Tag Archives: business

VAT – No more compensation for delayed refunds?

By Marcus Ward 7 September 2018

HMRC has announced its intention to do away with the 5% repayment supplement payable when it repays VAT late; it is not good news and I am quite cross.

Background

What is the repayment supplement?

Repayment supplement is a form of compensation paid in certain circumstances when HMRC does not authorise payment of a legitimate VAT claim within 30 days of receipt of the VAT Return.

If a business submits a repayment return and HMRC does not make the repayment within 30 days, it is required to add interest at 5% to the amount of the claim. A repayment claim arises when input tax is greater than output tax for a period. This may be due to many factors, such as; sales being VAT free, a large VAT bearing purchase or an adjustment to previous declarations. The 30 day period is paused for “the raising and answering of any reasonable inquiry relating to the requisite return or claim” by HMRC.

Additionally, HMRC may make an extra ex-gratia payment to make good any serious disadvantage suffered if a repayment is delayed to an exceptional extent, and the repayment supplement is less than the interest which might otherwise have been earned.

The proposal

In a consultation on draft legislation for Finance Bill 2018-19 the government has announced that it intends to replace the 5% supplement with payment of simple interest. This currently stands at 0.5% pa and therefore a substantially lower payment would be due to a taxpayer.

Technical

The relevant legislation covering the repayment supplement is contained in The VAT Act 1994 Section 79

Commentary

The entire point of the supplement is to focus HMRC’s mind on making the payment at the appropriate time, just as the default surcharge does for submitting a VAT return and paying VAT for a business. This is fair. To withdraw the repayment supplement does away with any incentive for HMRC to make repayments on time and this must represent an imbalance. To effectively withhold money from a business to which it is properly entitled is plain wrong. It can often significantly impact on cashflow and cause serious problems for a business.

It is quite often a fight to obtain a repayment supplement and in my personal experience HMRC do as much as possible to resist making these payments. It is no surprise that they are trying to wriggle out of their responsibility.

Let us hope that representations to HMRC against this plan are successful.

Right, I’m going to cool off…

VAT – deadline for EU refunds

By Marcus Ward 31 August 2018

A reminder

The refund scheme

If a UK VAT registered business incurs VAT in other EU Member States it is not possible to recover this on a usual UK VAT return. However, it is possible to make such a claim via a specific mechanism. This scheme is outlined in detail here and what may be claimed is considered in detail here

Any applicant must not be registered or registrable in the Member State from which they are claiming a refund, nor must they have a permanent business establishment in that EU country. There are a number of other rules to be considered as well, so it pays to ensure that the claim is valid before time and effort is expended in compiling a claim.

Deadline

For VAT incurred overseas in the 2017 calendar year must be claimed by 30 September 2018

This is less than a month away and UK business must allow time to register for the refund portal as an activation code is sent via hard copy in the post. That’s HMRC moving with the time folks. No sending by text or anything similarly helpful. There is no leeway to extend this deadline.

Please contact us if you have any queries or would like assistance on making a claim.

Is tax boring?…On reflection

By Marcus Ward 23 August 2018

I am often asked as a VAT person whether I find tax boring. I do often find it frustrating, some of the mechanics arcane and dealing with HMRC something of a challenge (putting it politely). However, I have been advising on the tax for getting on for 30 years, so it must have its attractions…

I think the best way to put it is by quoting K Maurer:

Tax is not boring. Tax is politics. Tax is geography. Tax is social issues. Tax is financial literacy. Tax is financial empowerment. Tax is problem solving. Tax is helping others create a stronger sense of independence. Tax is anything but boring!

I would also add that tax is challenging as a practitioner, it is also; evaluating information, arriving at creative solutions, hand-holding, standing up for rights, explaining, challenging views and assumptions and…keeping on top of a rapidly changing legislative/legislation and commercial landscapes.

It can also be very silly.

VAT – Charity Fundraising Exemption

By Marcus Ward 17 August 2018

Avoid adding VAT to fundraising income

There are very few VAT reliefs for charities (and it may be argued that an exemption is more than a burden than a relief) but there is an exemption for a charity which qualifies as undertaking a one-off fundraising event. The criteria are quite restrictive, and it is important that the correct treatment is applied. Furthermore, it may be in a charity’s interest to avoid the exemption if there is a lot of input tax attributable to the event, say; venue hire, entertainment, catering etc.

