Tag Archives: EU-vat

VAT Import documents – delays with paperwork

By   24 September 2018
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We understand that HMRC is having difficulties after outsourcing the issuing of C79 forms.

What are C79s?

A C79 form is issued to businesses which import goods into the UK from countries outside the UK. It is used to reclaim VAT charged at the point of import. It is an important document because, unlike usual VAT claims, it is not sufficient to claim on an invoice from the supplier.

Impact

Technically, without a C79 form, the VAT on import cannot be claimed. So, a delay in issuing the documentation can have serious consequences for a business’ cashflow. It is possible to request a duplicate form, but the department which deals with these has been overwhelmed with applications and does not appear to be able to help in a timely manner. It looks like taxpayers will have to be patient and tolerate yet another HMRC “problem”. With a very long overdue move to electronic import documentation businesses may be in a better position, but, in the future…

Compare this with the implementation of MTD where something which benefits HMRC and will cause grief to taxpayers has been pushed ahead with despite the difficulties.

Brexit

Of course, early next year, we may be looking at the requirement of C79s for goods “imported” from other EU Member States, which does beg the question; if HMRC cannot cope now, how will it when the number of forms increases significantly? I strongly suspect delays at borders (for many, various reasons), delays with documentation (whether it be electronic or good old dead trees) and delays with any system operated by any of the UK authorities with responsibility, in capacity, for cross-border movement of goods and people.

Good luck everybody…

The EU VAT GAP 2018

By   24 September 2018
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VAT GAP Report 2018: EU Member States still losing almost €150 billion in revenues according to new figures.

What is the tax gap?

The VAT gap is the difference between the amount of VAT that should, in theory, be collected by EU authorities, against what is actually collected. The ‘VAT total theoretical liability’ (VTTL) represents the VAT that should be paid if all businesses complied with both the letter of the law and the EU bodies’ interpretation of the intention of the lawmakers (commonly referred to as the spirit of the law).

In nominal terms, the VAT Gap decreased by €10.5 billion to €147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before. The individual performance of the Member States still varies significantly.

The VAT Gap decreased in 22 Member States with Bulgaria, Latvia, Cyprus, and the Netherlands displaying strong performances, with a decrease in each case of more than 5% in VAT losses. However, the VAT Gap did increase in six Member States: Romania, Finland, the UK, Ireland, Estonia, and France.

VAT MOSS – Changes to digital services 2019

By   14 September 2018
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HMRC has announced new measures affecting digital services

An introduction to the Mini One Stop Shop (MOSS) here

The measures make two changes to the rules for businesses making sales of digital services to consumers across the EU. They will:

  1. Introduce a (sterling equivalent) €10,000 threshold for total supplies to the EU in a year of sales of digital services. This change means that businesses will only be subject to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) falls below this threshold. If the businesses total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT. Businesses can continue to apply the current rules if they so choose.
  2. Allow non-EU businesses, which are registered for VAT for other purposes, to use the MOSS scheme to account for VAT on sales of digital services to consumers in EU Member States. This group are currently excluded from using MOSS.

Operative date

The measure will have effect from 1 January 2019.

Current law

Introduction of a threshold – current law is contained in Schedule 4A, para 15(1) of the VAT Act 1994.

Inclusion of Non-Established Persons in MOSS – current law is contained in Section 3A of the VAT Act 1994 and in Schedule 3B of the VAT Act 1994.

Please contact us should you have any queries.

VAT – deadline for EU refunds

By   31 August 2018
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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.

VAT – Place of supply of professional services flowchart

By   23 August 2018
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A question I am often asked by my legal and accountant clients is “Do we charge VAT on our invoices?” The main issue with this general question is the place of supply (POS). Consequently, I have produced a simple flowchart which covers most situations and applies to all providers of professional services. Of course, this being VAT, there are always unusual or one-off queries, but this chart, with the notes should address the most common issues.

Place of supply Of Services Flowchart

POS services flowchart

Notes to flowchart

As always, nothing in VAT is as simple as it seems. So I hope the following notes are of assistance.

