Tag Archives: marcus-ward-consultancy

Brexit: The future of Customs arrangements

By Marcus Ward 21 August 2017

In a paper called Future Customs arrangements: A Future Partnership Paper the Government have given us some idea of what the UK’s relationship with the EU may look like after Brexit.

It is a paper which is part of a series which sets out the key issues and forms part of the Government’s stated vision for the relationship (called a “partnership” in the document) and is said to explore how the UK and EU will “work together” with respect to Customs. The aim is to facilitate the “most friction-less trade possible in goods between the UK and the EU”. It is noted that this approach is purely “aspirational” and represents the first steps in exploring the position. However, it does inform on the Government’s thinking. The two main approaches may be summarised as:

The Streamlined Arrangement

A highly streamlined customs arrangement between the UK and the EU, streamlining and simplifying requirements, leaving as few additional requirements on EU trade as possible. This would aim to;

continue some of the existing arrangements between the UK and the EU
put in place new negotiated and potentially unilateral facilitations to reduce and remove barriers to trade
implement technology-based solutions to make it easier to comply with Customs procedures

This approach involves utilising the UK’s existing third country processes for UK-EU trade building on EU and international precedents, and developing new innovative facilitations to deliver as friction-less a Customs border as possible.

A New Partnership

A new customs partnership with the EU, aligning the UK’s approach to the Customs border in a way that removes the need for a UK-EU Customs border. One potential approach would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU.

This is of course unprecedented as an approach and could be challenging to implement and the UK Government will look to explore the principles of this with business and the EU.

The document also considers that the Government would seek to introduce an interim period for implementing changes to Customs arrangements.

Discussions with affected businesses will continue before the publication of a Customs Bill in the autumn.

We will monitor this situation and bring you information on any developments. In the meantime, those businesses which carry out cross-border transactions in goods may want to review their current procedures in anticipation of the changes which will surely be introduced in one form or another.

Alas, as with anything Brexit related, nobody can be sure what the future holds and there will be a great deal of uncertainty until we know the actual outcome and consequently, the impact on business.

VAT treatment of vouchers, gifts and discounts – How business promotions work

By Marcus Ward 17 July 2017

Business promotions are an area of VAT which continues to prove complex. This is further exacerbated by changes to the legislation at EC and domestic level and ongoing case law.

The VAT position is summarised here. Part of this commentary has been taken directly from HMRC guidance on the subject and is the most up to date authority on the matter. I thought it may be useful if the VAT treatment of various business promotion schemes is summarised in one place.

…I recall a statement from an old mentor of mine; “if you have a marketing department you have a VAT problem!”

Summary

Offer	How to charge VAT
Discounts	Charged on the discounted price (not the full price)
Gifts	Charged on the gift’s full value – there are some exceptions listed below
Multi-buys	Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc	No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
Face value vouchers that can be used for more than one type of good or service (multi-purpose)	No VAT due, if sold at or below their monetary value
Face value vouchers that can only be used for one type of good or service (single-purpose)	VAT due on the value of the voucher when issued
Redeemed face value vouchers	Charged on the full value of the transaction at the appropriate rate of the goods provided in return for the voucher

Exceptions for gifts

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

Free goods and services

You don’t have to pay VAT on things like free samples if they meet certain conditions.

Supplies	Condition to meet so no VAT due
Free samples	Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets	The cost of hiring the asset is included in something else you sell to the customer
Free gifts	The total cost of all gifts to the same person is less than £50 in a 12 month period
Free services	You don’t get any payment or goods or services in return

Face value vouchers

Recent changes, radically alter the UK rules for face value vouchers. Face value vouchers are vouchers, tokens, stamps (physical or electronic) which entitle the holder to certain goods or services up to the value on the face of the vouchers from the supplier of those goods or services.

Examples of face value vouchers would include vouchers sold by popular group discount websites, vouchers sold by high street retailers, book tokens, stamps and various high street vouchers.

