Tag Archives: place-of-supply

VAT registration HMRC update

By   20 February 2024
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HMRC has updated VAT Notice 700/1 – Who should register for VAT. The publication explains when a business must register for VAT, and how to do it.

The changes are to para 2.7 – Specified Supplies which sets out what needs to be included during the application process when describing business activities.

Businesses affected

Those that supply; finance, insurance services, or investment gold to customers in countries outside the UK, or make supplies of insurance or finance services which are directly linked to the export of goods outside the UK.

Specified Supplies

These are supplies which would be exempt from VAT if they were made in the UK, but are treated as taxable if made outside the UK.

Benefit to business

A business making Specified Supplies may register for VAT on a voluntary basis and claim UK input tax incurred in making those supplies. We strongly recommend that all businesses in the above categories consider registering in the UK.

The amendment

If a business is registering because it makes Specified Supplies, it must ensure that it clearly states ‘SPECIFIED SUPPLIES’ in the free-text box when asked to describe the business activities during the application process. Failure to do this will likely cause delays and create additional HMRC queries.

VAT: Evidence for exports. The H Ripley case

By   13 February 2024
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Latest from the courts

In the H Ripley & Co Limited First Tier Tribunal (FTT) case the issue was whether the appellant had satisfactory evidence to support the zero rating of the export of goods (scrap metal).

Background

HMRC denied zero rating on the basis that the appellant did not provide satisfactory evidence to support the fact that the scrap metal was removed from the UK.

The requirements are set out in VAT Notice 725 para 5 and acceptable documentary evidence may include:

  • the customer’s order – including customer’s name and delivery address
  • inter-company correspondence
  • copy sales invoice
  • advice note
  • packing list
  • commercial transport documents from the carrier responsible for removing the goods from the UK, for example an International Consignment Note (CMR) fully completed by the consignor, the haulier and signed by receiving consignee
  • details of insurance or freight charges
  • bank statements as evidence of payment
  • receipted copy of the consignment note as evidence of receipt of goods abroad
  • a signed CMR document or note
  • a bill of lading
  • an airfreight invoice
  • an invoice from the carrier of the goods
  • official documents issued by a public authority, such as a notary, confirming the arrival of the goods
  • any other documents relevant to the removal of the goods in question which you would normally get in the course of business

or a combination of the above.

HMRC advised the appellant that it had received an information request from the Belgian tax authorities in respect of certain transactions and consequently, HMRC required information on the company’s documents in connection with the supplies. On receipt of the information HMRC concluded that the evidence was insufficient to support zero-rating so the sales were treated as standard rated and the appellant’s repayment claim was reduced to reflect this.

In these circumstances the burden of proof is on the appellant to show that it has satisfied the conditions set out in Notice 725 to zero-rate its supplies and provide documentation to show that the goods were removed from the UK.

Decision

The court noted that it was not HMRC’s position that supplementary evidence could not be provided post the required three-months period but that it was entitled to decline the additional evidence when it was provided some 18 to 30 months after the three-month period. It was clear that the evidence of removal must be obtained within three months and not that the valid evidence is brought into existence within the three-month time limit and obtained at some future date.

Notice 725 sets out the conditions which attach to the entitlement to zero-rate supplies. The FTT considered it to be clear from paragraph 4.3 and 4.4 (which have the force of law) that the onus is on the exporter company claiming zero-rating to gather sufficient evidence of removal within three months of the date of the supply. If it does not do so, it is not entitled to zero-rate the supplies.

Specifically, the court considered:

  • Sales Invoices – did not provide clear evidence that the goods were removed from the UK. Despite the invoices confirming the sale of scrap metal to a Belgium registered company it did not follow that the address of the purchaser is the same address as the destination that the goods were sent to.
  • Bank Statements – simply provided proof of payment they did not confirm who received the goods nor where the goods were delivered.
  • Weighbridge Tickets – merely confirm a consignment of scrap metal was sold to a Belgium based company and the goods were collected by a UK registered vehicle.
  • CMRs – none of the CMRs were fully completed by the haulier and signed by the receiving consignee.
  • P&O Boarding Cards –a taxpayer must have in its possession valid evidence of export within three months from the time of supply. The boarding cards were not provided to HMRC until 30 May 2018, some 18 to 30 months after the disputed consignments took place. It was not disproportionate for HMRC to state that the time limit for obtaining valid evidence of removal was three months and that the substantive requirements of Notice 725 had not been met. In any event, the court did not accept that the boarding cards evidence the exports of the scrap metal; none of the reference numbers on the boarding card match those used in any of the other documents and none of the lead names on the boarding cards match any of the other names in any other document. The boarding cards do not have any identifying features such that they may be matched with any of the disputed consignments.
  • E-mails and WhatsApp messages –none of the messages evidence that the loads were exported. At best they evidence a request from the buyer to a carrier to collect goods from the supplier’s yard and the WhatsApp messages were silent on whether the loads were exported from the UK.