Place of belonging

If the services are supplied to an individual and received by him otherwise than for the purpose of any business carried on by him, he is treated as belonging in whatever country he has his “usual place of residence”.

If the services are in respect of an individual’s business interests, then more complex rules on the place of belonging may apply.  The issue is usually where more than one “establishment” exists.  In these cases, the rule is the place of belonging is the “establishment” at which, or for the purposes of which, the services are most directly used or to be used.

A guide to belonging here 

Property rental in the UK

Property rental is treated as a business for VAT purposes.  We must decide whether a rented property here creates a business establishment in the UK for the landlord.  If a person has an establishment overseas and owns a property in the UK which it leases to tenants; the property does not in itself create a business establishment.  However, if the entity has UK offices and staff or appoints a UK agency to carry on its business by managing the property, this creates a business establishment (place of belonging) in the UK. VAT Act 1994 s. 9 (5) (a).  In these cases, the professional services would likely be UK to UK and be standard-rated.

Difference between business and non-business:

Services provided to an individual are likely to be non-business unless the services are linked to that individual’s business activities, eg; as a sole proprietor.  Therefore, an individual’s tax return is, in most cases, likely to be in the recipient’s non-business capacity (although it may be prudent to identify why a UK tax return is required for a non-UK resident individual, ie; what UK activities have taken place and do these activities amount to a business or create a business establishment?)

This is an area that often gives rise to uncertainties and differences in interpretation (particularly when deciding which establishment has most directly used the services).  It may be helpful to reproduce a specific example provided by HMRC:

Example

“A UK accountant supplies accountancy services to a UK incorporated company which has its business establishment abroad.  However, the services are received in connection with the company’s UK tax obligations and therefore the UK fixed establishment, created by the registered office, receives the supply.”

As always, please contact us should you have any queries.

Changes to the import of goods

By   10 August 2018
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If a business imports goods from countries outside the EU, there are changes being made by HMRC which it needs to beware of. If a business currently uses the UK Trade Tariff to make Customs declarations it will be affected by these changes.

The changes are set out here for imports. We understand that the changes for exports will be made available later in the year.

If a business’ agent or courier completes its declarations on its behalf, it may be prudent for a business to contact them discuss the impact of the changes.

Background

An overview of the changes may be found here

And a general guide to importing here

Why is the Tariff changing?

HMRC is phasing in the new Customs declaration Service (CDS) here from August to replace the current Customs Handling of Import and Export Freight (CHIEF) system. As well as being a modern, digital declaration service, CDS will accommodate new legislative requirements under the Union Customs Code UCC here In order to comply with the UCC, a business will need to provide extra information for its declarations which can be found in the tariff.

When will a business be required to use the new Tariff?

The majority of importers will start using CDS after November 2‌018, once their software provider or in-house software team has developed a CDS compatible software package. Some importers will start making declarations on CDS before this, but there is no action for a business to take unless it has been contacted by HMRC to be part of this group.

Brexit

As is very common with Brexit, it is unknown how the UK leaving the EU will affect this position. With a No-Deal Brexit seeming likely, the above rules are likely to apply to goods brought into the UK from other EU Member States after next March.

Please contact us should you have any queries.

VAT – Zipvit Court of Appeal decision

By   18 July 2018
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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 – Bringing goods into the UK from other EU countries

By   8 June 2018
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VAT Reverse Charge for Goods – Acquisition Tax and Intrastat

If a business registered for VAT in the UK receives goods from other Member States in the EU (technically known as acquisitions rather than imports) it will not pay overseas VAT in the Member State from which they are purchased. However, a “Reverse Charge” applies to such purchases  The rate of VAT payable is the same rate that you would have paid had the goods been supplied to the purchasing business by a UK supplier. This VAT is known as acquisition tax and a business can normally reclaim this VAT if the acquisitions relate to taxable supplies it makes. This is usually resale of the goods, but in some circumstances the goods will be “consumed” by a business. In these cases, if the business is partly exempt, there may be a restriction of the amount of acquisition tax claimable.