A qualifying event means that a charity (or its trading subsidiary) does not charge VAT on money paid for admittance to that event.

What is covered?

In order to be exempt, the event must be a one-off fundraising event which is “any event organised and promoted primarily to raise funds (monetary or otherwise) for a charity”. Consequently, we always advise clients to make it clear on tickets and advertising material (including online) that the event is for raiding funds and to use a statement; “all profits will be used to support the charitable aims of XYZ” or similar.

HMRC say that an event is an incident with an outcome or a result. This means that activities of a semi-regular or continuous nature, such as the operation of a shop or bar, cannot therefore be an event.

The following are examples of the kind of event which qualify:

ball, dinner dance, disco or barn dance
performance – concert, stage production and any other event which has a paying audience
showing of a film
fete, fair or festival
horticultural show
exhibition: art, history or science
bazaar, jumble sale, car boot sale, or good-as-new sale
sporting participation (including spectators): sponsored walk or swim
sporting performance
game of skill, contest or a quiz
participation in an endurance event
fireworks display
dinner, lunch or barbecue
an auction of bought in goods

Tip

Often there may be an auction of donated goods at a fundraising event. There is a specific and helpful relief for such sales. The sale of donated goods is zero rated which means any attributable input tax is recoverable. Consequently, if both exempt and zero rated supplies are made it is possible to apportion input tax to a charity’s benefit. Zero rating may also apply to sales such as: food (not catering) printed matter and children’s clothing

Limit to the number of events held

Eligible events are restricted to 15 events of the same kind in a charity’s financial year at any one location. The restriction prevents distortion of competition with other suppliers of similar events which do not benefit from the exemption. If a charity holds 16 or more events of the same kind at the same location during its financial year none of the events will qualify for exemption. However, the 15-event limit does not apply to fundraising events where the gross takings from all similar events, such as coffee mornings, are no more than £1,000 per week.

Clearly, the number of events needs to be monitored and planning will therefore be available should exemption be desired (or avoided as the relevant figures dictate).

What is a charity?

This seems to be a straightforward question in most cases, but can cause difficulties, so it is worthwhile looking at the VAT rules here.

Bodies have charitable status when they are:

registered, excepted or exempted from registration with the Charity Commission in England and Wales
registered by the Office of the Scottish Charity Regulator (OSCR) in Scotland
invited to register by The Charity Commission for Northern Ireland which are treated by HMRC as charitable.

Not all non-profit making organisations are charities. The term ‘charity’ has no precise definition in any law. Its scope has been determined by case law. It is therefore necessary to establish whether an organisation is a charity using the following guidelines:

charities are non-profit distributing bodies established to advance education, advance religion, relieve poverty, sickness or infirmity or carry out certain other activities beneficial to the community
in England and Wales charities must normally register with Charity Commission- some very small charities don’t need to register with Charity Commission, there are also some other special cases where particular bodies do not need to register, if there is uncertainty regarding a position see the Charity Commission website
in Scotland all charities must be registered with the OSCR – HMRC decides whether bodies in Northern Ireland are eligible.

Trading arm

It is worth noting that HMRC also accept that a body corporate which is wholly owned by a charity and whose profits are payable to a charity, will qualify and may therefore may apply the VAT exemption to fundraising events. This means that a charity’s own trading company can hold exempt fundraising events on behalf of the charity.

Further/alternative planning

If sales are not exempt as a fundraising event, there is a way to avoid VAT being chargeable on all income received. It is open to a charity to set a basic minimum charge which will be standard rated, and to invite those attending the event to supplement this with a voluntary donation.

The extra contributions will be outside the scope of VAT (not exempt) if all the following conditions are met:

it is clearly stated on all publicity material, including tickets, that anyone paying only the minimum charge will be admitted without further payment
the extra payment does not give any particular benefit (for example, admission to a better position in the stadium or auditorium)
the extent of further contributions is ultimately left to ticket holders to decide, even if the organiser indicates a desired level of donation
for film or theatre performances, concerts, sporting fixtures etc, the minimum charge is not less than the usual price of the particular seats at a normal commercial event of the same type
for dances, and similar functions, the minimum total sum upon which the organisers are liable to account for VAT is not less than their total costs incurred in arranging the event

It should be noted that any other donations collected at an event are also outside the scope of VAT.