The appeal was dismissed, and the assessments were upheld because none of the documents either individually or taken as a whole, were sufficient evidence to support zero-rating.

Commentary

Yet another case illustrating the importance of insuring correct documentation is held. It is not sufficient that goods leave the UK, but the detailed evidence requirements must always be met.

Why are Certificates Of Origin important? An overview

By   18 December 2023
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What is a Certificate of Origin (CO)?

 A CO is a formal, official document which evidences in which country a good or commodity was manufactured. The certificate of origin contains information regarding the product, its destination, and the country of export.

A CO is required for most treaty agreements for cross-border trade and have become more important since Brexit (no more single market alas).

Why is a CO important?

The CO is an important document because it determines whether certain goods are eligible for import, or whether goods are subject to duties.

CO – General

Customs officials expect the CO to be a separate document from other commercial documents such as invoices or packing lists. Officials may also expect it to be signed by the exporter, the signature notarised, and the document subsequently signed and stamped by a Chamber of Commerce. Additionally, the destination Customs authority may request proof of review from a specific Chamber of Commerce.

Some countries accept electronically issued COs which have been electronically signed by a Chamber of Commerce.

Types of CO

A CO can be either in paper or digital format and must be approved by the requisite Customs Authority.

There is no standard CO document for global trade, but a CO prepared by the exporter, has at least the basic details about the product being shipped.

Non-Preferential Cos

Non-preferential COs, also known as “ordinary COs” indicate that the goods do not qualify for reduced tariffs or tariff-free treatment under trade arrangements between countries. If an exporting country does not have in place a treaty or trade agreement with the importing country, an ordinary CO will be needed.

Preferential COs

This is for shipments between countries with a trade agreement or reduced tariffs and proves the goods qualify for reduced import duties.

Legalised CO

Some countries require additional information to demonstrate the authenticity of the information in the CO. A Legalised CO is an ordinary CO that has been further authenticated. The legalisation process usually involves the CO being validated by various appropriate authorities to give more evidence to its authenticity.

Certified CO

A Certified CO is similar to a n ordinary CO. However, it has been certified by a Chamber of Commerce, government agency or other relevant authority to confirm its authenticity.

Certification involves an in-depth review of all of the information declared on the CO, as well as a thorough side-by-side comparison with the requirements of the trade agreement and regulations of the country of import to ensure full compliance.

EUR1

A EUR1 certificate is used in trade between the UK and partner countries. It is used to confirm that goods originate in the EU or a partner country so that the importer can benefit from a reduced rate of import duty.

EUR1 certificates are issued by Chambers of Commerce or Customs offices.

Contents of a CO

A CO will typically contain the following information:

  • name and contact information of the manufacturer of the goods
  • country of origin
  • contact information of the exporting agent
  • contact information of the receiver/importing agent
  • description of the goods, including the appropriate product codes
  • quantity, size, and weight of goods
  • A waybill or bill of lading number
  • means of transport and route information
  • commercial invoice of payment

* A waybill is a document issued by a carrier giving details and instructions relating to the shipment of a consignment of cargo. It shows the names of the consignor and consignee, the point of origin of the consignment, its destination, and route.

How do I find out if I need a CO?

A business will need to check with its local Chamber of Commerce.

VAT: New rules for registration and reporting in the EU from 1 January 2025

By   6 November 2023
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EU Member States have agreed to extend similar VAT registration thresholds utilised by domestic businesses to EU non-resident taxpayers.

VAT scheme for Small Businesses

New simplification rules will open the VAT exemption to small businesses established in other member states and help reduce VAT compliance costs. The new regime should reduce red tape and administrative burdens for SMEs and create a level playing field for businesses regardless of where they are established in the EU. The new VAT scheme for SMEs will apply from 1 January 2025.

The new scheme

Current rules on the exemption of supplies under a certain threshold:

  • Member States are allowed to exempt supplies by small enterprises with an annual turnover not exceeding a given threshold, different in each Member State.
  • Small enterprises not established in a certain Member State have, however, no access to such an exemption.

