Tag Archives: ec-vat

VAT: HMRC Impact Assessment of a No-Deal Brexit

By Marcus Ward 1 April 2019

HMRC have issued an impact assessment for VAT and services if the UK leaves the EU without a deal.

The impact assessment covers the effect on businesses of amendments to existing VAT legislation and the introduction of transitional provisions for the supply of services between the UK and the EU

Summary

Under current rules:

VAT is charged on most goods and services sold within the UK and the EU
the place of supply rules for services determine the country in which a business should charge and account for VAT

If the UK leaves the EU without a deal, he UK will continue to have a VAT system. This is unsurprising as it is a major revenue raiser for the Treasury and the taxpayer is required to do all the heavy lifting the tax involves.

HMRC say the published Statutory Instruments (Sis – details of which may be found in the impact assessment but mainly The Taxation – Cross-border Trade Act 2018) broadly maintain the current VAT treatment in the event of a No-Deal Brexit. It expects that “they will have either a negligible impact on the administrative burden on businesses or no impact.”

This seems, prima facie, difficult to swallow.

HMRC also anticipate that an exception to the above is the removal of the VAT Mini One Stop Shop (MOSS), which “may have a significant ongoing cost for some EU and non-EU businesses.”

The impact assessment refers to the Economic Analysis of Brexit which makes interesting reading.

Of course, the House has voted against a No-Deal Brexit, so we can rely on that… can’t we?

VAT MOSS and No-Deal Brexit

By Marcus Ward 11 March 2019

In the event of an increasingly likely no deal Brexit, changes have been put in place to the existing MOSS (Mini One Stop Shop) arrangements. Details of MOSS here.

These intended changes will affect UK businesses which provide electronically supplied services such as cross-border telecommunication, television and radio broadcasting, or digital services to non-business (eg; individuals) recipients in the EU.

Such services include:

website hosting
supply of software
access to databases
downloading apps or music
online gaming
distance teaching

The existing threshold of £8818 pa introduced by Schedule 4A, para 15(1) of the VAT Act 1994 will be removed via SI2019/404.

This means that if there is a no deal Brexit UK businesses supplying such services will either be required to:

MOSS Non-Union Scheme

A business may use the Non-Union scheme when it supplies cross-border electronically supplied services to consumers in all EU countries (including the EU country selected as the Member State of identification).

The EU countries where a business supplies services to are known as Member States of consumption.

Selecting a member state of identification

A business must designate a Member State of identification. This can be any EU country a business chooses. A business may change the member state of identification at a later date if it wants. Again, this can be any EU country a business chooses.

Registration

A business registers online via the Member State of identification’s portal.

VAT rules

A business will be allocated a VAT number by the EU country chosen to be the Member State of identification and charge VAT at the rate of the EU countries where its customers reside. The same invoicing rules as your Member State of identification must be used (although an invoice is not required in most countries when supplying services under the MOSS scheme).

VAT returns

A business must submit detailed online quarterly VAT returns within 20 days of the end of each return period. The information is then securely transferred from your Member State of identification to the relevant Member State of consumption.

VAT rates

VAT rates can be checked for the supply of telecommunications, broadcasting and electronically supplied services using the Tax Information Communication database.

For further information and to register for MOSS please see here.

VAT: Input tax claims – alternative evidence

By Marcus Ward 7 March 2019

What can be used to make a claim?

It is well known that in order to claim input tax on expenditure a business is required to have a valid tax invoice to support it. But what if there is no VAT invoice? Can HMRC accept any other evidence to support a claim? Well, the answer is yes… sometimes.

HMRC has discretion provided by EC law. The right to deduct is given by Article 167 of the Principal VAT Directive (via VAT Regulations 1995/2518 Reg 29(2) in the UK). Specifically, the wording most relevant here is “…such other documentary evidence of the charge to VAT as the Commissioners may direct.” Broadly, a business must hold the correct evidence before being able to exercise the right to deduct.

Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff are required to consider whether there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff should not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. However, this obligation is balanced against a duty to protect the public revenue.

Full details of tax invoices here.

