Tag Archives: place-of-supply

VAT: Zero rating of prescriptions

By   29 April 2019

Latest from the courts

The UK is unique in the EU for the zero rating of medicines prescribed by a registered medical practitioner.

In the First Tier Tribunal (FTT) case of Pearl Chemist Ltd (Pearl) the issue was whether the development of new technology and legislation affected the zero rating of prescriptions written by UK registered and non-UK registered doctors and the  interpretation of “registered medical practitioner”.

Background

Pearl is authorised to dispense medicines prescribed online by doctors based in countries based in the European Economic Area. It contracted with a third party which operated websites which offered medical screening and services, primarily for conditions such as erectile dysfunction, hair loss and obesity/weight loss.

Customers of the third party could obtain an online consultation with qualified doctors. If the doctor decided to issue a prescription, the written prescription would be sent to Pearl who would then despatch the medicine directly to the individual customer on behalf of the third party. Pearl treated all these supplies as zero-rated. The relevant law covering such prescriptions changed in 2008 such that it was now possible to dispense drugs prescribed by a qualified doctor based outside the UK.

HMRC formed the view that these supplies were not covered by the UK zero rating on the basis that an EU qualified doctor who is not registered with the GMC is not a registered medical practitioner. An assessment for output tax was issued in respect of supplies made against prescriptions written by non-UK doctors.

The issues

The issues, broadly were:

  • Are qualified doctors based outside the UK covered by the description “registered medical practitioner” in UK legislation?
  • If not, does this breach of the principle of fiscal neutrality? (Whether there is clear discrimination between identical supplies made on the prescription of UK doctors and doctors from other EU countries)

Decision

The judge ruled that the UK zero rating does not cover prescriptions written by non-UK doctors as they are not within the definition of “registered medical practitioner” Consequently, the supplies must be standard rated in the UK. However, the exclusion of medicines prescribed by overseas doctors from the zero-rating constitutes a breach of the principle of fiscal neutrality. This seemed good news for Pearl, but…the Tribunal stated that it was unable to provide an effective remedy for that breach and accordingly dismissed the appeal and affirmed HRMC’s assessment.

Commentary

This decision seems rather harsh on the appellant. It appears that the judge ruled that she had no power to override UK Parliament’s intention despite the inherent “unfairness” of the outcome of this intention where identical supplies were treated differently depending on where the prescription was written.

Certainly an odd one and I wonder if this is the last of this matter. Any business in a similar situation may need to review its position on the basis of this decision.

Changes to recovery of VAT on imports

By   15 April 2019

HMRC have recently issued RCB 2 (2019) which sets out HMRC’s view on Toll Manufacturers (TM). TM is an arrangement in which a company which has a specialised equipment processes raw materials or semi-finished goods for another company. It may also be called toll processing. Typically, a TM will import, say, pharmaceutical goods, process and distribute them within the UK for clinical trials on behalf of an overseas owner.

HMRC has become aware that a number of UK TMs have paid import VAT on behalf of overseas customers have also claimed a corresponding deduction for input tax under VAT Act 1994 Section 24. However, there is no provision in UK law for such deduction.

Current treatment

TMs will usually act as importer and recover import VAT via a C79 despite them not being the owner of the goods (the owner instructs the TM to carry out works on their goods on their behalf).

HMRC has now confirmed that this VAT treatment is incorrect, and it will no longer be permitted.

New treatment

Only the owner of the goods will be treated as the importer and be able to recover import VAT. TMs will no longer be able to claim this VAT.

However, HMRC will not require TMs to make adjustments to past claims and the treatment will only be required going forward.

Introduction

The change comes into effect from 15 July 2019

Affect

Affected TMs are likely to need to make significant changes to their systems before that date.

Overseas owners of the relevant goods will either need to:

  • register for UK VAT and claim the import VAT on a “regular” return, or
  • make a claim via the Thirteenth VAT Directive (86/560/EEC)

NB: In cases where title has passed before import into the UK (businesses sell on the goods before importing them into the UK so ownership and title has passed to the new owner, however the business that sold the goods acts as importer on UK import declarations, pays the import VAT to HMRC and receives the import VAT certificate – C79) the correct procedure is for the new owner of the goods to be the importer of record and reclaim the import VAT and not the previous owner.

