HMRC have issued new guidance on the Annual Accounting Scheme.
A business can use form VAT600AA if it is already registered for VAT and wants to join the Annual Accounting Scheme.
Tag Archives: HMRC-publication
VAT: HMRC introduce Chatbot
HMRC has introduced a generative AI chatbot to support users in accessing information on business rules and support, including tax.
The digital assistant is being trialled and HMRC request feedback on its effectiveness.
A disclaimer informs users of the chatbot’s limitations and advises them to verify answers using included GOV.UK links before proceeding. Users must confirm understanding of these limitations.
It is unlikely, in its current form, that the chatbot will be able to address complex issues, particularly as it excludes HMRC manuals.
HMRC internal manual: VAT Assessments and Error Correction update
HMRC’s manual VAT Assessments and Error Correction was updated on 15 October 2024.
This internal guidance is for HMRC inspectors (but is equally useful for advisers) covers assessments and error correction. The amendments apply mainly to General assessment procedures: Importance of avoiding delay.
The manual covers:
- Making Tax Digital for Business (MTD) – how to deal with MTD customers
- Powers of assessment
- VAT assessments
- Error correction for VAT
- How to assess and correct
- “VALID” computer printouts
- Demand for VAT
- Remission of tax
It also refers to for the most up-to-date guidance on reasonable excuse CH160000.as a defence against penalties and interest.
More on:
Disclosure of Avoidance Schemes – new rules
New HMRC guidance on error reporting
New online service for error correction
Error Disclosure under £10,000 – Draft Letter To HMRC
VAT Business/Non-Business HMRC Internal Manual updated
HMRC internal guidance manual has been updated on 9 October 2024.
This is likely to affect; charities and similar bodies, NFP, clubs, associations, philanthropic organisations, galleries and museums, “hobby” activities, amongst other persons.
Business or Non-Business (N-B) is very important in VAT as it determines, inter alia, whether a supplier is
- liable to register
- liable to account for output tax
- able to recover (all, some, or no) input tax
The definition of business and N-B here.
Legislation: The I Act 1994 Section 24(5).
Further reading
I have written about this issue many times, as it is a fundamental issue in the tax.
The following articles consider case law and other relevant business/N-B issues:
Lajvér Meliorációs Nonprofit Kft. And Lajvér Csapadékvízrendezési Nonprofit Kft
What the Guidance Manual covers:
- an overview of the meaning of business for VAT purposes
- general principles
- meaning of N-B
- the term ‘business activity’ (economic activity)
- the concept of ‘business’ for VAT purposes
- the meaning of business
- the purpose of activity
- N-B activities
- persons with both business and N-B activities
- outside the scope income
- N-B activities which result in payment
- determination procedures to establish whether an activity is business N-B
- the relevant UK law and caselaw (per above amongst other cases)
- the general approach for inspectors on business/N-B
- factors to consider when determining if an activity is business or not
- the link between supplies and consideration
- methods of apportionment of input tax and approval of apportionment methods
- formal procedures and work systems
- clubs and associations
- specific issues
- legal history
- HMRC policy background
This is the main reference material for HMRC inspectors and other employees, so it is very helpful for advisers to understand HMRC’s likely approach to a potential VAT issue.
VAT: Zero-rating for residential caravans
HMRC have issued guidance in relation to The Value Added Tax (Caravans) Order 2024. This will come into force on 30 September 2024.
Since 2013 caravans that meet certain size criteria and are manufactured to meet BSI standard 3632 are considered to be residential caravans. Such residential caravans are the only caravans that qualify for zero rate VAT.
The BSI standard in place on 6 April 2013 was BS3632:2005. In 2015 when the BSI updated the standard, the updated reference to BS3632:2015 was added into the legislation. This standard was updated again in 2023, so the legislation needed to be updated in order to maintain the zero rate for residential caravans. The amended legislation provides for the continuation of the zero rate, which will also apply to caravans meeting any updated version of BS3632 published by the BSI in the future.
Legislation
The Statutory Instrument amends The VAT Act 1994, Schedule 8, Group 9, item 1, which applies zero-rating to caravans manufactured to any version of BS3632. The effect of this is to extend the zero-rate to caravans manufactured to the 2023 version of BS3632 and also to ensure that if the BSI updates BS3632 in future the zero rate is maintained.
It also makes a consequential amendment to item 1(b) of Group 9, to preserve the zero rate for second-hand caravans occupied before 6 April 2013.
Definition of a caravan
The term ‘caravan’ is not defined in the VAT legislation. In practice HMRC bases its interpretation on the definitions in the Caravan Sites and Control of Development Act 1960 and the Caravans Sites Act 1968.
A caravan is a structure that:
- is designed or adapted for human habitation
- when assembled, is physically capable of being moved from one place to another (whether by being towed or by being transported on a motor vehicle so designed or adapted)
- is no more than:
- 20 metres long (exclusive of any drawbar)
- 6.8 metres wide
- 3.05 metres high (measured internally from the floor at the lowest level to the ceiling at the highest level)
More information on the VAT liabilities if various caravans here.
VAT: Museums and galleries – updated guidance
The HMRC guidance for galleries and museums Notice 998 has been updated to reflect changes to the VAT (Refund of Tax to Museums and Galleries) (Amendment) Order 2024.
