Food for wild birds is zero rated, while food for caged birds is at 20%.
Category Archives: Valuation
VAT: Post Brexit UK Tariffs
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: Changes to duty-free and tax-free goods carried by individuals
Duty Free extended to the EU from January 2021
HMRC has announced changes to the treatment of excise duty and VAT of goods purchased by passengers for their own use and carried across borders luggage.
Passengers will be able to buy duty-free alcohol and tobacco products in British ports, airports, and international train stations, and aboard ships, trains and planes when travelling to EU countries.
Currently, the UK applies EU rules to these goods and there are differences between passengers traveling to and from EU member States and to and from countries outside the EU. From 1 January 2021 post Brexit the rules will change. These apply to GB rather than Northern Ireland and are:
- the amount that passengers can bring back with them from non-EU Countries will also be increased, and extended to EU countries
- tax-free sales in airports of goods such as electronics and clothing for passengers will end
- VAT refunds for overseas visitors in British shops (the Retail Export Scheme – RES) will be removed. Currently, non-EU individuals can reclaim VAT incurred on retail purchases via the RES
- however, overseas visitors will be able to buy items VAT-free in store but only if they have them sent direct to their overseas address. After 1 January 2020 this will be extended to EU countries
- personal allowances will be:
- 18 litres of still wine
- 4 litres of spirits or 9 litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV
- 200 cigarettes or
- 100 cigarillos or
- 50 cigars or
- 250g tobacco or
- 200 sticks of tobacco for heating
- or any proportional combination of the above smoking products
- UK excise duty will no longer be due on alcohol and tobacco bought when leaving GB. For example, alcohol purchased duty-free on the way to the EU
Commentary
Although sold by the government as applying our new freedoms and extending duty free, in reality, the current system permits bringing in alcohol and tobacco which was purchased for a cheaper price in other EU Member States (the duty being greatly lower than the UK and the goods themselves often cheaper) in almost unlimited quantities, so it is unlikely to be very beneficial for passengers.
Retailers will need to recognise the changes, particularly the removal of the RES and the end of tax-free sales of certain goods at airports.
VAT: Staff costs – The San Domenico Vetraria SpA case
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: New HMRC guidance on amendments to leases due to COVID 19
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
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
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 cut for hospitality – Summer Statement 2020
In today’s Summer Statement Rishi Sunak announced that VAT will be cut from the current rate of 20% to 5% for the next six months in respect of hospitality and tourism which includes;
- eat in food in cafes, restaurants, bars, pubs etc
- holiday accommodation; hotels, B&Bs etc
- attractions such as cinemas, theme parks and zoos etc
The cut lasts from 15 July 2020 until 12 January 2021.
Around two million people work in the hospitality sector and it has been one of the hardest hit by Covid-19 and the government has recognised that it warrants further support. It is estimated that the move will benefit more than 150,000 businesses and consumers. This should encourage more consumer spending and help UK tourism.
Updates
HMRC has updated the relevant guides:
Notice 701/14 Food products and Notice 709/1 Catering, takeaway food
Notice 709/3 Hotels and holiday accommodation
Reductions to the relevant flat rate schemes (FRS) rates have also been announced. The two most relevant categories are catering and accommodation.
Commentary
A temporary cut of the standard rate from 17.5% to 15% was put in place during the financial crisis of 2008, but, by common consent, its impact was limited. So it remains to be seen how successful this announcement will be. It is not anticipated that the cut will be passed on to end consumers, but rather used to support potentially faltering businesses.
VAT and Duty on exports and imports post Brexit – a guide
Exports and Imports – post Brexit
VAT and Duty on exports and imports
With Brexit soon to become a reality, it is important that UK business understand the importance of exporting and importing goods. As matters stand, the UK will become a “third country” and as such will need to go through all the processes that apply to non-EU countries when goods cross borders to sales and purchases to/from existing EU countries. This mainly means customs duties applying to goods that have, to date, been duty free as the EU is a single market.
Whether importing or exporting, there are important VAT and duty rules and procedures. A business must ensure that it charges and pays the right amount of VAT and duty. The first step for moving goods into, or out of, the UK will be to obtain an EORI number. Details here.
