HMRC has launched a new service dashboard which aims to let taxpayers who have written to HMRC know when to expect a reply.
This sounds like a significant development and a very helpful tool for taxpayers and advisers alike. However…
it only covers applications for registration, deregistration and group registration – and only those made by post.
Any other checks are met with a screen stating “You need to use another service to get an update”.
So, a small step in the right direction.
HMRC has published updated guidance on childcare following the decision in the RSR Sports Limited (RSR) case. The issue being what supplies fell within the definition of “services… closely linked to the protection of children and young persons” and supplies of “welfare services” – VAT Act 1994, Schedule 9, Group 7, item 9.
The guidance in VATWELF3032 states that RSR could be distinguished from Sports Academies (Decision No TC05171), a case where the tribunal had held that the activities element predominated.
The important key features were:
Other providers supplying services can similarly exempt their supplies where the facts demonstrate that they qualify and exhibit the key features set out by the FTT in RSR.
HMRC no longer interprets activity-based clubs to include those clubs exhibiting these key features. Such clubs can therefore, qualify for the welfare exemption if they otherwise meet the conditions.
HMRC has published a new Factsheet CC/FS69 which sets out compliance checks to be made to avoid penalties for Making Tax Digital (MTD).
Under MTD, VAT-registered businesses must keep certain records digitally and file their VAT returns using compatible software.
The Factsheet covers:
Penalties
HMRC levy penalties for MTD for the following actions:
These penalties apply in addition to existing penalties and interest charged for a range of misdemeanours from late returns to deliberate underdeclarations.
HMRC has issued new guidance: Revenue and Customs Brief 10(2022) on how to determine if an entity carries out business or non-business (NB) activities. This goes to the core of the tax and establishes whether a person:
It mainly affects charities, NFP, an organisation which receives grants or subsidies and entities which are carrying out NB activities.
Previous tests
Since 1981 previous cases (mainly Lord Fisher and Morrison’s Academy) have set out the following business tests:
Changes
The guidance states that the ‘predominant concern’ is now irrelevant. The focus is on whether there is a direct link between the services the recipient receives, and the payment made rather than on the wider context of the organisation’s charitable objectives or motive. This is as a result of the Longbridge case.
I often think it helps if a person bears in mind here the comment in the EC case of Tolsma translated as: “…the question is whether services carried on by [a person] were carried on for the payment or simply with the payment”.
There is now a two-part test derived from the Wakefield College Court of Appeal case.
Test One:
The activity results in a supply of goods or services for consideration. This requires a legal relationship between the supplier and the recipient. The initial question is whether the supply is made for a consideration. An activity that does not involve the making of supplies for consideration is not a business activity.
Test Two:
The supply is made for the purpose of obtaining income therefrom (remuneration)
More on the definition of taxable supply here.
Where there is a direct or sufficient nexus between the supplies provided and the payments made, the activity is regarded as business (a taxable supply). The Wakefield case made a distinction between consideration and remuneration. Simply because a payment is received for a service provided does not itself mean that the activity is business. For an activity to be regarded as economic it must be carried out for the purpose of obtaining income (remuneration) even if the charge is below cost.
HMRC states that although it will no longer apply the above Lord Fisher tests, it accepts that they “can be used as a set of tools designed to help identify those factors which should be considered.” So Lord Fisher lives on in some form.
Further information
More detail is provided by HMRC in the updated Internal Guidance VBNB10000
Further reading
The following articles consider case law and other relevant business/NB issues:
Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft
HMRC has updated VAT Notice 700/63 – Electronic Invoicing in respect of “information required on a tax invoice” (para 3.2).
The Notice sets out what a business needs to do if it is sending, receiving and storing VAT invoices in an electronic format.
Electronic invoicing offers many advantages over traditional paper invoices. The rapid electronic transmission of documents in a secure environment may provide for:
A business does not need to inform, nor seek permission from, HMRC to use electronic invoicing.
