Tag Archives: latest-vat-news

VAT: Supply of self-contained apartments covered by TOMS? The Sonder UT case

By Marcus Ward 21 January 2025

Latest from the courts

In the Upper Tribunal (UT) case of Sonder Europe Limited (Sonder) the issue was whether apartments leased to Sonder and used to provide short-term accommodation to corporate and leisure travellers were supplies of a designated travel service via the Tour Operators’ Margin Scheme (TOMS) and whether the bought-in supply was used for the direct benefit of travellers (as required by TOMS).

Background

Sonder leased apartments from landlords on a medium to long-term basis and used them to provide accommodation to travellers on a short-term basis (one night to a month; the average stay being five nights). Sonder furnished some apartments as well as undertaking occasional decorating and maintenance.

The sole issue was whether these supplies are covered by TOMS. TOMS is not optional.

Initially in the FTT it was decided that output tax was due via TOMS. This was an appeal by HMRC against that First Tier Tribunal (FTT) decision.

The issue

Whether VAT was accountable using TOMS – on the margin, or on the full amount received from travellers by Sonder.

Legislation

TOMS is authorised by the VAT Act 1994, section 53 and via SI 1987/1806.

Arguments

Sonder contended that the supply was “for the direct benefit of the traveller” as required by the VAT (Tour Operators) Order 1987 and that the accommodation was provided “…without material alteration or further processing”. Consequently, TOMS applied. The FTT decided that Sonder did not materially alter or process the apartments.

HMRC maintained that the FTT decision was based on the physical alternations made rather than the actual characteristics of the supplies. Consequently, these were not supplies covered by the 1987 Order and output tax was due on the total income received for these services.

Decision

The UT upheld HMRC’s appeal and decided that TOMS did not apply n these circumstances The UT found that the FTT’s decision was in error in that it did not have regard to whether the services bought in were supplied to it for the direct benefit of travellers. Furthermore, the short-term leases to occupy property as holiday accommodation were materially altered from interests in land for a period of years supplied by the landlords.

The services received by Sonder from the landlords were not for the direct benefit of the travellers and Sonder’s supplies were not for the benefit of the users without material alteration and further processing. Consequently, there was not a supply of bought-in services, but rather an ‘in-house’ supply which was not covered by TOMS.

To the UT, the position was even clearer in relation to unfurnished apartments. Sonder acquired an interest in land for a term of years in an unfurnished apartment. It furnished the apartment and then supplied a short-term licence to a traveller to occupy as holiday accommodation. What was supplied to the traveller was materially different to what was supplied to Sonder.

Commentary

Another illustration of the complexities of TOMS and the significant impact on a business of getting the rules wrong. The fact that the UT remade the decision demonstrates that different interpretations are possible on similar facts. Moreover, even slight differences in business models can result in different VAT outcomes.

VAT: Chatbots failure

By Marcus Ward 16 January 2025

Further to our article on HMRC using chatbots, reports have emerged that they are working less than 50% of the time and that the resolution rate is only 21% even once a connection is established.

It is clear that the attempt to move services online has caused significant issues for taxpayers and advisers.

A recent survey by the Association of Chartered Certified Accountants discovered that nearly 9 in 10 business owners (89%) said poor levels of service at HMRC is having a negative impact and causing a ‘huge roadblock’.

This is even more infuriating for people wishing to contact HMRC because the issue has been exacerbated by the restricted access to HMRC telephone helplines and the closure of the VAT registration helpline used by taxpayers and accountants.

VAT: Digital platform reporting

By Marcus Ward 14 January 2025

VAT and digital platforms

Via section 349 of the Finance (No.2) Act 2023, measures were introduced which require certain UK digital platforms to report information to HMRC about the income of sellers of goods and services on their platform. HMRC then exchange this information with the other participating tax authorities for the jurisdictions where the sellers are tax resident.

Under the Organisation for Economic Co-operation and Development (OECD) rules, digital platforms in participating jurisdictions will be required to provide a copy of the information to the taxpayer to help them comply with their tax obligations.