The Notice applies to those museums or galleries that offer free admission to the public and which are eligible for refunds of VAT under the museums and galleries VAT Refund Scheme. It can be used to find out which museums or galleries offering free admission are eligible for refunds under the scheme. The VAT Act 1994, section 33A, sets out how the scheme works, but generally:
Museums and galleries offering free access are not in business in relation to this activity (their supplies are “non-business“). They may, of course, have other activities that in their own right which are business activities, eg; catering, sales of books and gifts and exhibitions for which there is a charge.
Normally, it is not possible to recover the VAT incurred on goods and services purchased to support non-business activities. Thus, VAT incurred in connection with the free admission of the public is not normally recoverable and represents a cost to these organisations.
However, HMRC will reimburse this otherwise irrecoverable VAT. For this to be the case, the provisions of section 33A of the VAT Act 1994 must apply, and the museum or gallery must be named in an Order made by HM Treasury.
VAT: Mind the gap – HMRC latest figures
GOV.UK has published details of the most recent measurement of the tax gap for 2022-20223.
What is the tax gap?
The tax gap is measured by comparing the net tax total theoretical liability with tax actually paid. This is comparing the amount of tax HMRC expected to receive in the UK and the amount HMRC actually received.
The figures
The tax gap is estimated to be 4.8% of total theoretical tax liabilities, or £39.8 billion in absolute terms, in the 2022 to 2023 tax year.
Total theoretical tax liabilities for the year were £823.8 billion.
There has been a long-term reduction in the tax gap as a proportion of theoretical liabilities: the tax gap reduced from 7.4% in the tax year 2005 to 2006 to 4.8% in the tax year 2022 to 2023.
While most of the components follow a downward trend, with the largest proportionate fall between 2005 to 2006 and 2022 to 2023 in the VAT gap, falling from 13.7% to 4.9%, the Corporation Tax gap estimate has increased from 11.4% in 2005 to 2006 to 13.9% in 2022 to 2023.
The Corporation Tax gap share has increased from 17% of the overall tax gap in 2018 to 2019 to 34% in 2022 to 2023, while the share of the tax gap from VAT has fallen from 28% of the overall tax gap in 2018 to 2019 to 20% in 2022 to 2023. The Income Tax, NICs and Capital Gains Tax gap share decreased from 39% to 34% over the last 5 years.
The tax gap from small businesses is the largest component of the tax gap by customer group at a 60% share in 2022 to 2023; the tax gap from wealthy and individuals each make up a low proportion of the tax gap at 5% each in 2022 to 2023
The VAT gap
VAT represents 20% of the overall tax gap.
The VAT tax gap is 4.9%.
There are several approaches to measuring tax gaps. VAT and excise duties gaps are mainly estimated using a ‘top-down’ approach, by comparing the implied tax due from consumer expenditure data with tax receipts. Most other components are estimated using a ‘bottom-up’ approach, based on HMRC’s operational data and management information.
A top-down approach uses independent, external data on consumption to estimate the tax base. The tax base is used to calculate a theoretical value of tax that should be paid. The actual amount of tax paid is subtracted from this theoretical value to estimate the tax gap.
VAT: HMRC agent update
HMRC have published a recent agent update. In respect of VAT it covers:
- reporting accurate tax turnover for VAT registration
- reporting VAT deregistration to HMRC
- reporting dissolved companies and VAT deregistration to HMRC
- reporting insolvent companies and VAT deregistration to HMRC
- intending traders
- DIY housebuilders’ scheme digitalisation
- changes for goods moving from the island of Ireland to GB from 31 January 2024
Extension of VAT energy-saving materials relief
HMRC have published a new Policy Paper on the extension of energy-saving materials (ESMs).
Installations of ESMs in residential accommodation currently benefit from a temporary VAT zero rate until 31 March 2027, after which they revert to the reduced rate of VAT at 5%.
This measure extends the relief to installations of ESMs in buildings used solely for relevant charitable purposes, such as village halls or similar recreational facilities for a local community.
It also expands the scope of the relief to the following technologies:
- electrical batteries that store electricity generated by certain ESMs and from the National Grid
- water-source heat pumps
- diverters that enable excess electricity from certain ESMs to be used within a building in which it is generated rather than exported to the grid
It also adds certain preparatory groundworks that are necessary for the installation of ground- and water-source heat pumps.
The changes apply from 1 February 2024
The policy objective is to incentivise the installation of ESMs across the UK to improve energy efficiency and reduce carbon emissions.
The measures are implemented by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024.
VAT: Alternative Dispute Resolution guidance updated
HMRC has, this month, updated its guidance on how to use Alternative Dispute Resolution (ADR) to settle a tax dispute.
Anyone can apply for ADR to help resolve a dispute with HMRC, or to get more information about issues that need to be taken for a legal ruling. The Guidance explains how to apply for ADR and when you can use it to resolve a VAT disagreement with HMRC.
A full overview of the ADR system written by us here, but broadly, it is the involvement of a third party (a facilitator) to help resolve disputes between HMRC and taxpayers. Its aim is to reduce costs for both the taxpayer and HMRC when disputes occur and to reduce the number of cases that reach statutory review and/or Tribunal.