Partial exemption

A charity must recognise the impact of making exempt supplies (as well as carrying out non-business activity). These undertakings will have an impact on the amount of input tax a charity is able to recover. Details here

Summary

We find that charities are often confused about the rules and consequently fail to take advantage of the VAT position. This also extends to school academies which are all charities. It is usually worthwhile for charities to carry out a VAT review of its activities as quite often VAT savings can be identified.

VAT: Adecco Court of Appeal case. Agent or principal?

By Marcus Ward 6 August 2018

Latest from the courts

In the recent Court of Appeal (CA) case of Adecco here the issue was whether the services provided by Adecco – an employment bureau which supplied its clients with temporary staff (temps) were by way of it acting as principal or agent.

Background

Details of the issues as considered in the FTT and UT were covered here

Overview

As is often the case in these types of arrangements, there are some matters that point towards the appellant acting as agent, and others indicating that the proper VAT treatment is that of principal. The important difference, of course, being whether output tax is due on the “commission” received by Adecco or on the full payment made to it (which includes the salaries of the relevant workers).

Decision

The CA decided that the supply of temporary staff by Adecco was as principal and consequently, VAT was due on the full amount received, not just the commission retained.

Reasoning

The CA focussed on the contractual position. Among the reasons provided for this decision were as follows (I have somewhat summarised). I think it worthwhile looking in some detail at these:

There was no question of the temps having provided their services under contracts with the clients: no such contracts existed. The contractual position must be that the temps’ services were provided to clients in pursuance of the contracts between Adecco and its clients and Adecco and the temps.
Although the contract between Adecco and a temp referred to the temp undertaking an assignment “for a client” and providing services “to the client”, it also spoke of the client requiring the temp’s services “through Adecco” and of the temp being supplied “through Adecco”.
While temps were to be subject to the control of clients, that was something that the temps agreed with Adecco, not the clients. The fact that the contract between Adecco and a temp barred any third party from having rights under the Contracts (Rights of Third Parties) Act 1999 confirms that the relevant provisions were to be enforceable only by Adecco, which, on the strength of them, was able to agree with its clients that the temps should be under their control. Adecco can fairly be described as conferring such control on its clients. (Broadly; the employment regulations required Adecco to treat itself as a principal with the result that that it could not therefore treat itself as an agent).
Adecco paid temps on its own behalf, not as agent for the clients.
Adecco by did not drop out of the picture once it had introduced a temp to a client. It was responsible for paying the temp (and for handling national insurance contributions and the like) and had to do so regardless of whether it received payment from the client Adecco also enjoyed rights of termination and suspension. It is noteworthy (as the UT said) that the contract between Adecco and a temp proceeded on the basis that a temp’s unauthorised absence could “result in a breach of obligations which we owe to the client”.
Adecco did not perform just administrative functions in relation to the temps. The temps, after all, were entitled to be paid by Adecco, not the clients.
Adecco charged a client a single sum for each hour a temp worked. It did not split its fees into remuneration for the temp and commission for itself.
The fact that Adecco had no control over a temp in advance of his taking up his assignment with the client did not matter.
Adecco undoubtedly supplied the services of employed temps to its clients.
In all the circumstances, both contractually and as a matter of economic and commercial reality, the temps’ services were supplied to clients via Adecco. In other words, Adecco did not merely supply its clients with introductory and ancillary services, and VAT was payable on the totality of what it was paid by clients.

Action

Clearly this was not the outcome the appellant desired, and it may impact similar arrangements in place for other businesses. Although found on the precise nature of the relevant contracts, the outcome of this case is not limited to employment bureaux and similar but must be considered in most cases where commission is received by an “agent”. These may include, inter alia; taxi services, driving schools, transport, travel agents, training/education, online services, repairs, warrantee work and many other types of business. It is crucial that contracts are regularly reviewed the ensure that the appropriate VAT treatment is applied and that they are clear on the agent/principal relationship. If there is any doubt, please contact us as it is often one of the most ambiguous areas of VAT.