Single or multi-purpose

The most important distinction for face value vouchers is whether a voucher is a single purpose voucher or multi-purpose voucher. If it is a multi-purpose voucher then little has changed. If it is a single purpose voucher, however, HMRC will now charge VAT when it is issued.

Single purpose vouchers are vouchers which carry the right to receive only one type of goods or services which are all subject to a single rate of VAT. Multi-purpose vouchers are anything else. The differences can be quite subtle.

For example:

a voucher which entitles you to download an e-book from one seller will be a single purpose voucher. A voucher which entitles you to either books (zero rated) or an e-book download (standard rated) from the same seller will be multi-purpose
a voucher which entitles you to £10 of food at a restaurant which does not sell takeaways is probably single purpose, whereas if the restaurant has a cold salad bar and you can buy a take away with the voucher (or hot food) then it would be multi-purpose.

The above means that for single purpose vouchers VAT is due whether the voucher is actually redeemed or not; which seems an unfair result. There is no way to reduce output tax previously accounted for if the voucher is not used.

The situations set out above are often further complicated when three or more parties are involved, but that’s a detailed article for another day….

Is the Upper Tribunal bound by High Court decisions?

By Marcus Ward 11 July 2017

Upper Tribunal versus High Court

In the case of Meena Seddon Settlement which actually involved Inheritance Tax, the First Tier Tribunal (FTT) was required to decide whether the Upper Tribunal is bound by decisions made in the High Court. The FTT decision will doubtless affect VAT cases in the future.

It decided to follow a precedent set by the Upper Tribunal over an earlier decision by the High Court.

The taxpayer contended that the matter should be decided on the basis of a previous High Court decision. HMRC argued on the basis of a later Upper Tribunal decision. In normal circumstances, a later decision should take precedence over the earlier if both decisions have the same authority and have fully considered the previous judgments. However, if the taxpayer was correct to say that the Upper Tribunal was bound by precedents set by the High Court, the later decision could be disregarded as being wrong in law.

The FTT decided that it was the intention of Parliament that the Upper Tribunal was not bound to follow High Court precedents. This was notwithstanding the fact that a High Court could have a supervisory role over the Upper Tribunal in cases of judicial review. Therefore, it determined the case on the authority of the later Upper Tribunal decision in favour of HMRC.

VAT – A Christmas Tale

By Marcus Ward 12 December 2016

Well, it is Christmas….

Dear Marcus

My business, if that is what it is, has become large enough for me to fear that HMRC might take an interest in my activities. May I explain what I do and then you can write to me with your advice? If you think a face to face meeting would be better I can be found in most decent sized department stores from mid September to 24 December.

First of all I am based in Greenland but I do bring a stock of goods, mainly toys, to the UK and I distribute them. Am I making supplies in the UK?

The toys are of course mainly for children and I wonder if zero rating might apply? I have heard that small T shirts are zero rated so what about a train set – it is small and intended for children. Does it matter if adults play with it?

My friend Rudolph has told me that there is a peculiar rule about gifts. He says that if I give them away regularly and they cost more than £150 I might have to account for VAT. Is that right?

My next question concerns barter transactions. Dads often leave me a food item such as a mince pie and a drink and there is an unwritten rule that I should then leave something in return. If I’m given Tesco’s own brand sherry I will leave polyester underpants but if I’m left a glass of Glenfiddich I will be more generous and leave best woollen socks. Have I made a supply and what is the value please? My feeling is that the food items are not solicited so VAT might not be due and, in any event; isn’t food zero-rated, or is it catering? Oh, and what if the food is hot?

Transport is a big worry for me. Lots of children ask me for a ride on my airborne transport. I suppose I could manage to fit 12 passengers in. Does that mean my services are zero-rated? If I do this free of charge will I need to charge air passenger duty? Does it matter if I stay within the UK? My transport is the equivalent of six horse power and if I refuel with fodder in the UK will I be liable for fuel scale charges? After dropping the passengers off I suppose I will be accused of using fuel for the private journey back home. Somebody has told me that if I buy hay labelled as animal food I can avoid VAT but if I buy the much cheaper bedding hay I will need to pay VAT. Please comment.