What HMRC consider

HMRC staff are required to work through the following checklist:

Does the business have alternative documentary evidence other than an invoice (for example a supplier statement)?
Does the business have evidence of receipt of a taxable supply on which VAT has been charged?
Does the business have evidence of payment?
Does the business have evidence of how the goods/services have been consumed or evidence regarding their onward supply?
How did the business know the supplier existed?
How was the business relationship with the supplier established? For example: How was contact made?
Does the business know where the supplier operates from (have staff visited?)
How did the business contact them?
How does the business know the supplier can supply the goods or services?
If goods, how does the business know they are not stolen?
How does the business return faulty supplies?

Outcome

If the responses to the above tests are credible, HMRC staff should exercise their discretion to allow the taxpayer to deduct the input tax. Overall, HMRC are required to be satisfied that sufficient evidence is held by the business which demonstrates that VAT has been paid on a taxable supply of goods or services received by that business and which were used by that business for its taxable activities

Challenge HMRC’s decision

A business may only challenge HMRC’s decision not to allow a claim (did not exercise its discretion) if it acted in an unfair or unreasonable way. In these cases, the onus is on the taxpayer to demonstrate that HMRC have been unreasonable in not using the available discretion. This is quite often a difficult thing to do.

Case law

Not surprisingly, there is significant case law on this subject. The most relevant and recent being the Upper Tribunal (UT) cases of James Boyce and Scandico Ltd.

Tips

If possible, always obtain a proper tax invoice from a supplier, and don’t lose it! The level of evidence required when no invoice is held usually depends on the value of the claim. There would be a difference between persuading an inspector that £20 input tax on stationery is recoverable and the claiming of £200,000 VAT on a property purchase is permissible. As always in VAT, if you get it wrong and claim VAT without the appropriate evidence there is likely to be a penalty to pay.

If you, or your clients are in dispute with HMRC on input tax claims, please contact us.

VAT: More on the Mercedes Benz Financial Services case – PCP

By Marcus Ward 1 March 2019

Further to my article on the Mercedes Benz Financial Services (MBFS) case on Personal Contract Purchase (PCP), HMRC has published a Briefing Note – Changes to the VAT treatment of PCPs

HMRC has fully implemented the findings in the MBFS CJEU case. In summary, HMRC state that:

“The correct treatment of PCP and similar contracts depends on the level at which the final optional payment is set:

if, at the start of the contract, it is set at or above the anticipated market value of the goods at the time the option is to be exercised, the VAT treatment of the contract will follow the MBFS It is a supply of leasing services from the outset and VAT must be accounted for on the full value of each instalment, there is no advance, or credit, so there is no finance
if, at the start of the contract, it is set below the anticipated market value, such that a rational customer would buy the asset when they exercise the option, it is a supply of goods, with a separate supply of finance. VAT is due on the supply of goods in full at the outset of the contract, the finance is exempt from VAT”

This treatment must be used by 1 June 2019. Past declarations which have been in error must be adjusted per PN 700/45. Businesses affected by the changes may also need to consider adjustments to input tax claimed, or forgone in respect of partial exemption. A guide to partial exemption here.

Claiming EU VAT refunds after Brexit

By Marcus Ward 25 February 2019

HMRC has confirmed that in the event of a No Deal Brexit businesses belonging in the UK will no longer be able to make claims for VAT incurred in other EU Member States using the electronic refund system.

Businesses claiming via the EU VAT refund electronic system need to submit a refund claim for 2018 by 5pm on 29 March 2019. If claims are submitted after that date HMRC will be unable to send the claim to the relevant EU Member State.

If a business incurs VAT in an EU Member State in 2019 it should not use the EU VAT refund system to make a claim as it is likely to be rejected by that Member State.

After 29 March, a business must claim VAT refunds from EU Member States directly by using the existing process for businesses based outside the EU (similar to the previous EC Eighth Directive claims for those with a good memory and in line with current the EC Thirteenth Directive). This includes outstanding claims that relate to 2018 expenses, and claims relating to 2019.

It is important to understand the process for each EU Member State as it can vary. For example:

the deadline for making your claim may be different
you may need to supply a certificate of Taxable Status to support a claim
you may need to appoint a tax representative in the EU Member State of refund

Check the EU’s Europa website for country specific information on VAT.

This is yet another reason (should one be needed) that a No Deal Brexit will create significant burdens on businesses. It will mean that up to 27 separate claims, in the language of the Member State in which the claim is made, rather than a single application. Good luck everybody!