VAT – Zipvit Court of Appeal decision

By Marcus Ward 18 July 2018

Latest from the courts

The Zipvit Court of Appeal (CA) case here

Background

A full background of this long running case may be found here

In summary: It was previously decided that certain supplies made by Royal Mail (RM) to its customers were taxable. This was on the basis of the TNT CJEU case. RM had treated them as exempt. HMRC was out of time to collect output tax, but claims made by recipients of RM’s services made retrospective claims. These claims were predicated on the basis that the amount paid to RM included VAT at the appropriate rate (it was embedded in the charge) and that UK VAT legislation stipulates that the “taxable amount” for any supply, is the amount paid by the customer including any VAT included in the price. HMRC maintained that the absence of a VAT invoice showing that VAT was charged to Zipvit by RM, and giving details of the rate of tax and the amount charged, was fatal to Zipvit’s claim to recover input tax.

The decisions in the First Tier Tribunal (FTT) and the Upper Tribunal (UT) went against Zipvit so the appeal went to the CA.

Decision

The CA upheld the decisions in the previous courts. The appellant failed to demonstrate that the relevant VAT had been “due or paid” on the supplies received from RM. It further appeared that evidence which was not present at earlier hearings showed that the amounts paid were exclusive of VAT which meant that VAT was not embedded in the consideration paid.

Importance

In the words of the judge Lord Justice Henderson the appeal raised some important questions of principle in the law of VAT. They arise when supplies of goods or services, which were wrongly assumed by the parties to the relevant transactions and by HMR to be exempt from VAT at the time of supply, are later discovered to have been subject to the standard rate of tax when they were made, following a decision to that effect by the Court of Justice of the European Union. Where the recipient of those goods or services was itself a registered trader which made taxable supplies on which it accounted for output tax, the basic question is whether, once the true position has become known, the recipient is in principle entitled to recover as an input tax credit the tax element of the consideration which it paid for the original supplies. If so, does it make any difference if the supplier has failed to pay the tax which should have been paid on the original supplies, and if the recipient is in consequence unable to produce a tax invoice from the supplier showing the amount of the input tax which it seeks to recover?

So a fundamental tenet of VAT was considered, as well as the matter of this being the lead case behind which many others were stood. I understand that the quantum of claims submitted is circa £1 billion in total so there was a lot riding on this decision.

Commentary

In my view, this is an important case for the above technical reasons and the whole decision bears reading in order to understand some of the intricacies of a business claiming input tax.

VAT Reliefs for Charities. A brief guide.

By Marcus Ward 16 July 2018

Charities and Not For Profit entities – a list of VAT reliefs

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

There are also special exemptions available for 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.

I 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.

Small businesses/start ups: Should I register for VAT voluntarily?

By Marcus Ward 6 July 2018

Why?

OK, so why would a business choose to VAT register when it need not? Let’s say its turnover is under the VAT registration limit of £85,000, isn’t it just best to avoid the VATman if at all possible?

Planning

This is not an article which considers whether a business MUST register, but rather it looks at whether it is a good idea to register on a voluntary basis if it is not compulsory. The first time a business would probably consider VAT planning.

Decision

As a general rule of thumb; if you sell to the public (B2C) then probably not. If you sell to other VAT registered businesses (B2B) then it is more likely to be beneficial.

If you sell B2B to customers overseas it is almost certain that VAT registration would be a good thing, as it would if you supply zero rated goods or services in the UK. This is because there is no output tax on sales, but full input tax recovery on costs; VAT nirvana! A distinction must be made between zero rated supplies and exempt supplies. If only exempt supplies are made, a business cannot register for VAT regardless of level of income.

Compliance

Apart from the economic considerations, we have found that small businesses are sometimes put off VAT registration by the added compliance costs and the potential penalties being in the VAT club can bring. Weighed against this, there is a certain kudos or prestige for a business and it does convey a degree of seriousness of a business undertaking. It may also make life simpler (and reduce costs) if a business buys goods or services from other EC Member States. We also come across situations where a customer will only deal with suppliers who are VAT registered.