VAT free

In order to obtain intra-EU goods VAT free a business must give its supplier its UK VAT number. The supplier is obliged to make checks to determine whether the number is valid and if it is it allows the supplier to treat the supply as VAT free. VAT number validity may be checked here

Why?

This system ensures that tax is paid (and paid in the “correct” Member State) and also avoids “rate shopping” where a business which cannot recover input tax could, without these rules, buy goods VAT free to the detriment of suppliers in its own country. With acquisition tax, it is a level playing field for all EU businesses.

Record-keeping for acquisition tax

A business must enter the VAT details on its VAT return. The time of supply for VAT purposes is the time of acquisition – normally, the earlier of:

  • the 15th day of the month following the one in which the goods come into the UK
  • the date the supplier issued their invoice

A business must account for the acquisition tax on the return for the period in which the time of supply occurs, and may treat this as input tax on the same return. This, for most businesses is a bookkeeping exercise and is far preferable than the previous system when goods had to be physically entered at borders. This issue forms part of the problems for Brexit, especially with the UK’s only land border between Northern Ireland and the ROI.

Value of acquired goods for VAT purposes

The value for VAT of any goods brought into the UK is the same as the value for VAT of the goods had they been supplied to the purchaser by a UK supplier. A business must account for the value of the goods or services in £sterling, so it must convert their value into £sterling if the goods were priced in another currency.

Intrastat

Intrastat is the name given to the system for collecting statistics on the trade in goods between EU Member States. The requirements of Intrastat are similar in all EU Member States.

It is worth noting that:

  • the supply of services is excluded from Intrastat
  • only movements which represent physical trade in goods are covered by Intrastat, although there are some movements that are excluded

Intrastat – use of information

The information collected by the Intrastat system is a key component for Balance of Payments (BOP) and National Accounts (NA) data, which is regarded as an important economic indicator of the UK’s performance.

The Office for National Statistics uses the monthly trade in goods figures collected by HMRC together with the trade in services survey to produce the BOP and NA figures.

The Bank of England uses monthly trade data as part of its key indicators for gauging the state of the UK and world economic environment to set interest rates each month.

Government departments use the statistics to help set overall trade policy and generate initiatives on new trade areas.

Beyond the UK, trade statistics data are used by the EU to set trade policy and inform decisions made by such institutions as the European Central Bank, the United Nations and the International Monetary Fund.

The commercial world uses statistics to assess markets both within the UK (for example, to assess import opportunities) and externally (for example, to establish new markets for its goods).

Intrastat – the practicalities

All VAT registered businesses acquiring goods must complete two boxes (8 and 9) on its VAT return showing the total value of any goods acquired from VAT registered suppliers in other EU Member States (known as arrivals). In addition, larger VAT registered businesses must supply further information each month on their trade in goods with other EU Member States. This is known as an Intranet Supplementary Declaration (SD) …which is a subject for another day. For arrivals, the current threshold is £1.5 million and this limit is reviewed annually.

How this system will work (if at all) after Brexit remains to be seen, but given past experiences I am not optimistic.

VAT: Latest from the courts – Are loan administration services exempt?

By   1 May 2018
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In the First Tier Tribunal (FTT) case of Target Group Limited (Target) the appeal was against a decision by HMRC that loan administration services supplied by Target to a UK bank, Shawbrook Bank Limited (Shawbrook) were standard rated.

Background

Target contracted with Shawbrook to provide services related to loans provided by Shawbrook to its customers in the course of its lending business. Target’s description of its services was “loan account administration services” which amounted to Shawbrook outsourcing the management of the loans to Target.  The services that Target provided covered the entire lifecycle of the loans, apart from the making of the initial loan. Target established loan accounts using its own systems, communicates with borrowers as an undisclosed agent of Shawbrook, and dealt with payments by borrowers and all administrative issues that arose.  Target had limited discretion. The terms of the loans, including interest rates, were set by Shawbrook. Although Target is involved in dealing with arrears, any enforcement action would be a decision for Shawbrook. Specifically, the contract described Target as being “a provider of loan origination and account operation services” which “performs activities including the functions of: payment processing and servicing and portfolio management services”

Issue

It was accepted that Shawbrook made the loans (not Target) and that the services  provided by Target were to Shawbrook and comprised a single (composite) supply for VAT purposes, rather than multiple supplies. Details of the definition between the two types of supply have been hot news in the VAT world for some time. My commentary on relevant recent case law here here here here here and here

The issue was the precise nature of the supplies and whether they qualified for exemption. The areas of dispute included whether Target’s supplies were excluded from exemption as debt collection, and whether the loan accounts fall to be treated as current accounts.