Now HMRC have recently (last month) issued a new series of guidance , or updated guidance, on digital platform reporting, which are:

Selling goods or services on a digital platform

This Guidance explains the details a business needs to give to digital platforms when selling goods or services in the UK. A section on what information sellers will receive from online platforms has been added.

It covers:

who is a seller
information which must be provided
reporting by platforms
information to be received
selling online and paying tax

Check if you need to carry out digital platform reporting

This guidance provides information on:

what qualifies as a digital platform
who should register
how to register
what needs to be reported
information required for reporting
carrying out due diligence
when to report
penalties

This sets out:

who should register
what you need to do
how to register
after you have registered

Managing digital platform reporting

This provides guidance on:

submitting reports to HMRC
ongoing account management
when to report
how to add or change a platform operator
how to add or change a reporting notification to tell HMRC if you are a reporting or excluded platform operator
how to add or change a reporting notification about the type of due diligence you choose
changing contact details
how to add team members
how to inform HMRC that another platform operator will report for you (assumed reporting)

New HMRC publications: VAT on cladding remediation work

By Marcus Ward 6 January 2025

In the aftermath of the horrific Grenfell fire, a lot of buildings require unsafe cladding to be replaced.

A new Brief clarifies HMRC’s policy on the deduction of VAT incurred on cladding remediation works which are carried out on existing residential buildings. It sets out:

the reason VAT costs are incurred when carrying out remediation works to residential buildings with fire and safety defects
the circumstances in which the VAT incurred in providing remediation works can be recovered

Broadly, the distinction is whether the work qualifies as snagging. If it does, the VAT treatment follows the liability of the original building work – zero rated if the original construction was of a zero-rated new residential building, ie; they are supplied in the course of construction of a qualifying building.

If not snagging, the remedial work will be standard rated.

If the work is standard rated, it may be recoverable by the recipient in certain circumstances.

Snagging

HMRC’s definition of snagging is “the carrying out of remedial works to correct faulty workmanship or replace faulty materials”. Normally, it is carried out by the original developer under the terms of the original contract. This means it is not seen as a separate supply of construction services. Snagging covers faults that are:

found soon after the building is completed
still covered by the building contract

More details on snagging here.

Furthermore, HMRC has published Guidelines for Compliance GfC11. This guidance covers HMRC’s existing policy on the VAT treatment of remedial works and includes:

the definition of snagging
an explanation of when you can recover input tax
examples to help you work out the VAT treatment of remedial works
examples of documents and evidence you should keep
information about correcting a submitted return

HMRC state that its policy has not changed.

How to apply for a VAT Partial Exemption Special Method

By Marcus Ward 6 January 2025

Partial Exemption

Businesses which makes exempt supplies may be partially exempt (depending on the de minimis limits). A partially exempt business will be prohibited from claiming all of its input tax. A calculation is required to determine the amount of a claim which is blocked. The majority of businesses use what is known as “the standard method” with an annual adjustment.

Partial Exemption Special Method (PESM)

However, use of the standard method is not mandatory and a business can use a “special method” (a Partial Exemption Special Method, or PESM) that suits a business’ activities better. Any PESM has to be “fair and reasonable” and it has to be agreed with HMRC in advance. When using a PESM no rounding of the percentage is permitted and it has to be applied to two decimal places.

HMRC says fair and reasonable means it must be:

robust, in that it can cope with reasonably foreseeable changes in business
unambiguous, in that it can deal, definitively with all input tax likely to be incurred
operable, in that the business can apply it without undue difficulty
auditable, in that HMRC can check it without undue difficulty
fair, in that it reflects the economic use of costs in making taxable and exempt supplies

Types of PESMs

The following are examples of special methods:

sectors and sub-sectors
multi pot
time spent
headcount
values
number of transactions
floor space
cost accounting system
pro-rata
combinations of the above methods

How to apply

You will need to provide documents with your application. These include:

a proposal document
a worked example of the proposal
the latest annual adjustment calculation
a declaration — check Appendix 1 of VAT Notice 706 for what to include in your declaration
any additional documents

More information on the documentation a business needs provide is set out in Appendix 2 of PN706

Apply online

You will need to either:

sign in with your Government Gateway user ID and password (if you do not have a user ID, you can create one when you first try to sign in)
use your email address to get a confirmation code that you can use to sign in

This is done here

A glossary of partial exemption terms may be found here.