New rules on the exemption of supplies under a certain threshold

  • Member States will be allowed to continue exempting small businesses with an annual turnover not exceeding a given threshold, which cannot be higher than € 85,000 (maximum exemption threshold).
  • The new rules will open the exemption to small enterprises established in other Member States than the one in which the VAT is due. The exemption will apply if the turnover in Member State where the SME is not established is below the national threshold and if the annual turnover in all of the EU is below €100,000. This is a safeguard threshold preventing companies with large turnover to benefit from the SME exemption in other Member States. For this purpose, SMEs will be able to use the single registration window in their own Member State.

The new rules will provide exempt SMEs with simplifications in terms of registration and reporting. These rules should reduce the overall VAT compliance costs for SMEs by up to 18% per year.

A VAT Did you know?

By   12 October 2023
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We know that burying a deceased person is exempt, but exhumation is standard rated and we now know, thanks to the UK Funerals On-line Ltd FTT case, that the service of the repatriation of the body of a deceased person can be viewed as either an exempt supply of funeral services or a zero-rated supply of transport services.

This being the case, zero rating trumps exemption via of The VAT Act 1994, section 30(1).

Evidence of UK establishment required for certain VAT registered businesses

By   2 October 2023
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Businesses registered for VAT at a high-volume address will be asked by HMRC to prove they are established in the UK.

High-Volume Addresses

A high-volume address is where a single UK address is listed as the principal place of business (PPOB) for many VAT-registered businesses. We understand that many thousands of businesses are registered at single addresses in the UK.

HMRC will require proof of a place of belonging in the UK to avoid online marketplaces failing to account for output tax.

Online marketplaces

Online marketplaces are liable for the output VAT from sales on their platforms by overseas traders. HMRC understand that Non Established Taxable Persons (NETPs) have incorporated in the UK and provided UK address details to marketplaces. Since they are then no longer “overseas traders” these rules do not apply. In these situations, the NETP does not declare VAT and the marketplace does not become liable for it.

HMRC is writing to all VAT registered businesses with a PPOB at a high-volume address to ask for evidence to demonstrate that the business is actually established in the UK. If the business does not respond, by default, HMRC will consider the business to be a NETP and seek to recover VAT from the online marketplace business.

Evidence of UK establishment

HMRC will outline what specific evidence it will accept in their letter.

VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide

By   24 August 2023
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VAT and TOMS: Complex and costly

Introduction

The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK and wholly outside the UK.

Under the scheme:

  • VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
  • A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
  • There are special rules for determining the place, liability and time of margin scheme supplies.
  • VAT invoices cannot be issued for margin scheme supplies.
  • In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
  • No UK VAT is due via TOMS on travel/accommodation/tours enjoyed outside the UK.

Who must use the TOMS?

TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by

  • Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
  • Coach operators who buy in hotel accommodation in order to put together a package
  • Companies that arrange conferences, including providing hotel accommodation for delegates
  • Schools arranging school trips
  • Clubs and associations
  • Charities.

The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.

Supplies covered by the TOMS

The TOMS must be used by a person acting as a principal or undisclosed agent for

  • ‘margin scheme supplies’; and
  • ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).

‘Margin scheme supplies’ are those supplies which are

  • bought in for the purpose of the business, and
  • supplied for the benefit of a ‘traveller’ without material alteration or further processing

by a tour operator in an EU country in which he has established his business or has a fixed establishment.

A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.

Examples

If meeting the above conditions, the following are always treated as margin scheme supplies.

  • Accommodation
  • Passenger transport
  • Hire of means of transport
  • Use of special lounges at airports
  • Trips or excursions
  • Services of tour guides

Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include

  • Catering
  • Theatre tickets
  • Sports facilities

This scheme is complex and specialist advice should always be sought before advising clients.

VAT: Land related services

By   21 August 2023
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Whether a service is “related to land” is important because there are distinct rules for this type of supply compared to the General Rule. The place of supply (POS) of land related services is where the land is located, regardless of where the supplier or recipient belong.

The rule applies only to services which relate directly to a specific site of land. This means a service where the land is a central and essential part of the service or where the service is intended to legally or physically alter a property.

It does not apply if a supply of services has only an indirect connection with land, or if the land related service is only an incidental component of a more comprehensive supply of services.

What is land?

For the purpose of determining the POS, land (also called immoveable property in legislation) means:

  • a specific part of the earth, on, above or below its surface
  • a building or structure fixed to, or in, the ground above or below sea level which cannot be easily dismantled or moved
  • an item making up part of a building without which it is incomplete (such as doors, windows, roofs, staircases and lifts)
  • items of equipment or machinery permanently installed in a building which cannot be moved without destroying or altering the building

What services directly relate to land?