As with many areas of VAT, a No-Deal Brexit is likely to increase the complications for such cross-border transactions in the future.

Please contact us if you have any queries or require assistance on this matter.

VAT: HMRC Impact Assessment of a No-Deal Brexit

By   1 April 2019

HMRC have issued an impact assessment for VAT and services if the UK leaves the EU without a deal.

The impact assessment covers the effect on businesses of amendments to existing VAT legislation and the introduction of transitional provisions for the supply of services between the UK and the EU

Summary

Under current rules:

  • VAT is charged on most goods and services sold within the UK and the EU
  • the place of supply rules for services determine the country in which a business should charge and account for VAT

If the UK leaves the EU without a deal, he UK will continue to have a VAT system. This is unsurprising as it is a major revenue raiser for the Treasury and the taxpayer is required to do all the heavy lifting the tax involves.

HMRC say the published Statutory Instruments (Sis – details of which may be found in the impact assessment but mainly The Taxation – Cross-border Trade Act 2018) broadly maintain the current VAT treatment in the event of a No-Deal Brexit. It expects that they will have either a negligible impact on the administrative burden on businesses or no impact.”

This seems, prima facie, difficult to swallow.

HMRC also anticipate that an exception to the above is the removal of the VAT Mini One Stop Shop (MOSS), which “may have a significant ongoing cost for some EU and non-EU businesses.”

The impact assessment refers to the Economic Analysis of Brexit which makes interesting reading.

Of course, the House has voted against a No-Deal Brexit, so we can rely on that… can’t we?

VAT Success Stories

By   1 April 2019

I often write about how it is important to seek VAT advice at the right time, see triggerpoints. So, I thought that I’d give some practical examples on where we have saved our clients money, time and aggravation.

Investment company

HMRC denied claims for input tax incurred on costs relating to the potential acquisition of an overseas business and threatened to deregister the plc as it was not, currently, making taxable supplies. Additionally, HMRC contended that even if VAT registration was appropriate, the input tax incurred did not relate to taxable supplies and was therefore blocked.

We were able to persuade HMRC that our client had a right to be VAT registered because It intended to make taxable supplies (supplies with a place of supply outside the UK which would have been taxable if made in the UK) and that the input tax was recoverable as it related to these intended taxable supplies (management charges to the acquired business). This is a hot topic at the moment, but we were able to eventually demonstrate, with considerable and detailed evidence that there was a true intention.

This meant that UK VAT registration was correct and input tax running into hundreds of thousands of pounds incurred in the UK was repaid.

Restaurant

We identified and submitted a claim for a West End restaurant for nearly £200,000 overpaid output tax. We finally agreed the repayment with HMRC after dealing with issues such as the quantum of the claim and unjust enrichment.

Developer

Our property developing client specialises in very high-end residential projects in exclusive parts of London. They built a dwelling using an existing façade and part of a side elevation. We contended that it was a new build (zero rated sale and no VAT on construction costs and full input tax recovery on other costs). HMRC took the view that it was work on an existing dwelling so that 5% applied and input tax was not recoverable. After site visits, detailed plans, current and historical photograph evidence HMRC accepted the holy grail of new build. The overall cost of the project was tens of millions.

Charity

A charity client was supplying services to the NHS. The issue was whether they were standard rated supplies of staff or exempt medical services. We argued successfully that, despite previous rulings, the supplies were exempt, which benefited all parties. Our client was able to deregister from VAT, but not only that, we persuaded HMRC that input tax previously claimed could be kept. This was a rather pleasant surprise outcome.  We also avoided any penalties and interest so that VAT did not represent a cost to the charity in any way.  If the VAT was required to be repaid to HMRC it is likely that the charity would have been wound up.

Shoot

A group of friends met to shoot game as a hobby. They made financial contributions to the syndicate in order to take part. HMRC considered that this was a business activity and threatened to go back over 40 years and assess for output tax on the syndicate’s takings which amounted to many hundreds of thousands of pounds and would have meant the shoot could not continue. We appealed the decision to retrospectively register the syndicate.

After a four-year battle HMRC settled on the steps of the Tribunal. We were able to demonstrate that the syndicate was run on a cost sharing basis and is not “an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating a profit.” – A happy client.

