered insurance. Consequently, these services were exempt as the supplies of an insurance intermediary (The VAT Act 1994, Schedule 9, Group 2, item 4) and Staysure was not required to account for UK VAT under the reverse charge.

The appeal was allowed. The services were within the insurance exemption, essentially because they were linked to essential aspects of the work carried out by Staysure, namely the finding of prospective clients and their introduction to the insurer with a view to the conclusion of insurance contracts.

Technical

This is another case on the application of the reverse charge. I looked at a previous case here

However, the judge helpfully summarised the following principles on insurance intermediation after considering previous case law.

whether a person is an insurance broker or an insurance agent depends on what they do. How they choose to describe themselves or their activities is not determinative

it is not necessary for a person to be carrying out all the functions of an insurance agent or broker for the exemption to be satisfied

it is essential that the person has a relationship with both the insurer and the insured party, but this does not need to be a contractual relationship. The requirement that the person has a relationship with the insurer is satisfied where the person is the subcontractor of a broker, which in turn has a relationship with the insurer

where the person is a subcontractor of a broker, the exemption is satisfied:
- where the relationship with the customer is indirect or where the subcontractor is one of a chain of persons bringing together an insurance company and a potential insured, but;
- the subcontractor’s services must be linked to the essential aspects of the work of an insurance broker or agent, namely the finding of prospective clients and their introduction to the insurer with a view to the conclusion of insurance contracts

Commentary

Care should always be taken when outsourcing/offshoring services or in fact, when any business restructuring takes place. The VAT impact of doing so could provide costly. In this case, the distinction between intermediary and marketing services was considered. It went in the taxpayer’s favour, but slightly different arrangements could have created a large VAT hit.

Guide

Reverse charge on services received from overseas

Normally, the supplier of a service is the person who must account to the tax authorities for any VAT due on the supply. However, in certain situations, the position is reversed and it is the customer who must account for any VAT due. This is known as the ‘Reverse Charge’ procedure. Generally, the Reverse Charge must be applied to services which are received by a business in the UK VAT free from overseas.

Accounting for VAT and recovery of input tax.

Where the Reverse Charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services.

Value of supply

The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration. The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.

Time of supply.

The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.

The outcome

The effect of the provisions is that the Reverse Charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus the charge aims to avoid cross border VAT rate shopping. It is not possible to attribute the input tax created directly to the deemed (taxable) supply.

VAT: New penalty regime delayed

By Marcus Ward 17 January 2022

The new system for the way penalties and interest is charged due to be introduced on 1 April this year has been deferred to 1 January 2023.

The new points-based regime has been delayed to allow HMRC to implement the necessary IT changes.

I wonder if that represents a reasonable excuse for HMRC being late…

VAT: New One Stop Shop (OSS) rules from 1 July 2021

By Marcus Ward 15 June 2021

All you need to know about the new One Stop Shop (OSS)

New VAT rules will be introduced on 1 July 2021, and it is important that businesses and advisers are aware of the impact on transactions from this date. These changes have been introduced to increase the control of tax revenues as it is an area where a significant amount of tax is lost – creating an unfairness for businesses that correctly pay tax. They also aim to provide simplification for suppliers and consumers.

Who will be affected?

The new rules will impact all businesses that sell products online to consumers (B2C) in the EU, known as: distance sales. It will also affect suppliers of certain designated services and electronic interfaces.

UK online sellers not established anywhere in the EU can use the “Non-Union” version of OSS.

How OSS works

The current position

The current EU VAT rules state that cross-border sales of goods are subject to VAT in the EU Member State (MS) of dispatch. However, there are thresholds; once these sales reach a threshold in the MS of sale, a business is required to VAT register in that MS and ensure compliance and payment of VAT there.

The new rules

All sales will be subject to VAT in the MS of arrival of the goods. The existing thresholds for distance sales of goods (where the supplier is responsible for the transport of the products) within the EU will be replaced by a new EU threshold of €10,000*. To avoid a business having to VAT register in every EU MS into which it supplies goods, online sellers will be able to use the OSS electronic portal. This will enable the seller to account for, and pay, VAT in all EU MS on a single electronic quarterly return in one EU MS.

* As, since Brexit, the UK is no longer an EU MS, one the main differences is that the €10,000 annual turnover threshold for small business does not apply, so an EU VAT registration will be required for any distance sales to the EU. The business will need to nominate any single EU MS to register, submit returns, and make payments. Additionally. As a non-union OSS, depending on the chosen MS’s domestic regulations, a business may be required to appoint a fiscal representative.