Can I also ask about VAT registration? I know the limit is £83,000 per annum but do blips count? If I do make supplies at all, I do nothing for 364 days and then, in one day (well night really) I blast through the limit and then drop back to nil turnover. May I be excused from registration? If I do need to register should I use AnNOEL Accounting? At least I can get only one penalty per annum if I get the sums wrong.

I would like to make a claim for input tax on clothing. I feel that my red clothing not only protects me from the extreme cold but it is akin to a uniform and should be allowable. These are not clothes that I would choose to wear except for my fairly unusual job. If lady barristers can claim for black skirts I think I should be able to claim for red dress. And what about my annual haircut? That costs a fortune. I only let my hair grow that long because it is expected of me.

Insurance worries me too. You know that I carry some very expensive goods on my transport. Play Stations, Mountain Bikes, i-pads and Accrington Stanley replica shirts for example. My parent company in Greenland takes out insurance there and they make a charge to me. If I am required to register for VAT in England will I need to apply the reverse charge? This seems to be a daft idea if I understand it correctly. Does it mean I have to charge myself VAT on something that is not VATable and then claim it back again?

Next you’ll be telling me that Father Christmas isn’t real……….

HAPPY CHRISTMAS EVERYBODY!

VAT – Input tax on buy out costs and VAT grouping

By Marcus Ward 23 November 2016

Latest from the courts

May input tax incurred by a VAT group be attributed to the activities of a single member of that group?

In the First Tier Tribunal (FTT) case of Heating and Plumbing Supplies Ltd, the issue was whether input tax incurred on professional costs of a management buyout were recoverable.

Background

A company was formed with the intention of buying the shares of a trading company. The purchasing company and the trading company were then VAT grouped and the professional costs were invoiced to, and paid for, by the VAT group (the tax point being created after the date that the VAT group was formed). HMRC disallowed the claim for the relevant input tax on the grounds that the purchasing company itself did not make any taxable supplies (it did not engage in an economic activity). While this may have been correct, the appellant contended that in these circumstances, the VAT group must be considered as a single taxable person and that the activities of the group as a whole that should be considered. The input tax was an overhead of the group, and because the group itself only made taxable supplies (via the representative member) the input tax was recoverable in full by the representative member

Decision

Following recent case law in Skandia America at the Court of Justice, the judge here decided in favour of the appellant. It was ruled that HMRC may not look at the purchasing company in isolation but rather, the group must be considered as a whole. The FTT stated that “when a VAT group is formed the identities of the individual members of the group disappear…” meaning that a VAT group is a single taxable entity, the VAT status of the individual members being irrelevant in this situation. This confirms our long held view on the status of VAT groups and provides welcome clarification on the matter.

Relevance

This case highlights that HMRC’s policy of looking at the activities of a group member individually is inappropriate. This is so even if the grouping structure provides input tax recovery which would not have been available had the companies been VAT registered independently.

Typically in these circumstances, HMRC will either challenge the decision, or amend its guidance to reflect this ruling. We await news on how HMRC will react.

Action

If a business has either been denied input tax on buy out or similar acquisition costs, or made a decision not to recover this VAT, it would be prudent to lodge a claim with HMRC (plus interest).

We are able to assist with such a claim.

www.marcusward.co

VAT Snippet – Australia GST

By Marcus Ward 21 November 2016

Changes to sales to Australia

If your business, or clients’ business, sell goods to customers in Australia, new rules will be introduced that will affect the tax on these supplies.

Draft legislation

From 1 July 2017 GST (Goods and Services Tax – the equivalent of VAT in Australia) will be applied to low value goods imported by Australian consumers. These sales have, hitherto, been tax free. There is a relief however, for sales below the GST turnover of $75,000 which will not attract GST. The reason for the introduction is to ensure that imports are not treated more favourably than domestic sales.