Chemist

We assisted a chemist client who, for unfortunate reasons, had not been able to submit proper VAT returns for a number of years.  We were able to reconstruct the VAT records which showed a repayment of circa £500,000 of VAT was due.  We successfully negotiated with HMRC and assisted with the inspection which was generated by the claim.

The message? Never accept a HMRC decision, and seek good advice!

VAT MOSS and No-Deal Brexit

By   11 March 2019

In the event of an increasingly likely no deal Brexit, changes have been put in place to the existing MOSS (Mini One Stop Shop) arrangements. Details of MOSS here.

These intended changes will affect UK businesses which provide electronically supplied services such as  cross-border telecommunication, television and radio broadcasting, or digital services to non-business (eg; individuals) recipients in the EU.

Such services include:

  • website hosting
  • supply of software
  • access to databases
  • downloading apps or music
  • online gaming
  • distance teaching

The existing threshold of £8818 pa introduced by Schedule 4A, para 15(1) of the VAT Act 1994 will be removed via SI2019/404.

This means that if there is a no deal Brexit UK businesses supplying such services will either be required to:

  • register for Non-Union MOSS, or
  • register for VAT in each EU Member State in which they made a sale (where the customer belongs),

MOSS Non-Union Scheme 

A business may use the Non-Union scheme when it supplies cross-border electronically supplied services to consumers in all EU countries (including the EU country selected as the Member State of identification).

The EU countries where a business supplies services to are known as Member States of consumption.

Selecting a member state of identification

A business must designate a Member State of identification. This can be any EU country a business chooses. A business may change the member state of identification at a later date if it wants. Again, this can be any EU country a business chooses.

Registration

A business registers online via the Member State of identification’s portal.

VAT rules

A business will be allocated a VAT number by the EU country chosen to be the Member State of identification and charge VAT at the rate of the EU countries where its customers reside. The same invoicing rules as your Member State of identification must be used (although an invoice is not required in most countries when supplying services under the MOSS scheme).

VAT returns

A business must submit detailed online quarterly VAT returns within 20 days of the end of each return period. The information is then securely transferred from your Member State of identification to the relevant Member State of consumption.

VAT rates

VAT rates can be checked for the supply of telecommunications, broadcasting and electronically supplied services using the Tax Information Communication database.

For further information and to register for MOSS please see here.

Claiming EU VAT refunds after Brexit

By   25 February 2019

HMRC has confirmed that in the event of a No Deal Brexit businesses belonging in the UK will no longer be able to make claims for VAT incurred in other EU Member States using the electronic refund system.

Businesses claiming via the EU VAT refund electronic system need to submit a refund claim for 2018 by 5pm on 29 March 2019. If claims are submitted after that date HMRC will be unable to send the claim to the relevant EU Member State.

If a business incurs VAT in an EU Member State in 2019 it should not use the EU VAT refund system to make a claim as it is likely to be rejected by that Member State.

After 29 March, a business must claim VAT refunds from EU Member States directly by using the existing process for businesses based outside the EU (similar to the previous EC Eighth Directive claims for those with a good memory and in line with current the EC Thirteenth Directive). This includes outstanding claims that relate to 2018 expenses, and claims relating to 2019.

It is important to understand the process for each EU Member State as it can vary. For example:

  • the deadline for making your claim may be different
  • you may need to supply a certificate of Taxable Status to support a claim
  • you may need to appoint a tax representative in the EU Member State of refund

Check the EU’s Europa website for country specific information on VAT.

This is yet another reason (should one be needed) that a No Deal Brexit will create significant burdens on businesses. It will mean that up to 27 separate claims, in the language of the Member State in which the claim is made, rather than a single application. Good luck everybody!

VAT: Place of supply of “erotic services”

By   19 February 2019

Latest from the courts

Readers of a nervous disposition may want to look away now.

In the case of Geelen C-568/17 (in French) the advocate General (AG) was asked for an opinion on the supply of what was coyly called webcam sessions.

Background

The defendant in the main proceedings, Mr Geelen, was a VAT registered person in The Netherlands. He provided the services of the organisation and provision of interactive erotic sessions broadcast live over the Internet. The models were located in the Philippines and Mr Geelen provided them with the necessary hardware and software to transmit the sessions over the Internet. Customers contacted the models via a website after creating an account for this purpose. The sessions were broadcast live and were interactive, which meant that customers had the opportunity to communicate with the models and give them instructions. The services provided by the defendant were intended for the Dutch market. I set out the arrangements here, as I am sure that none of my readers will be aware of such things * polite cough *

This is interesting as an example of technology overtaking legislation which was enacted before such services could even be contemplated (well, by the people drafting the VAT legislation anyway).