VAT: Place of supply of “erotic services”

By Marcus Ward 19 February 2019

Latest from the courts

Readers of a nervous disposition may want to look away now.

In the case of Geelen C-568/17 (in French) the advocate General (AG) was asked for an opinion on the supply of what was coyly called webcam sessions.

Background

The defendant in the main proceedings, Mr Geelen, was a VAT registered person in The Netherlands. He provided the services of the organisation and provision of interactive erotic sessions broadcast live over the Internet. The models were located in the Philippines and Mr Geelen provided them with the necessary hardware and software to transmit the sessions over the Internet. Customers contacted the models via a website after creating an account for this purpose. The sessions were broadcast live and were interactive, which meant that customers had the opportunity to communicate with the models and give them instructions. The services provided by the defendant were intended for the Dutch market. I set out the arrangements here, as I am sure that none of my readers will be aware of such things * polite cough *

This is interesting as an example of technology overtaking legislation which was enacted before such services could even be contemplated (well, by the people drafting the VAT legislation anyway).

The issue

The issue was where was the place of supply of these services. If they were in The Netherlands, then Dutch VAT would apply, but if they were deemed to be outside the EU, no EU VAT would be payable. The tax authorities considered that such services were subject to VAT in The Netherlands and issued a tax assessment notice.

Technical

Generally, the rule is that for B2C services the place of supply (POS) is where the supplier belongs. However, there is an exception for cultural, artistic, and entertainment activities. These are taxed where performed (outside the EU in this case if the exception is applicable).

Opinion

It was the AG’s opinion that, in the first place, there was no doubt that the services in question were entertaining…

However, he opined that the only way to provide cultural activities, entertainment, education, etc. was either to bring service users together at the actual place of service delivery, or to provide a service at the location of the users.

The technological development that has taken place since the relevant legislation was drafted has enabled services in which beneficiaries participate remotely, sometimes even actively, in a cultural, entertainment or other event, without necessarily doing so in real time. In a cultural reference: The “unity of action, time and place”, to refer to the categories of classical theatre, was thus upset.

In the AG’s opinion, these services were not intended to be covered by the exception. Consequently, these were not services “supplied where performed” and the general B2C rules applied, so the POS was The Netherlands and Dutch VAT was applicable. It was concluded that performance does not take place where the models are based, or where the consumer was located, but where Mr Geelen brought together all elements of the supply.

Summary

The legislation must be interpreted as meaning that the services of organising and providing live interactive webcam sex do not constitute services for entertainment purposes within the meaning of the relevant provisions.

VAT: Preparing for a No Deal Brexit. A checklist

By Marcus Ward 13 February 2019

A guide for Customs, Excise and VAT for exporters

This is a brief overview of certain issues that an exporter needs to consider if, as seems increasingly likely, there is a No Deal Brexit. There are a number of helpful links to assist. This could be an enormous change. HMRC estimate the number of customs declarations will rise from 55m to 255m annually and the EU requires eight copies of each customs declaration.

UK businesses need to plan for Customs and VAT processes, which will be checked at the EU border. They should check with the EU or Member State the rules and processes which need to apply to their goods.

Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers. Current EU rules would mean that EU Member States will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.

Checklist

Get an EORI number
Check if you can use transitional simplified procedures
Apply the correct customs procedure code
Identify the UK tariff codes for all your products by searching trade tariffs on gov.uk. A tariff code allows you to:
- complete declarations and other documentation
- check if there is duty or VAT to pay and any potential duty reliefs
If you use a UK roll on roll off location you will need to declare your goods before they board the ferry or train
Pay Customs Duty on goods
Research the destinations you want to export to. This background information, along with the commodity code of the goods will enable you to establish if goods will incur import duty in the destination country
Check if you need a licence to import or export your goods
Obtain software or an agent to make declarations
Identify what documentary requirements apply for your products when exported to EU countries by searching the EU Commission Market Access Database. (When choosing a market, you cannot currently select the UK so, assuming the UK would have no tariff preferences under a no-deal scenario, select a country such as the US or China, where no preferential arrangements exist, to establish a comparable level of duty your product would face)
Check for updates. Check the EU Brexit Preparedness portal, to understand the potential outcomes for your sector
Check the origin of all products when exported to, or imported from EU countries. Identify the UK/EU/non-EU content (including all components and raw materials) and whether your goods may qualify as being of UK or EU origin. Access further information on rules of origin
Customs delay – If working in time sensitive sectors, consider how your EU customers may be affected by customs delays. These may include; just-in-time practices, timed deliveries and potential penalties and short shelf-life goods
Identify EU customers and suppliers who are cost-sensitive and who might be reluctant to pay more for goods with the addition of import duties, customs clearance costs, higher freight costs, or currency fluctuations.
Identify exports to countries which have Free Trade Agreements (FTA) with the EU. Are they dependent on duty preferences or other FTA provisions? Consider the implications, particularly where main competition is with other EU businesses
Access details of which countries have FTA with the EU
Identify purchases from other countries which have FTA or Generalised System of Preferences (GSP) agreements with the EU.
Identify sales to EU customers who incorporate those goods into their products, for re-export to countries with FTAs. Check whether supplier declarations are provided
Cash flow – Consider protecting against foreign exchange fluctuations within your business
Map and audit supply chains. Even if a company is ready for Brexit, it will be disrupted if a supplier is not prepared and cannot meet its contracts
Check international contracts and renegotiate if required. Some intra-EU contracts will not include incoterms, the legal provisions for importing and exporting that define who is responsible for shipping goods across borders
Develop a contingency plan – There is no guarantee that border procedures will operate smoothly immediately after Brexit, and businesses may need a contingency plan in case systems fail
Stay up to date by registering for HMRC’s EU Exit update service www.gov.uk/hmrc/business-support, select ‘business help and education emails’, add your email address, select ‘Submit’, select ‘Add subscription’, choose ‘EU Exit’ then ‘Submit’
Customs checks – Establish what level of risk of physical or documentary examination might apply for your goods imported from, or exported to EU countries
For goods being exported to the EU which are not “wholly obtained” in the UK, and which have undergone processing in another third country as part of their production, it is important to understand the supply chain of components going into the product. Goods with components coming from non-UK countries will mean that that product is not able to benefit from any continued zero-tariff trade with the EU unless arrangements are put in place between the EU and UK

I hope that this is helpful. Please contact us if you have any queries.

VAT and Brexit – Latest

By Marcus Ward 21 January 2019

HMRC has released additional information on a No Deal Brexit. The so-called Partnership Pack It covers:

Customs
Excise
VAT
Regulatory changes
Trade Tariff
Trading goods regulated under the ‘New Approach’

This is a quite detailed document at 119 pages and it states that:

“The government will work closely with industry to ensure that cross-border activity continues to be conducted in a way which minimises delays and additional burdens for legitimate trade, while robustly ensuring compliance.”

We shall see how well this works in practice in the event of a No Deal Brexit.

Specifically, there are details for the following matters:

Businesses importing from the EU only
Businesses exporting to the EU only
Trading with the EU and the rest of the world
Trading with the rest of the world only
Service industries
Businesses supplying services to the EU
Express courier industry and postal services
Tour operators
Creative, cultural and sport
Agrifood, animals and plants
Business importing and exporting plants and plant products from/to the EU and elsewhere
Businesses buying and selling timber or timber products in the EU Updates to this pack
Businesses selling duty-suspended alcohol, tobacco or fuel in the UK
Businesses and individuals exporting controlled goods
Businesses supplying medicines and medical devices
Businesses producing and exporting chemicals from outside the European Economic Area (EEA)
Businesses shipping waste into and out of the EU
Transporters
Haulage companies operating between the UK and the EU
Ferry or Channel Tunnel operators moving goods between the UK and the EU
Freight forwarders
Other operators at the UK border
Customs agents
Ports and airports
Customs warehouses
Temporary storage operators
Communication resources

This list is not exhaustive.

It is a useful document for any business to read but I hope that it is never required.

VAT: No Deal Brexit – new regulations for “imports”

By Marcus Ward 14 January 2019

A new Statutory Instrument (SI) SI 2018/1376 has been issued which sets out certain measures to be adopted in the event of a No Deal Brexit in respect of postal packets. A background to VAT and Brexit here

If the UK leaves the EU without a deal it will be unable to treat the movement of goods between EU Member States in the same way as previously. Such a movement of goods now become an import – similar to any other goods currently entering the UK from outside the EU. A guide to imports here

These regulations mean that certain overseas businesses will be required to register in the UK and pay import VAT on a consignment of goods up to the value of £135.