Changes for the EU too?

Interestingly, the EC is actively considering the introduction of similar rules for VAT on low value consignments and this may impact UK consumers and/or businesses (assuming, of course that the UK remains in the EU at that time…).

Assistance

We are able to advise on any cross-border transactions, both within and outside the EU. With our network of professional contacts and strategic partners here we provide a comprehensive tax service from one-off ad-hoc queries to day to day compliance issues around the world.

VAT – Treatment of used pre-registration assets

By Marcus Ward 9 November 2016

New HMRC Publication: Brief 16/2016

HMRC has clarified its position on the claim of input tax relating to assets used by a business prior to VAT registration. HMRC had previously, in some circumstances, sought to disallow an element of such input tax. They now accept that input tax incurred on fixed assets purchased within four years of the Effective Date of Registration (EDR) is recoverable in full, providing the assets are still in use by the business at the time of EDR. HMRC state that there has been no change of policy on this matter, however, experience insists that that there have been cases where they have sought to limit the amount of VAT claimable prior to registration. This brings the VAT treatment into line with what many advisers always thought the position to be.

Background

UK legislation permits businesses which have become VAT registered to recover tax incurred on goods and services purchased before their EDR. This is so as long as the purchases are used in taxable activities post EDR. The “simplified” rules are now:

Services

Services must have been received less than six months before the EDR for VAT to be deductible. This excludes services that have been supplied onwards pre EDR. There may be a restriction to VAT recovery if a business is partly exempt. A guide to partial exemption here

Goods

Input tax incurred on goods which were purchased within four years of EDR and are still on hand at the time of EDR may be recovered in full (subject to any partial exemption restriction). Input tax on goods which were consumed or sold prior to EDR do not qualify for recovery. This rule also applies to fixed assets.

Please contact us if your business, or that of your clients have been the subject of a disallowance of input tax in these circumstances.

VAT Latest from the courts – more on agent or principal

By Marcus Ward 2 November 2016

Whether a business acts as agent or principal in respect of hotel accommodation

In the First Tier Tribunal (FTT) case of Hotels4U.com Limited (H4U) further consideration was given to the relationship of parties in travel/accommodation services. This follows on from the recent Supreme Court case of Secret Hotels 2 Ltd which we considered here

Background

H4U entered into contracts with suppliers of hotel rooms and displayed details of the hotels on its website. Travellers and travel agents are able to book online, pay a deposit and receive a voucher which enabled them to occupy the relevant accommodation when presented to the hotel.

The FTT was required to decide whether H4U was acting as agent or principal in respect of these supplies made to travellers and travel agents. If acting as principal, output tax would be due via the Tour Operators’ Margin Scheme (TOMS). If acting as agent, the place of supply (POS) would be outside the UK and no UK VAT would be due. We are aware that many of our clients are in a similar position so this decision will be important to them.

Decision

H4U contended that that its position was indistinguishable from the Secret Hotels 2 Ltd case such that it should be regarded as an agent. The FTT upheld this contention for most of the relevant transactions (based on contracts which contained sufficient evidence to enable the Tribunal to reach a decision in UK law) so H4U could be seen as acting as agent. H4U also argued that HMRC’s intention to seek a reference to the CJEU in respect of the interpretation of the EU Principal VAT Directive Article 306 on the meaning of “acting solely as an intermediary”’ (whether that is different from an agent in English law) was an attempt to re-argue the matter before the CJEU and should be resisted. The FTT stated that it was only considering the position under UK law.

Commentary

We understand that there are a number of similar ongoing appeals and this decision may be of benefit to them. It also underlines the fact that documentation, and how each party acts, is important in determining the relationship. No one piece of evidence on its own may be decisive but goes to form part of the overall picture. As always in agent/principal cases, it is crucial that the documentation accurately represents the actual transaction. Contracts can play a big part, as can the Terms & Conditions and wording on websites and advertisements. Broadly, as a starting point, it must be clear to the customer that an agent is acting on behalf of a named principal; without this information, HMRC will likely form the view that there is no agency arrangement and that the “intermediary” party is acting as an undisclosed agent (for all intents and purposes acting as principal). This means that any supply would be seen to be made to, and by the agent, such that (in this case) output tax would be due using TOMS.

Action

We shall have to wait and see whether HMRC is successful in making a reference on the possible distinction between the meaning of agent in UK and EC law.

In the meantime, any businesses which are involved in agency/principal relationships, not just in the travel field, may benefit from taking advice on whether their arrangements are affected by these two cases and whether there may be value in putting planning in place.

VAT – Cash businesses: Investigations

By Marcus Ward 25 October 2016

HMRC’s methods of establishing underdeclarations

HMRC have always taken interest in cash businesses as they see them as a revenue risk. We have heard, anecdotally, that there is an ongoing campaign to target cash businesses which HMRC suspect are under-declaring takings. Such businesses are usually retail and commonly restaurants and take aways (which I shall use as an example in this article). A retail business is obliged to keep certain records. For sales, this is a record of daily gross takings (DGT) and this is the area I will focus on as it is where “suppression” of income generally occurs. In a very crude example, the owner, or a member of staff does not ring up a sale and the payment is pocketed. There are more sophisticated ways in which suppression occurs, but this is the most common.

Even in this day and age where most payments are made by credit or debit cards, there is still significant scope for declarations to be inaccurate.

The methods

There are a number of ways in which HMRC can determine the accuracy of VAT declarations. These may be from the usual bank and accounts reconciliations, mark up exercises, to, say, counting take-away containers to build up a picture of the turnover. The following are also ways in which HMRC test the credibility of declarations:

Compliance checks

These usually take place in the evenings when a restaurant is open for business (or soon after it closes). Officers gain entrance, question staff, examine records for that and previous days, and remove certain records. From this information they can build up a picture of trading. These visits are usually unannounced.

Invigilation exercise

HMRC observe how the business operates and check that all sales of food and drinks are rung into the till. This is usually with the agreement of the business.

Test meals

HMRC staff will purchase a test meal and at a later time check to see if it has been recorded correctly. It may be that this method will be repeated at a suspect restaurant by different HMRC staff, perhaps in the same evening. If any of the sales are not recorded correctly, it may be insufficient in itself to create an assessment, but it will confirm suspicions of suppression and lead to further action.

Observation

While posing as customers, HMRC will also count the number of covers, the amount of take aways, the number of staff, how orders are taken and paid for, and how payments are made.

Surveillance

Members of HMRC staff park outside a restaurant (usually in an unmarked van) and watch the activities of the restaurant. They count the number of people dining and the numbers of people exiting with take aways. This observation may also record the number of deliveries and other relevant information that they are able to obtain from what they can see. This exercise may be carried out over a number of days/nights or even weeks.

Purchases

In more complex suppression, the value of purchases may also be suppressed in order to present a more credible picture to an inspector. This may be more common if the purchases are zero rated food (on which the business would not claim input tax). HMRC may attempt to build up a picture of sales by the volume of actual purchases made. They often check the restaurant’s suppliers’ records to get a full picture of trade.

Information obtained by one of the above methods may, on its own, be insufficient to raise an assessment, but combined with information obtained in different ways will more often than not result in one (should the exercises demonstrate an under-declaration of course).

Taxpayer’s rights

Attendance

HMRC do not have the right to attend a taxpayer’s premises at any time. The law says that inspections may be carried out “at any reasonable time”. This means that that if a business owner is busy, or the time is outside normal office hours, or there is not access to all of the relevant information, or the request is unreasonable for any other reason, the business owner (or his adviser) may request that an inspector leaves and makes an appointment at a future reasonable time. This is sometimes easier to do in theory than in practice, but a taxpayer’s rights are set out in The Finance Act 2009, Schedule 36, part II.