VAT: Updated HMRC guidance on exemption for healthcare supplies

By Marcus Ward 23 December 2024

HMRC has published new guidance in its internal manual VATHLT2035.

It covers the services of the medical and paramedical professions: Anaesthesia Associates and Physician Associates.

Regulation for Anaesthesia Associates (AAs) and Physician Associates (PAs) came into effect on 13 December 2024. A full registration is required by December 2026. The exemption will only apply to the AAs and PAs that have joined from the date of registration.

Anaesthesia Associates

AAs are specialised practitioners trained to perform certain medical procedures related to anaesthesia under the supervision of qualified medical personnel. They are not doctors but play a crucial role in the healthcare system by assisting in the administration of anaesthesia and monitoring patients during surgical procedures. AAs are authorised to perform specific procedures they are trained and approved for. They will be regulated by the General Medical Council (GMC). Their services will be exempt from VAT, provided they are carried out for the purpose of medical care.

Physician Associates

PAs are healthcare professionals who support doctors in diagnosing and managing patients. They are trained to perform various medical procedures and provide care under the supervision of doctors. PAs are not doctors but are essential members of the multidisciplinary healthcare team, enhancing the capacity of healthcare services. They are meant to supplement, not replace, the role of doctors. Their services will be exempt from VAT, provided they are carried out for the purpose of medical care.

The exemption is via The VAT Act 1994, Schedule 9, Group 7.

A VAT Did you know?

By Marcus Ward 20 December 2024

In or out?

If a biscuit is covered, even partially, in chocolate the VAT is 20%, but if the chocolate is inside, say a choc chip cookie or a bourbon, it is VAT free.

VAT on private school fees – new webinar

By Marcus Ward 16 December 2024

HMRC have released a recorded webinar about VAT on private school fees — what you need to do, and when and how to register.

It covers:

if you should register for VAT as an education provider
when you should register for VAT
how to register for VAT
what you need to charge VAT on
how and what to reclaim VAT on

VAT: New support for small businesses from HMRC

By Marcus Ward 16 December 2024

HMRC has launched new online guidance and interactive tools aimed at helping small business owners and those considering self-employment understand their tax responsibilities. It is aimed at supporting new and existing ‘sole traders’ and helping them to understand their responsibilities. The new interactive tool explains the records they need to keep, taxes that may apply to their business, and includes other useful information.

The resources include a step-by-step guide for registering as a sole trader and a newly developed VAT registration estimator tool to help businesses assess their VAT registration needs based on turnover.

The guidance and interactive tools are free and available directly from GOV.UK. They have been launched for information purposes only, and users will not be registered for any taxes as a result of using them. HMRC will not collect or store any information about the user.

VAT in the Digital Age (ViDA)

By Marcus Ward 16 December 2024

EU Member States (MS) recently agreed the much-discussed ViDA package. Since Brexit, this does not directly affect the UK, however, it is an important pointer to the future and where we are all heading, so it will impact the UK in some ways.

The ViDA package (or a version of the finalised package) was first discussed in 2022 and has gone through a tortuous process before all MS agreed it.

What is ViDA?

ViDA aims to tackle what have been identified as three main challenges:

Real-time digital reporting

The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give MS the information they need to increase the fight against VAT fraud, especially carousel fraud. The VAT Gap – the difference between expected and actual VAT revenue, has been widening across the EU over a number of years.

It is said that the move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU businesses by over €4.1 billion per year over the next ten years. It should ensure that existing national systems converge across the EU, and this should pave the way for EU countries that wish to introduce national digital reporting systems for domestic trade.