The main issue

The key to registration is that, once registered, a business may recover the VAT it incurs on its expenditure (called input tax). So let us look at some simple examples of existing businesses for comparison:

Examples

Example 1

A business sells office furniture to other VAT registered business (B2B).

It buys stock for 10,000 plus VAT of 2,000

It incurs VAT on overheads (rent, IT, telephones, light and heat etc) of 2,000 plus 400 VAT

It makes sales of 20,000.

If not registered, its profit is 20,000 less 12,000 less 2400 = 5600

If VAT registered, the customer can recover any VAT charged, so VAT is not a disincentive to him.

Sales 20,000 plus 4000 VAT (paid to HMRC)

Input tax claimed = 2400 (offset against payment to HMRC)

Result: the VAT is neutral and not a cost, so profit is 20,000 less 12,000 = 8000, a saving of 2400 as compared to the business not being registered. The 2400 clearly equals the input tax recovered on expenditure.

Example 2

A “one-man band consultant” provides advice B2B and uses his home as his office. All of his clients are able to recover any VAT charged.

He has very little overheads that bear VAT as most of his expenditure is VAT free (staff, train fares, use of home) so his input tax amounts to 100.

He must weigh up the cost (time/admin etc) of VAT registration against reclaiming the 100 of input tax. In this case it would probably not be worthwhile VAT registering – although the Flat Rate Scheme may be attractive, please see article here

Example 3

A retailer sells adult clothes to the public from a shop. She pays VAT on the rent and on the purchase of stock as well as the usual overheads. The total amount she pays is 20,000 with VAT of 4000.

Her sales total 50,000.

If not VAT registered her profit is 50,000 less 24,000 = 26,000

If VAT registered she will treat the value of sales as VAT inclusive, so of the 50,000 income 8333 represents VAT she must pay to HMRC. She is able to offset her input tax of 4000.

This means that her profit if VAT registered is 50,000 less the VAT of 8333 = 41,667 less the net costs of 20,000 = 21,667.

Result: a loss of 4333 in profit.

As may be seen, if a business sells to the public it is nearly always disadvantageous to be voluntarily VAT registered. It may be possible to increase her prices by circa 20%, but for a lot of retailers, this is unrealistic.

Intending traders

If a business has not started trading, but is incurring input tax on costs, it is possible to VAT register even though it has not made any taxable supplies. This is known by HMRC as an intending trader registration. A business will need to provide evidence of the intention to trade and this is sometimes a stumbling block, especially in the area of land and property. Choosing to register before trading may avoid losing input tax due to the time limits (very generally a business can go back six months for services and four years for goods on hand to recover the VAT). Also cashflow will be improved if input tax is recovered as soon as possible.

Action

Careful consideration should be given to the VAT status of a small or start-up business. This may be particularly relevant to start-ups as they typically incur more costs as the business begins and the recovery of the VAT on these costs may be important. In most cases it is also possible to recover VAT incurred before the date of VAT registration.

This is a basic guide and there are many various situations that require further consideration of the benefits of voluntary VAT registration. We would, of course, be pleased to help.

VAT – Top 10 Tips for small businesses and start ups

By Marcus Ward 5 July 2018

VAT Basics

Small business and start ups have a lot of things to think about – VAT being just one. However, failure to consider VAT can lead to difficulties and penalties. So here are some pointers for new and/or growing bushiness:

Plan ahead and know when to register for VAT
Make contact with your advisers
Monitor your turnover so that you know when you are approaching the VAT registration threshold
Keep your records up-to-date and check accounting documents
Speak to us if things go wrong or there’s something you don’t understand
Deal with VAT enquiries or HMRC’s requests for information promptly
Manage the VAT within your business cashflow
Don’t worry if Customs make contact with you
Right tax – right time
If you are not happy with Customs’ behaviour or have received an unhelpful or incorrect ruling; challenge it.

The overall message is; talk to a professional at an early stage. Timing is very important for VAT and you usually only have one chance to get it right.

Finally, regarding the first point – it may benefit a business to VAT register before it is required to (a so-called voluntary registration). I shall look at that in more depth in my next article.

New RCB 5 – VAT treatment of goods supplied on approval

By Marcus Ward 25 June 2018

Goods supplied on approval

Meaning

Goods supplied on approval is an arrangement under which items of durable nature are provided to a prospective customer for a pre-purchase trial. These items are returnable after a specified period in re-saleable condition if not accepted for purchase.

