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Tag Archives: latest-vat-news
Holding companies in VAT groups and input tax recovery
Care must be taken when considering the recoverability of input tax incurred by a holding company.
In the past holding companies which were members of a VAT Group were treated in the same way as any other member of the group. As a result, input tax incurred by the holding company were recoverable by reference the the VAT group’s (as a whole) recovery position.
As a result of the recent Court of Appeal judgement in the case of BAA Ltd HMRC have announced an updated policy HERE
The revised policy is that that input tax is only recoverable by holding companies where it is incurred in the course of an economic activity and there is a direct and immediate link to taxable supplies, This means that a passive holding company cannot now rely solely on its membership of a VAT group to recover input tax. For recovery, the VAT must be incurred in respect of taxable supplies made by the holding company itself.
For information on the impacts on this change – please contact us.
Follower Notices – a new HMRC weapon with a potentially dire impact on taxpayers
From Royal Assent of Finance Bill 2014 (expected within the next week) HMRC has a new weapon which challenges a taxpayer’s basic right to have its case heard by a Court.
This is by the introduction of “Follower Notices”. The new power allows HMRC to order one taxpayer to settle their dispute when, in HMRC’s view, a decision in another case is relevant to the issues in the first taxpayer’s case. Since taxpayer’s circumstances are unlikely to be identical to another’s, the question of which decisions are relevant involves difficult decisions on issues of interpretation and questions of fact. These are points that ought to be considered by the Court, not unilaterally by one of the parties to the litigation.
A Follower Notice gives the taxpayer 90 days to concede its dispute and pay HMRC’s estimate of the tax due. The taxpayer has only limited rights to challenge the notice, and even then any such challenge is considered by HMRC and not the Court.
If the taxpayer does not concede following HMRC’s issue of a Follower Notice, additional penalties are levied. These penalties not only significantly increase the amount which the taxpayer has at stake in the dispute but must be challenged separately.
It is clear that the changes intend to reduce the backlog of similar disputes. However, these new rules are completely one-sided and has created an environment for yet further litigation and acrimony.
Please contact Marcus if you would like to discuss this further.
Changes in VAT policy relating to the transfer of a going concern (TOGC) of buildings
HMRC has announced two important changes to the transfers of a businesses as a going concern (TOGC) rules as they relate to property after the case of Robinson Family Ltd. These may be summarised as follows:
- Where the transferor of a property rental business grants a lease and retains a ‘sufficiently small’ reversionary interest in the property transferred the transaction will be a TOGC for VAT purposes if the usual conditions are satisfied. HMRC now accept that the surrender of a lease can be a TOGC for VAT purposes. This will apply where a tenant who is sub-letting premises subsequently surrenders its interest in the property together with the benefit of the sub-lease. In these cases HMRC accept the landlord has acquired the tenant’s business.
- There is also a change in the treatment of TOGCs of new residential and relevant charitable buildings. The first grant of a major interest in residential or relevant charitable property by the ‘person constructing’ is zero-rated. HMRC has historically taken the view that ‘person constructing’ status does not move to a person acquiring a completed building that is the subject of a TOGC. HMRC now accepts that a person acquiring a completed residential or charitable development as part of a TOGC inherits ‘person constructing’ status and is capable of making a zero-rated first grant of a major interest in that building. This also applies in respect of ‘person converting’ status (for buildings converted from non-residential to residential use) and ‘person substantially reconstructing’ status (for substantially reconstructed listed buildings).
Please contact us if you have sold property in the past that may now benefit from TOGC treatment – claims are possible for overpaid VAT and SDLT.
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VAT – Changes to the treatment of electronically-supplied services from 2015
Although it seems some time away, these changes, which come into effect on 1 January 2015, will have a significant impact on any business which provides e-services (wherever in the EC it is based). It is important for suppliers to understand and plan for the new rules; the sooner the better.
What are e-services for VAT purposes? – Broadly these are services usually obtained via the internet and may comprise; films, music, information, software for which the supplier makes a charge.
Are all of these services affected? – No, only B2C services (where the recipients are not in business, eg; an individual). The rules for B2B supplies will not change.