Note: Even if a UK business has a turnover below the VAT registration threshold (currently £85,000 pa) so that it need not register here, it will be subject to OSS rules and need to register in an EU MS, this is compulsory.

Supplies covered by OSS

distance sales of goods within the EU by suppliers not belonging in that MS
supplies of certain B2C services (below) made by a supplier which take place in a MS in which it is not established

Services covered by Non-Union OSS

Examples of supplies of services to customers (a non-exhaustive list) that could be reported under the non-Union scheme are:

accommodation services
admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events; such as fairs and exhibitions
transport services, plus ancillary activities such as; loading, unloading, handling or similar
valuation and work on movable tangible property
services connected to immovable property
hiring of means of transport
restaurant and catering services for consumption on board ships, aircraft or trains etc

Electronic interfaces

From 1 July 2021, if an electronic interface, eg; marketplace, platform, etc facilitates distance sales of goods by a non-EU established seller to a buyer in the EU, the electronic interface is considered to be the seller (“deemed supplier” rather than agent) and is liable for the payment of VAT via the OSS.

IOSS

In addition to the OSS, a new scheme covering the import of goods subject to a distance sales transaction and in consignments not exceeding €150 is being introduced to simplify accounting for VAT. This is called the Import One-Stop Shop (IOSS). If the value of the consignment exceeds €150, it will usually be the end customer who will be the importer and will have to pay VAT, and any, customs clearance etc costs.

Note: The VAT exemption at import of small consignments of a value up to €22 will be removed. This means all goods imported in the EU will now be subject to VAT.

VAT rates

Businesses will need to apply the VAT rate of the MS where the goods are dispatched to or where the services are supplied. Information on the VAT rates in the EU is available on the European Commission website.

How to register for the OSS

Each EU MS will have an online OSS portal where businesses can register from 1 April 2021 and can use for transactions made on or after 1 July 2021. The single registration will be valid for all eligible supplies made by online sellers (including electronic interfaces) or supplies facilitated by electronic interfaces.

OSS Requirements

A business that uses the OSS will be required to:

apply the VAT rate of the MS to which the goods are shipped
collect VAT from the buyer
submit a quarterly electronic VAT return
make quarterly VAT payments
keep records of all OSS supplies for ten years

Summary

The OSS is not compulsory, however, as the alternative is to VAT register in every EU MS where goods are received, it is a simplification in that respect – the previous distance selling rules were cumbersome and antiquated.

Further information

Full details of the OSS and IOSS from the EC here

VAT due on the charging of electric vehicles

By Marcus Ward 1 June 2021

As a result of enquiries from businesses and trade representatives, HMRC has announced that output tax is due on electric vehicle (EV) charging.

The use of EV charging points is becoming more common in public places. HMRC has clarified the rules in specific cases, and confirm:

Output tax

Supplies of EV charging through charging points in public places are charged at the standard rate of VAT. There is no exemption or relief .

NB: There is a reduced rate of VAT for supplies of small quantities of electricity, known as ‘de minimis’. However, the de minimis provision only applies if the supply of electricity is all of the following:

ongoing
to a person’s house or building
less than 1,000 kilowatt hours a month

Consequently, the de minimis provision does not apply to supplies of EV charging as this is done at charging points in public places, eg; car parks, petrol stations and on-street parking, and not to a person’s house or building.

Input tax

A business may recover the input tax incurred in charging its EVs if all of the following apply:

it is a sole proprietor
you charge your EV vehicle at home
the EV is used for business purposes (an apportionment must be made between business and private use)

If an employee charges an EV (which is used for business) at home (s)he cannot recover the input tax as the supply is made to the employee and not to the business.

If an employee charges an employer’s EV (for both business and private use) at the employer’s premises the employee will need to record the business and private mileage. Recovery of the full amount of VAT for the supply of electricity used to charge the EV is permitted (including the electricity for private use). However, output tax will be due on the charge on the amount for private use. Alternatively, a business may recover VAT on only the business element.

New EC VAT rate database

By Marcus Ward 8 April 2021

The European Commission has issued a new tool which enables businesses to check on the VAT rate for specific supplies. It is based on commodity codes but there are drop down menus for detailed descriptions. The tool covers both goods and services. There are both a simple and advanced search functions and the database also covers other taxes:

Personal Income Tax
Corporate Tax
Other Direct Taxes
Alcohol
Energy Products
Real Estate
Tobacco
Social Security Contributions

VAT: Treatment of transactions involving cryptoassets. New guidance

By Marcus Ward 8 April 2021

Further to my articles on cryptoassets and Bitcoin HMRC have published an updated Cryptoassets Manual CRYPTO40000 which sets out its interpretation of trading in cryptocurrencies.