A business has no right to refuse a “regular” inspection but these are arranged for an agreed time in any case.

Records

The VAT Act 1994, Schedule 11 states that the requirement to produce records is limited to being provided at such time as HMRC “may reasonably require”. So, again, if HMRC are making demands that a business feels are unreasonable, it is within its rights to refuse to allow access and to make a mutually agreed and acceptable appointment to allow access to premises and records. This may lead to a discussion, but HMRC do not have unfettered rights to access premises or records.

Best judgement

Regardless of how HMRC have gathered information, any assessment must be made to the best of their judgement and must be “an honest and genuine attempt to make a reasoned assessment of the VAT payable”. If the business is able to demonstrate that this was not the case, the assessment must be removed. Broadly, this will entail demonstrating that things that ought to have been considered were ignored, or that things that have been included should not have been. Generally, the most common ways to challenge an assessment based on the above exercises are; that the period considered was not representative, or not long enough to be representative, or that the tests carried out were insufficient to demonstrate a consistent pattern of trading. There are usually specific facts in each case that may be used to challenge the validity and quantum of an assessment.

Action

Of course, it is hoped that no business which makes accurate declarations is troubled by such investigations. However, if a business feels that HMRC is being unreasonable with its demands it should seek professional advice before agreeing to permit HMRC access.

Matters change however, if HMRC have a Search Warrant or a Writ of Assistance in which case HMRC are able to compel a business to allow entry or inspection.

As always, we advise that any assessment is, at the very least, reviewed by a business’ adviser.

Latest from the courts: Excise Duty – against which party may an assessment be raised?

By Marcus Ward 19 October 2016

A little “light” relief from VAT. Indirect taxes extend to Customs and Excise Duties (as well as IPT and various other “lower profile” taxes) and we are able to assist with all of these.

In an interesting Excise Duty case; B & M Retail Limited (B & M) the Upper Tribunal were asked whether an assessment for Customs Duty due on wine and beer could be issued to an entity “down the chain” to an entity which was holding goods at a given time.

Background

HMRC detained the relevant the goods under The Customs & Excise Management Act 1979 (“CEMA”) Section 139 on the grounds that, in their judgment, on the balance of probabilities, Excise Duty had not been paid on the goods. Under B & M’s terms and conditions of business its suppliers were required to warrant that the sale of alcohol to B & M was on a “Excise Duty paid” basis.

The First Tier Tribunal (FTT) decided that despite an HMRC investigation resulting in the fact that they were not satisfied that duty had been paid on the goods, B & M was not responsible for the duty (and subsequent penalties) as the goods had passed through other various entities before they reached the appellant. The decision was based on the fact that the duty point must have arisen before the goods reached B & M and consequently, the duty was payable by someone further up the supply chain and not simply by the entity which was holding the Excise Duty goods at the Excise Duty point.

Decision

However, the Upper Tribunal disagreed with the FTT and overturned the verdict. The Upper Tribunal stated that “… the recognition by HMRC that one or more other Excise Duty points must, in principle, have been triggered before B & M received the relevant goods did not preclude HMRC from assessing B & M for excise duty …”. The Upper Tribunal did, however, remit the case to the First Tier Tribunal to review the evidence to ensure that the assessment is in time and that, as a matter of fact, the Excise Duty due on the beer and wine remains unpaid.

Conclusion

It would appear that this decision currently gives HMRC the right to raise an assessment for duty and penalties anywhere along the supply chain when an entity is holding the goods, even though a “previous” entity may have been responsible for the payment. This is not * * polite cough * * small beer as the amount in question was £5,875,143 of duty and a penalty of £1,175,028. This is helpful to HMRC as, in this instant case, it would appear that entities further up the supply chain were either not registered, or became deregistered, making it more difficult for HMRC to recover the Duty due.

It is important for every importer to be clear about the Excise Duty position and to carry out detailed due diligence on the relevant shipment. It is now not possible to escape an assessment by demonstrating that a third party is responsible for the payment of the duty.