Responsibilities for importers
- the importer is normally responsible for clearing the goods through UK customs and paying any taxes
- the supplier needs to provide the documentation an importer needs to clear the goods through customs (and to make payment to the supplier)
- now, if you are importing (even from EU countries) you are likely to have to pay import duty. This cannot be reclaimed from HMRC
- a business’ responsibilities depend on what it has agreed in the contract. To minimise the risk of disputes, your contract should use one of the internationally recognised Incoterms. These are explained here
- check what import duty applies – import duty is based on the type of goods you are importing, the country they originate from and their value
- HMRC’s Integrated Tariff sets out the classification of goods and the rates of duty in detail. Your Trade Association or your import agent may be able to assist with classification. You can find reputable freight forwarders through the British International Freight Association here
- an importer may need proof of the origin of the goods to claim reduced import duty for goods from certain countries
- a valuation document is also normally required for imports above a set value
- complete an import declaration. This is normally done using the Single Administrative Document (SAD)
- pay VAT and duty to get the goods released
- the VAT applicable is the normal UK rate for the imported goods when sold in the UK
- regular importers can defer payment of VAT and duty by opening a deferment account with HMRC. A security payment will need to be provided and payments must be via Direct Debit
- From 1 January 2021 Postponed Accounting for import VAT to be introduced for all goods including those from the EU
- account for VAT on returns
- HMRC will send a C79 certificate showing the import VAT you have paid
- VAT on imports (supported by C79 evidence) may be claimed in the same way as reclaims of input tax incurred on purchases in the UK
- import duty cannot be reclaimed
Responsibilities for exporters
-
- the exporter is normally responsible for clearing goods outwards through UK customs
- the customer is normally responsible for overseas customs clearance and taxes (depending on the Incoterms). Further details on how other countries handle import duties and taxes are available from the Department for International Trade
- the exporter will need to provide its customer with the documentation they need to clear goods into their country (and to pay you)
- the exporter’s responsibilities depend on what it has agreed in the contract (see Incoterms above)
- the exporter will need to provide its customer with the documents they need to import the goods into their country. These documents can also be part of the process of getting paid
- as a minimum, the seller will need documents recording details of the:
-
- exporter
- customer
- goods and their value
- export destination
- how the goods will be transported
- route they will take
- keep copies of all documents giving details of all the sales which have been made.
- record the value of your exports on your VAT return
- consider any responsibility you have for overseas customs clearance and taxes. Normally, as an exporter, you will have agreed that your customer handles this. However, take specialist advice, or use an expert agent, if you are responsible – this will depend on Incoterms
Tips
- freight forwarders can handle customs clearance as well as transport
- exporting can be simpler if you choose to sell to a single agent or distributor in an overseas country. However, this may not suit your export strategy
- exports are usually zero-rated. However, exporters must keep proof that the goods have been physically exported along with normal commercial documentation
- the exporter must declare the export. This is usually done by completing a Single Administrative Document (SAD), also known as form C88
Excise duty
- check whether any goods being purchased are subject to excise duty
- excise duty is payable on; fuel, alcohol and tobacco products
- if goods are subject to excise duty, it is paid at the same time as payments for VAT and import duty are made
- VAT is charged on the value of the goods plus excise duty
Customs warehouses
If you expect to store imports for a long time it will be worth considering using a Customs warehouse.
- goods stored in a customs warehouse, will not be subject to import duty and VAT until they are removed from the warehouse
- storage ‘in bond’ is often used for products subject to excise duty, such as wine and cigarettes, although it is not limited to these goods
Relief for re-exported goods
- it may be possible to take advantage of Inward Processing Relief (IPR) rules so that no import duty and VAT is payable
- IPR can apply to imports that you process before re-exporting them
If you import or export regularly, find out about alternative procedures
- For example, businesses that import regularly and in large volumes can use processes such as Customs Freight Simplified Procedures.
Summary
If you are new to acquisitions, importing or exporting, it may be worthwhile talking to an expert. This article only scratches the surface of the subject. There can be significant savings made by accurately classifying goods, and applying the correct procedures and rates will avoid assessments and penalties being levied. Planning may also be available to defer when tax is paid on imports and acquisitions.
VAT overpayments – HMRC to consider changes
VAT overpayments – New direct claims?
If a recipient of a supply makes an overpayment of VAT (usually as a result of standard rated tax being charged when a supply is reduced rated, zero rated or exempt) the remedy for the customer is to go to the supplier to obtain a new invoice/VAT only credit note and. repayment of the VAT paid. However, this can cause practical problems, disputes and an actual cost if a supplier has ceased business or become insolvent. HMRC has recognised that if the supplier has paid output tax on the supply then there is an inherent unfairness.
Following the decision in PORR Építési Kft. (C 691/17) which considered the principles of; proportionality, fiscal neutrality and effectiveness, HMRC invited interested parties to discuss a direct HMRC claim process where the taxpayer has pursued a refund via its supplier for overpaid incorrectly charged VAT but where, as stated in the cases, “recovery is impossible or excessively difficult”. In such cases the taxpayer “must be able to address its application for reimbursement to the tax authority directly”. In the past, HMRC has directed that such claims from them are pursued via the High Court (or County Court if under £30,000). The meeting discussed the new route to direct claims without initial court action including guidance, time limits and claim processes.
We await the outcome eagerly as this situation is quite common, I have found it is an issue particularly in; property and construction supplies, Financial Services and cross-border transactions (place of supply issues). If HMRC are minded to introduce a “direct claim” this will bring welcome relief to taxpayers and introduce fairness for all parties and do away with windfalls received by HMRC.