It covers:

economic activity
supplies of tokens
exchanges
exemption
value
case law
betting and gaming
other taxes; CGT, CT, CTCG, Income Tax, NIC and Stamp Taxes

Any business dealing in any way with cryptoassets needs to understand the VAT and other tax implications of services to, and by it.

VAT: Post Brexit – low value consignments. New rules

By Marcus Ward 27 July 2020

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: Brexit latest

By Marcus Ward 23 June 2020

The European Commission (EC) has published an updated Notice to Stakeholders which covers the UK leaving the EU.

The original document which was published in 2018 has been amended to reflect the latest developments which mainly include the official Brexit on 1 February 2020 and the current transition period, which, as matters stand, will end on 31 December 2020. Until that date, EU law in its entirety applies to the UK

The Notice includes:

The legal position from 1 January 2021
VAT rules for cross-border services
The VAT General Rule
MOSS
Refunds of VAT
Separation provisions of the Withdrawal Agreement
The supply of other services
Refund requests relating to VAT paid before the end of the transition period

The Notice states that; “…during the transition period, the EU and the UK will negotiate an agreement on a new partnership, providing notably for a free trade area. However, it is not certain whether such an agreement will be concluded and will enter into force at the end of the transition period”. I think that this is likely to be a charitable conclusion!

The EC advises businesses:

when they are established in the EU, to familiarise themselves with the rules applicable to services supplied to and received from third countries (which the UK will become from 1 January 2021)
when they are established in the UK, to examine whether new liability rules will apply to them with regard to their services supplied in the EU
to take the necessary steps in respect of services covered by MOSS
consider the changes in the VAT refund request procedures

The Notice does not cover the supply of goods nor digital services themself.

General

After the end of the transition period, the EU rules on VAT for services no longer apply to, and in, the UK. This has, particular consequences for the treatment of taxable transactions in services and VAT.

Businesses need to understand the probable changes and make preparations for a No-Deal Brexit.

VAT: Intention is crucial – The Sonaecom case

By Marcus Ward 18 May 2020

We cannot control the future…

The Sonaecom case

In the opinion* of the CJEU AG (C-42/19) the importance of a taxpayer’s intention was of utmost importance, regardless of whether that intention was achieved.

Background

Sonaecom intended to acquire a telecoms provider company. As is usual in such cases, input tax was incurred on consultancy received, from, amongst others; accountants and legal service providers. The intention post acquisition was for Sonaecom to make certain charges to the acquired co. These would have been taxable supplies.

Unfortunately, the intended purchase was aborted.

The issue

The issue before the AG was; as no taxable supplies took place as the deal fell through – to what should the input tax incurred on advice be attributed?

Opinion

In the AG’s view the fact that the acquisition was aborted was no reason for the claim for input tax to denied. This was based on the fact that:

Sonaecom was not a “pure holding company”
There was a genuine intention to make taxable supplies (to the acquired co)
There was a direct and immediate link between the costs and the intended supplies
Although the acquisition costs would exceed the proposed management charges, this was not a reason to invalidate the claim
The above analysis was not affected by the fact that the transaction did not take place

Commentary

There are often issues in relation to intentions of a taxpayer. It is clear, and was emphasised in this case, that intention is all important. Of course, intentions can change over a period of time and commercial and political events may thwart or cause intentions to be re-evaluated. There is often an issue about evidencing an intention. HMRC usually require comprehensive documentary evidence to demonstrate an objective. Such evidence is sometime not available for various reasons. Consequently, it is prudent for businesses to record (board meeting minutes etc at the very least) the commercial reasons for taking a certain course of action. This issue quite often arises in transactions in land and property – which can create additional technical issues.

There is legislation in place to cover situations when intentions, or actual events change and which affect the original input tax position: The Capital Goods Scheme (CGS) and The Value Added Tax Regulations 1995, Regs 108 and 109.

Other areas of VAT which often to raise issues are management charges and holding companies. HMRC apparently continue to be eager to attack taxpayers in these areas and I have looked at the role of holding companies and the VAT treatment here, here and here.

I think it is useful to bear in mind a question which, in itself does not evidence an intention, but provides commercial coherence – Why were the costs incurred if there was no intention to make the acquisition? This does leave aside the future management charges position but goes some way to provide business logic.

It will be interesting to see how this case proceeds, but I would find it very surprising if the court diverges from this AG opinion.

* AG’s Opinion

The Court of Justice of the European Union (CJEU) consists of one judge from each Member State, assisted by eleven Advocates General whose role is to consider the written and oral submissions to the court in every case that raises a new point of law, and deliver an impartial opinion to the court on the legal solution.