HMRC provide the following examples:

  • construction or demolition of a building or permanent structure
  • surveying and assessing property
  • valuing property
  • providing accommodation in hotels, holiday camps, camping sites or timeshare accommodation
  • maintenance, renovation and repair of a building
  • property management services carried out on behalf of the owner
  • arranging the sale or lease of land or property
  • drawing up of plans for a building or part of a building designated for a particular site
  • services relating to the obtaining of planning consent for a specific site
  • on-site security services
  • agricultural work on land
  • installation and assembly of machines which, when installed, will form a fixture of the property that cannot be easily dismantled or moved
  • the granting of rights to use all or part of a property (such as fishing or hunting rights and access to airport lounges)
  • legal services such as conveyancing and drawing up of contracts of sale or leases, including title searches and other due diligence on a specific property
  • bridge or tunnel toll fees
  • the supply of space for the use of advertising billboards
  • the supply of plant and equipment together with an operator
  • the supply of specific stand space at an exhibition or fair without any related services

What services are only indirectly related to land?

The following HMRC examples are not deemed to be land related services:

  • management of a property investment portfolio
  • drawing up of plans for a building that do not relate to a particular site
  • arranging the supply of hotel accommodation or similar services
  • installation, assembly, repair or maintenance of machines or equipment which are not, and do not become, part of the building
  • accountancy or tax advice, even when that relates to tax on rental income
  • the supply of storage of goods in property without a right to a specific area for the exclusive use of the customer
  • advertising services including those that involve the use of a billboard
  • marketing, photography and public relations
  • the supply of equipment with an operator, where it can be shown that the supplier has no responsibility for the performance of the work
  • general legal advice on contractual terms
  • legal services connected with fund raising for property acquisitions or in connection with the sale of shares in a company or units in a unit trust which owns land
  • stand space at an exhibition or conference when supplied as part of a package with related services, eg; design, security, power, telecommunications, etc.

These examples are mainly derived from case law and the department’s understanding of the legislation and they are not exhaustive.

The Reverse Charge

If an overseas supplier provides land related services in GB, the POS is GB and the reverse charge applies if the recipient is GB VAT registered.

If a GB supplier provides services directly related to land where the land is located outside GB, the POS is not GB. This means that there is a supply in another country. VAT rules in different countries vary (even across the EU) – some countries use the reverse charge mechanism, but others require the GB supplier to VAT register in the country of the POS (where the land is physically located).

VAT: B2B and B2C – The distinction and importance

By   1 August 2023
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A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.

Status of the customer:

  • B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
  • B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.

To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.

  • If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
  • If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.

A supplier needs to identify where his customer belongs in order to establish the place of supply.

VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.

VAT: How to characterise a supply – The tests

By   27 June 2023
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In the age-old matter of whether a supply is separate/composite/compound for VAT purposes which and what is the nature of that supply, the Court of Appeal case of Gray & Farrar International LLP has provided very helpful guidance. A background to facts of the initial hearing here (although this decision was overturned by both the UT and the CoA).

I have previously considered these types of supply here, here, here, here, and here. Although not specifically concerning composite/separate supplies, the case sets out a hierarchy of tests to be applied in characterising a single supply for VAT purposes which now sets the standard. These test are:

  1. The Mesto predominance test should be the primary test to be applied in characterising a supply for VAT purposes.
  2. The principal/ancillary test is an available, though not the primary, test. It is only capable of being applied in cases where it is possible to identify a principal element to which all the other elements are minor or ancillary. In cases where it can apply, it is likely to yield the same result as the predominance test.
  3. The “overarching” test is not clearly established in the ECJ jurisprudence, but as a consideration the point should at least be taken into account in deciding averments of predominance in relation to individual elements, and may well be a useful test in its own right.

Comments

The Mesto Test

CJEU Mesto Zamberk Financini (Case C-18/12)

The primary test to be applied when characterising a single supply for VAT purposes is to determine the predominant element from the point of view of the typical consumer with regard to the qualitative and not merely the quantitative importance of the constituent elements.

Principal/ancillary

If a distinct supply represents 50% or more of the overall cost, it can not be considered ancillary to the principal supply. In such cases an apportionment will usually be required.

Overarching

A generic description of the supply which is distinct from the individual elements. In many cases the tax treatment of that overarching single supply according to that description will be self-evident.

CPP

One must also have regard to the Card Protection Plan Ltd case. This has become a landmark case in determining the VAT treatment for single and multiple supplies. In this case the ECJ ruled that standard rated handling charges were not distinct from the supply of exempt insurance. It was noted that ‘a supply that comprises a single service from an economic point of view should not be artificially split’. Notably many subsequent court decisions have since followed this outcome thereby suggesting a general lean towards viewing cases as single supplies where there are reasonable grounds to do so.