Target’s case was that the principal supply it made to Shawbrook related to payments and transfers in the same way as in the Electronic Data Services Ltd (EDS) case, which related to similar customer-facing loan administration services. (EDS provided loan arrangement and execution services to banks in relation to the granting of personal loans. The services included the provision of a staffed call centre, the printing and despatch of loan agreement documentation, the transfer of funds via the BACS system on the release of loans and the administrative work related to handling loan accounts and repayments).  In the alternative, the principal or core supply relates to the operation of accounts (specifically, current accounts), or amounts to transactions concerning debts.

Technical

Article 135(1)(d) of the Council Directive 2006/112/EC (the Principal VAT Directive, or “PVD”) requires Member States to exempt the following transactions: “transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection;”

This is transposed into UK legislation via VAT Act 1994, Schedule 9, Group 5, items 1 and 8:

“Item 1. The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money. …

Item 8. The operation of any current, deposit, or savings account.”

Decision

It was decided that Target’s supplies did not qualify for exemption and they therefore fell to be standard rated. What was fatal to the appellant’s case was the fact that there was an absence of any involvement in the initial loan. Consequently, although it was possible to view the services as “transactions concerning payments” they fell within the debt collection definition and accordingly were not exempt. The judge also ruled that the supplies may be loan accounts, these did not qualify as an exempt operation of a current account.

Commentary

Of course, this decision was important for the recipient of the supply (Shawbrook) as well as Target. Because its supplies were exempt, the VAT on the outsourcing expenditure would be irrecoverable thus creating an extra 20% cost.

This case once again demonstrates that even the smallest variation of facts can produce an unexpected VAT outcome.  Care must be taken to analyse precisely what is being provided. Financial Services is a minefield for VAT and it is certainly one area that assumptions of the VAT treatment should be avoided and timely advice sought.

Picture: A loan arranger (apologies)

VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide

By   11 April 2018
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VAT and TOMS: Complex and costly

Introduction

The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every EU country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK, within the EU but outside the UK, and wholly outside the EU.

Under the scheme:

  • VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
  • A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
  • There are special rules for determining the place, liability and time of margin scheme supplies.
  • VAT invoices cannot be issued for margin scheme supplies.
  • In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
  • No VAT is due via TOMS on travel/accommodation/tours enjoyed outside the EU.

Who must use the TOMS?

TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by

  • Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
  • Coach operators who buy in hotel accommodation in order to put together a package
  • Companies that arrange conferences, including providing hotel accommodation for delegates
  • Schools arranging school trips
  • Clubs and associations
  • Charities.

The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.

Supplies covered by the TOMS

The TOMS must be used by a person acting as a principal or undisclosed agent for

  • ‘margin scheme supplies’; and
  • ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).

‘Margin scheme supplies’ are those supplies which are

  • bought in for the purpose of the business, and
  • supplied for the benefit of a ‘traveller’ without material alteration or further processing

by a tour operator in an EU country in which he has established his business or has a fixed establishment.

A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.

Examples

If meeting the above conditions, the following are always treated as margin scheme supplies.

  • Accommodation
  • Passenger transport
  • Hire of means of transport
  • Use of special lounges at airports
  • Trips or excursions
  • Services of tour guides

Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include

  • Catering
  • Theatre tickets
  • Sports facilities

Of course, who knows how Brexit will impact TOMS. It may be that UK businesses will be unable to take advantage of this easement and will be required to VAT register in every Member State that it does business * shudder *

This scheme is extremely complex and specialist advice should always be sought before advising clients.