I have summarised below the most salient parts of the SI.

What is a qualifying import?

The regulations state that a “qualifying importation” is made where—

A supplier supplies goods for a consideration to a recipient in the course or furtherance of a business carried on by the supplier
the supplier is not established in the UK
the goods are dispatched from a place outside the United Kingdom to the United Kingdom in a postal packet
the value of the contents of the postal packet is £135 or less
the postal packet does not contain goods of a class or description subject to any duty of excise

There are two exceptions (there always appear to be exceptions in VAT…)

the supplier ensures that a UK-established postal operator has a legally binding obligation to pay any import VAT that is chargeable on that qualifying importation to the Commissioners
a non UK-established postal operator has an obligation under an agreement with the Commissioners to pay any import VAT that is chargeable on that qualifying importation.

Requirement to register

A supplier must be registered under the new regulations with effect from the date on which the first qualifying importation is dispatched by the supplier. There is no de minimis limit.

Application for registration

a notification of a requirement to be registered and an application to be registered must be made using electronic communications in such form and manner to be specified by HMRC
it must provide such information as specified by HMRC

Returns

Returns will be known as “Postal Packet Returns” and will be quarterly and will be due on the first calendar day after the last day of the month next following the end of the period.

Penalties

This being VAT – of course there are penalties for getting wrong.

The penalty for failure to register is a flat rate of £1000.

The SI also contains regulations for others to be jointly and severally liable for that import VAT in certain circumstances. Further, as expected, (see here) the SI also removes Low Value Consignment Relief (LVCR) for the import of commercial goods with a value of £15 or less.

A No Deal Brexit will undoubtedly increase administration, red tape and cause delays and uncertainties, and VAT is only one aspect of that. Let us hope that this SI is not needed…

VAT: Changes to EU 13th Directive claims

By Marcus Ward 17 December 2018

HMRC has announced procedural changes to overseas businesses reclaiming VAT incurred in the UK RCB 12 (2018)

The main changes are in relation to HMRC’s firmer stance on what constitutes an acceptable Certificate Of Status (CoS).

CoS

HMRC issues form VAT66A which can be used by overseas claimants to prove that they are engaged in business activities at the time of the claim.

The CoS must be the original and contain the:

name, address and official stamp of the authorising body
claimants name and address
nature of the claimant’s business
claimant’s business registration number

The CoS is only valid for twelve months. Once it has expired you will need to submit a new CoS.

What is a 13th Directive claim?

A non-EU based business may make a claim for recovery of VAT incurred in the UK. Typically, these are costs such as; employee travel and subsistence, service charges, exhibition costs, imports of goods, training, purchases of goods in the UK, and clinical trials etc.

Who can claim?

The scheme is available for any businesses that are not VAT registered anywhere in the EU, have no place of business or other residence in the EU and do not make any supplies in the UK.

What cannot be claimed?

The usual rules that apply to UK business claiming input tax also apply to 13th Directive claims. Consequently, the likes of; business entertainment, car purchase, non-business use and supplies used for exempt activities are usually barred.

Process

The business must obtain a CoS from its local tax or government department to accompany a claim. The application form is a VAT65A and is available here Original invoices which show the VAT charged must be submitted with the claim form and business certificate. Applications without a certificate, or certificates and claim forms received after the deadline are not accepted by HMRC. It is possible for a business to appoint an agent to register to enable them to make refund applications on behalf of that business.

Deadline

Claim periods run annually up to 30 June and must be submitted by 31 December of the same year. Consequently, any UK VAT incurred in the twelve months to 30 June 2018 must be submitted by 31 December 2018. With the usual Christmas rush and distractions, it may be easy to overlook this deadline and some claims may be significant. Unfortunately, this is not a rapid process and even if claims are accurate and the supporting documents are in all in order the claim often takes some time to be repaid. Although the deadline is the end of the year HMRC say that it will allow an additional three months for submission of a CoS.

Note

There is a similar scheme for businesses incurring VAT in the UK which are based in other EU Member States. However, the process and deadlines are different. Additionally, if you are a UK business incurring VAT (or its equivalent) overseas, there are mechanisms for its recovery. Please contact us if you would like further information.