We advise that any business periodically reviews its use of any invoicing system to ensure that:
If a business cannot meet HMRC’s conditions for transmission and storage of electronic invoicing, it must issue paper invoices.
There are penalties for incorrect invoices or systems.
Further to my article explaining the changes to late returns and payment penalties, HMRC has now published further guidance on new regime.
These changes, originally intended to be introduced on I April 2022 have been delayed until 1 January 2023 (for VAT periods starting on, or after, this date).
From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.
Period of familiarisation
HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.
More on late returns here and on late payments here.
Access the updated VAT Fuel Scale Charges to apply from the 1 May 2022 here They will apply VAT periods starting on or after that date.
HMRC has published new VAT Road Fuel Scale Charges (RFSC) which apply from 1 May 2022 to 30 April 2023.
RFSC
If a business reclaims VAT incurred on road fuel, it will be required recognise the private use element of the fuel.
The RFSC simplifies accounting for VAT on the private use of fuel by motorists. The RFSC is calculated according to a car’s CO2 emissions and the fixed charge is added to output VAT, on the VAT return (in effect, the business supplies to fuel to the individual). The use of this charge is optional, the alternative is to keep detailed mileage records.
Details of these, and other motoring expenses here.
A quick RFSC calculator/ready-reckoner here.
So that’s what it’s called….. From HMRC guidance – “For the purposes of establishing the place of supply of services, stallion nominations (The right to nominate a mare to be covered by a stallion in one breeding season) and the covering of mares is treated as ‘work carried out on goods’.”
New 64-8 agent authorisation form
HMRC has issued a notice which states that, from 31 March 2022, businesses taking on new clients will need them to complete a new form 64-8 to give authorisation for them to deal with HMRC on their client’s behalf.
Existing clients do not need to re-authorise their current relationship.
Access
The new form will be available from 31 March 2022 and may be downloaded by searching for “Tax agents and advisers; authorising your agent” on GOV.UK. There is no direct link yet.
The new form is said to improve data protection and allows taxpayers to state which tax regime they want you to access. The form also includes new guidance for taxpayers and what data they are agreeing to share with their agent.
HMRC has published research which evaluates the impact of the introduction of Making Tax Digital (MTD) for VAT.
The report sets out that an additional circa £185 million of tax has been collected, according to its data. This is compared to the original estimate which was that an additional amount of £115 million of VAT would be received by the department.
For businesses above the registration threshold, the estimated additional tax revenue due to MTD is an average of £57 per business. This represents a 0.9% increase from the average amount estimated had the businesses not used MTD. HMRC says that this research provides “strong evidence that Making Tax Digital is achieving its objective of reducing the tax gap by reducing the amount of errors made when filing tax returns”.
MTD background
MTD aims to reduce the tax gap by helping businesses pay the right amount of tax. The tax gap is the difference between the theoretical amount of tax that should be paid and the actual tax receipts. The difference is caused by several reasons including avoidance, evasion, and calculation errors or failure to take reasonable care when filing returns.
MTD is intended to tackle the part of the tax gap which is caused by error and failure to take reasonable care. Businesses are required to keep records in digital form and file their VAT returns using software that directly extracts information from these digital records. This should improve accuracy and remove opportunities to make certain types of mistakes in preparing and submitting tax returns, particularly arithmetical and transposition errors.
Downside
All is not sweetness and light though. HMRC has been slammed by The House of Lords Economic Affairs Committee which published a report that said that MTD for VAT cost far more than was predicted in HMRC’s impact assessments. The Committee also criticised HMRC, saying it “inadequately considered the needs and concerns of smaller businesses” and that HMRC has neglected its duty to support small businesses through the implementation of the controversial measures, suggesting it “will make life even more difficult” for them. In addition, the Committee said it “remained unconvinced” of the government’s logic used to justify the speed and rigidity with which the programme was being introduced.