New publication

HMRC has announced via Revenue and Customs Brief 5 (2018) “RCB 5” changes to the way goods supplied on approval are treated for VAT purposes.

The broad thrust of RCB 5 is that, in HMRC’s opinion, taxpayers are using the rules for goods supplied on approval when this treatment is inappropriate.

The goods supplied on approval rules

Output tax is due at the end of the approval period. That is, tax is deferred until a time the goods are adopted (if they are). These rules are distinct from a supply of goods with a subsequent right to return them. In these cases the tax point is when title passes.

Sale on approval was considered by the Tribunal in the case of Littlewoods Organisation plc (VTD 14977). The Tribunal held that goods were supplied on approval where there is no contract of sale unless, and until, the recipient concerned adopted or was deemed to have adopted the goods. The judge in that case decided that Littlewoods did not supply goods on approval. This case appears to have triggered an HMRC initiative to look at the number of businesses which may be incorrectly deferring output tax by using these rules. It concluded that a lot fewer taxpayers were actually providing goods on approval than previously thought.

Technical

The basic tax point for a supply of goods in these situations is determined by the VAT Act 1994 section 6(2) (c) which applies in the case of goods on approval. It delays the basic tax point until the time when the goods are adopted by the customer or twelve months from the date they were originally despatched, whichever is the earlier

Section 6(2)

(2) … a supply of goods shall be treated as taking place –

(a) if the goods are to be removed, at the time of the removal;

(b) … ;

(c) if the goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place, at the time it becomes certain that the supply has taken place or, if sooner, 12 months after the removal.

The guidance

HMRC has published the RCB to provide guidance on how businesses should review their transactions in order to establish whether they are using sale on approval treatment correctly.

Indicators of goods supplied on approval

Whether or not goods are supplied on approval will depend on the facts in each case and will require consideration of a number of indicators which will have to be carefully weighed against each other. Relevant indicators include the following factors but they are not exhaustive.

The terms and conditions of trading, and all contractual terms applying.
The time when title in the goods passes to the buyer.
The time at which the buyer has the right to dispose of the goods as owner.
The view presented to the customer in marketing literature, order forms, delivery notes, statements etc.
The rights of the customer to return unwanted goods.
The terms of any supply of credit finance provided with the goods.
The time when payment for the goods is demanded.
The time when payment for the goods is received.
The time when the buyer assumes responsibility for the upkeep and insurance of the goods.
Anything the buyer does to signify his adoption of the goods.
The calculation of the minimum payment due for goods delivered.
The time when a sale is recognised in the financial accounts of the business.

(these indicators are not featured in RCB 5).

Deadline

HMRC state that from 18 September 2018 all business must change their accounting systems and accurately apply the appropriate VAT treatment. However, no action will be taken for past inaccuracies and taxpayers will not be required to make any changes to records or declarations.

Delivery charges

In normal circumstances, the fee charged for delivery follows the VAT liability of the goods being supplied (it is a single supply of delivered goods). However, the RCB somewhat controversially, states that when goods are supplied on approval the delivery charge is not ancillary. HMRC conclude that as delivery occurs before the customer or the supplier know whether there will be a supply of goods, delivery is an aim in itself, represents a separate, independent supply and is not dependent upon the supply of goods. The purpose of the delivery service is to facilitate the customer inspecting the goods to decide whether or not they wish to purchase them. This is always a standard rated supply and consequently, output tax is due on this fee, whether or not the goods are adopted (and with a tax point prior to adoption or return). I expect that this analysis will be challenged at some point as it does not, in my mind, sit comfortably with previously decided case law.

Action

Businesses which consider themselves to be supplying goods on approval (usually mail order businesses) need to review their terms and manner of trading to identify whether that is indeed the case. Consideration must be given to the above indicators, the ruling in the Littlewoods case and the information in RCB 5. If what is being provided falls outside the definition of a supply on approval, the necessary changes are required in order to recognise a sale at an earlier time. Even if goods are supplied on approval, the VAT treatment of delivery charges need to be reconsidered and adjusted if need be. We can assist if required.