The issue 

The issue was where was the place of supply of these services. If they were in The Netherlands, then Dutch VAT would apply, but if they were deemed to be outside the EU, no EU VAT would be payable. The tax authorities considered that such services were subject to VAT in The Netherlands and issued a tax assessment notice.

Technical

Generally, the rule is that for B2C services the place of supply (POS) is where the supplier belongs. However, there is an exception for cultural, artistic, and entertainment activities. These are taxed where performed (outside the EU in this case if the exception is applicable).

Opinion

It was the AG’s opinion that, in the first place, there was no doubt that the services in question were entertaining…

However, he opined that the only way to provide cultural activities, entertainment, education, etc. was either to bring service users together at the actual place of service delivery, or to provide a service at the location of the users.

The technological development that has taken place since the relevant legislation was drafted has enabled services in which beneficiaries participate remotely, sometimes even actively, in a cultural, entertainment or other event, without necessarily doing so in real time. In a cultural reference: The “unity of action, time and place”, to refer to the categories of classical theatre, was thus upset.

In the AG’s opinion, these services were not intended to be covered by the exception. Consequently, these were not services “supplied where performed” and the general B2C rules applied, so the POS was The Netherlands and Dutch VAT was applicable.  It was concluded that performance does not take place where the models are based, or where the consumer was located, but where Mr Geelen brought together all elements of the supply.

Summary

The legislation must be interpreted as meaning that the services of organising and providing live interactive webcam sex do not constitute services for entertainment purposes within the meaning of the relevant provisions.

VAT: Preparing for a No Deal Brexit. A checklist

By   13 February 2019

A guide for Customs, Excise and VAT for exporters

This is a brief overview of certain issues that an exporter needs to consider if, as seems increasingly likely, there is a No Deal Brexit. There are a number of helpful links to assist. This could be an enormous change. HMRC estimate the number of customs declarations will rise from 55m to 255m annually and the EU requires eight copies of each customs declaration.

UK businesses need to plan for Customs and VAT processes, which will be checked at the EU border. They should check with the EU or Member State the rules and processes which need to apply to their goods.

Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers. Current EU rules would mean that EU Member States will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.

Checklist

  • Get an EORI number
  • Check if you can use transitional simplified procedures
  • Apply the correct customs procedure code
  • Identify the UK tariff codes for all your products by searching trade tariffs on gov.uk. A tariff code allows you to:
    • complete declarations and other documentation
    • check if there is duty or VAT to pay and any potential duty reliefs
  • If you use a UK roll on roll off location you will need to declare your goods before they board the ferry or train
  • Pay Customs Duty on goods
  • Research the destinations you want to export to. This background information, along with the commodity code of the goods will enable you to establish if goods will incur import duty in the destination country
  • Check if you need a licence to import or export your goods
  • Obtain software or an agent to make declarations
  • Identify what documentary requirements apply for your products when exported to EU countries by searching the EU Commission Market Access Database. (When choosing a market, you cannot currently select the UK so, assuming the UK would have no tariff preferences under a no-deal scenario, select a country such as the US or China, where no preferential arrangements exist, to establish a comparable level of duty your product would face)
  • Check for updates. Check the EU Brexit Preparedness portal, to understand the potential outcomes for your sector
  • Check the origin of all products when exported to, or imported from EU countries. Identify the UK/EU/non-EU content (including all components and raw materials) and whether your goods may qualify as being of UK or EU origin. Access further information on rules of origin
  • Customs delay – If working in time sensitive sectors, consider how your EU customers may be affected by customs delays. These may include; just-in-time practices, timed deliveries and potential penalties and short shelf-life goods
  • Identify EU customers and suppliers who are cost-sensitive and who might be reluctant to pay more for goods with the addition of import duties, customs clearance costs, higher freight costs, or currency fluctuations.
  • Identify exports to countries which have Free Trade Agreements (FTA) with the EU. Are they dependent on duty preferences or other FTA provisions? