We know that size matters for VAT – see marshmallows. Also, if you buy a small amount of bicarbonate of soda it is VAT free. However, bigger tubs are VATable.
Category Archives: VAT Zero rate
VAT: Changes to the DIY Housebuilders’ Scheme
The DIY Housebuilders’ Scheme is a tax refund mechanism for people who build, or arrange to have built, a house they intend to live in. It also applies to converting commercial property into a house(s). This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim.
The Scheme can be complex, but here is our Top Ten Tips for claimants.
The Changes
From 5 December 2023, the follow changes apply:
- claimants will be allowed to submit claims electronically
- the deadline for making claims will be extended to six months (from three)
- the list of documents required to support a claim has been amended
- a new requirement for additional evidence when a derelict building has been converted into dwelling(s) – to be made on a specific form
These changes are set out in The Value Added Tax (Refunds to “Do-It-Yourself” Builders) (Amendment of Method and Time for Making Claims) Regulations 2023 and guidance is provided by HMRC here.
The new deadline applies to claims made on, or after 5 December 2023. The deadline, broadly, begins when a dwelling is complete. There is sometimes a dispute on the completion date, so this case and commentary may be of assistance.
VAT: Updated guidance on zero-rated exports
has been updated. The Notice sets out how and when a business can apply zero-rate exported goods.
Information on the types of fuel that the Extra Statutory Concession 9.2 does not apply to, and when you cannot zero rate the export of a motor vehicle has been updated.
And: Information on evidence relating to zero rating and direct exports – paragraphs 6.1, 6.5, 7.3 and 7.4.
VAT reliefs for charities – A brief guide
Unfortunately, there is no “general” rule that charities are relieved of the burden of VAT.
In fact, charities have to contend with VAT in much the same way as any business. However, because of the nature of a charity’s activities, VAT is not usually neutral and often becomes an additional cost. VAT for charities often creates complex and time consuming technical issues which a “normal” business does not have to consider.
There are only a relatively limited number of zero rated reliefs specifically for charities and not for profit bodies, so it is important that these are taken advantage of. These are broadly:
- advertising services* received by charities
- purchase of qualifying goods for medical research, treatment or diagnosis
- new buildings constructed for residential or non-business charitable activities
- self-contained annexes constructed for non-business charitable activities
- building work to provide disabled access in certain circumstances
- building work to provide washrooms and lavatories for disabled persons
- supplies of certain equipment designed to provide relief for disabled or chronically sick persons
* HMRC have set out its views on digital/online advertising in Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief.
There are also special exemptions applicable to supplies made by charities:
- income from fundraising events
- admissions to certain cultural events and premises
- relief from “Options to Tax” on the lease and acquisition of buildings put to non-business use
- membership subscriptions to certain public interest bodies and philanthropic associations
- sports facilities provided by non-profit making bodies
Although treating certain income as exempt from VAT may seem attractive to a charity, it nearly always creates an additional cost as a result of the amount of input tax which may be claimed being restricted. Partial exemption is a complex area of the tax, as are calculations on business/non-business activities which fundamentally affect a charity’s VAT position.
The reduced VAT rate (5%) is also available for charities in certain circumstances:
- gas and electricity in premises used for residential or non-business use by a charity
- renovation work on dwellings that have been unoccupied for over two years
- conversion work on dwellings to create new dwellings or change the number of dwellings in a building
- installation of mobility aids for persons aged over 60
Additionally, there are certain Extra Statutory Concessions (*ESCs) which benefit charities. These zero rate supplies made to charities, these are:
- certain printed stationery used for appeals
- collection boxes and receptacles
- lapel stickers and similar tokens, eg; remembrance day poppies
* ESCs are formal, published concessions but have no legal force.
We strongly advise that any charity seeks assistance on dealing with VAT to ensure that no more tax than necessary is paid and that penalties are avoided. Charities have an important role in the world, and it is unfair that VAT should represent such a burden and cost to them.
A VAT Did you know?
We know that burying a deceased person is exempt, but exhumation is standard rated and we now know, thanks to the UK Funerals On-line Ltd FTT case, that the service of the repatriation of the body of a deceased person can be viewed as either an exempt supply of funeral services or a zero-rated supply of transport services.
This being the case, zero rating trumps exemption via of The VAT Act 1994, section 30(1).
A VAT Did you know?
Hard or soft? Stiff or floppy?
Sssh at the back, this is important…
Whether cakes and biscuits go hard or soft when stale helps to determine whether they are indeed cakes or biscuits (cakes go hard, biscuits go soft). This is the difference between VAT at 20% and zero rating for some products – yes… Jaffa Cakes!.
Whether printed matter is stiff or floppy can also result in either 20% or zero rated treatment. In this case, for single sheet products, eg; leaflets, limp is good and hard can result in the VAT hit.
What did you think I was talking about? Stop making up your own jokes…
Overages – what are they and what is the VAT treatment?
Land and property transactions are often complex and high value for VAT purposes. One area which we have been increasingly involved with is overages.
What is an overage?
An overage is an agreement whereby a purchaser of land agrees to pay the vendor an additional sum of money, in addition to the purchase price, following the occurrence of a future specified event that enhances the value of the land. This entitles the seller to a proportion of the enhanced value following the initial sale. Overages may also be called clawbacks, or uplifts.
Overages are popular with landowners who sell with the benefit of development potential and with buyers who may be able to purchase land at an initial low price with a condition that further payment will be made contingent on land increasing in value in the future – this may be as a result, of, say, obtaining Planning Permission.
VAT Treatment
This is not free from doubt. HMRC’s current view is that the VAT treatment of the overage follows the VAT treatment of the initial supply. This means that it is deemed to be additional consideration for the original supply, so if the land was subject to an Option To Tax (OTT) when originally disposed of the overage payment would be subject to VAT at 20%. Conversely, if the land was sold on an exempt basis, the overage is similarly VAT free and it is important to recognise this and not to charge VAT unnecessarily which would create difficulties for the buyer (because it would not be a VAT-able supply, HMRC would disallow a claim for input tax).
It is crucial to identify this VAT outcome, especially as there could be a long period between the original sale and the overage and there may be a succession of overage payments. Comprehensive records should be made and retained on the VAT status of land sold.
Uncertainty
Uncertainty arises because HMRC have changed its view on overages. The original interpretation was that there were two separate supplies, each with distinct VAT treatments. As there was no link to the original supply, the overage was mandatorily standard rated, even if the initial supply was exempt.
Additionally, take the position where the original sale was standard rated due to an OTT on the land, and the buyer subsequently built and sold new dwellings (which effectively disapplies the OTT via para 3, Notice 742A) it could be argued that the overage should be exempt as it is linked to the sale of the new houses.
We understand that HMRC’s analysis is that VAT treatment of overages is determined at the time of the original supply such that it cannot be affected by subsequent events.
In our view, the “new” HMRC view may be open to challenge – We await updated published guidance on this.
A VAT Did you know?
Popcorn is standard rated, but microwavable popcorn is VAT free.
A VAT Did you know?
In this hot weather it is important to drink sufficient fluids. If you buy a bottle of water, you will pay VAT, but milk is zero rated.
A VAT Did you know?
The sale of ducks is zero rated, but racing pigeons are standard rated.