What are the changes? At present, suppliers based in the EC charge VAT at the rate applicable in the EC Member State in which the business is located. Currently, therefore, VAT planning insists that technology companies locate in countries with low VAT rates. However, to combat this, the EC will introduce a rule whereby the place of supply (where VAT is due) changes to where the customer is located (not where the supplier belongs). Consequently, a company currently based in Luxembourg supplying a service which is downloaded by an individual in the UK will charge VAT at 15% (the rate in Luxembourg). From 1 January 2015, the UK recipient will pay VAT at 20% (the UK rate).
Businesses will need to introduce these changes and manage budgets and forecasts to recognise what, on the whole, will be a significant increase in VAT payable. This will, for most businesses result in a reduction in profits or an increase in prices for customers.
As may be seen, this will add considerable complexity for businesses to deal with and with the current penalty regime care must be taken to avoid even further costs. Businesses affected must start to plan for these changes as soon as possible.
Are there any easements available? The new rules change would require EC suppliers to register and account for VAT in every EC Member State where their services are downloaded by non-business customers. In order to avoid this burden a “mini one stop shop” (MOSS) is also being introduced. This will allow suppliers to register just once in their own EU Member State. This single registration will then allow them to account for VAT due in other Member states. HMRC has indicated that businesses will be able to register under the MOSS from October 2014. How this will actually work in practice remains to be seen.
Good luck everybody!
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Agent or principal? Latest from The Supreme Court
There is a very important distinction in VAT terms between agent and principal as it dictates whether output tax is due on the entire amount received by a “middle-man” or just the amount which the middle-man retains (usually a commission). It is common for the relationship between parties to be open to interpretation and thus create VAT uncertainty in many transactions. It appears to me that this uncertainty has increased as a result of the increasing amount of on-line sales and different parties being involved in a single sale.
A very helpful recent case; Secret Hotels 2 Ltd (formerly Med Hotels) heard at the Supreme Court, has clarified some grey areas in agent/principal relationships.
Very broadly, in this case which the taxpayer won, the judgement tips the balance back into the favour of common law as opposed to civil law principles for UK taxpayers and that the nature of a supply is to be determined by the construction of the contract – unless it is a ‘sham’.
This Supreme Court Judgment helpfully indicates that we must place far greater emphasis on the form of the arrangement (contract) as opposed to the economic substance (as often argued by HMRC).
The full decision is available here: http://www.supremecourt.uk/decided-cases/docs/UKSC_2013_0036_PressSummary.pdf
Although there will always be disputes over agent/principal relationships, this decision goes some way to clarifying the analysis and demonstrating the importance of the contract over what HMRC describe as “economic reality”.
Please contact us if you are, or have been, in dispute with HMRC on this point as it provides additional ammunition for the taxpayer.
Please click here for information on disbursements for agents
Treatment of transactions using Bitcoin and other similar cryptocurrencies
HMRC have issued Revenue & Customs Brief 09/14 here: http://www.hmrc.gov.uk/briefs/vat/brief0914.htm
This provides guidance on the direct tax and VAT treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies. Bitcoin operates via a peer to peer network, independent of any central authority or bank. All functions such as issue, transaction processing and verification are managed collectively by this network.
The advent of cryptocurrencies such as Bitcoin is a new and evolving area. Bitcoin may be held as an investment (i.e. for trading with recognised currencies) or used to pay for goods or services at merchants where it is accepted. In the UK, there are already a number of outlets, including pubs, restaurants and internet retailers, that accept payment by Bitcoin.
In summary, the VAT treatment of Bitcoin activities will generally either be outside the scope of VAT or exempt from VAT (under Article 135(1)(d) of the VAT Directive), depending on the specific transaction involved. However, VAT will be due in the normal way on transactions involving any goods or services sold in exchange for Bitcoin or other similar cryptocurrency.
In the UK, as is the case with any other currency, the value of the supply of goods or services on which VAT is due will be the £sterling value of the cryptocurrency at the point the transaction takes place.
Please contact us if you would like more specific advice.
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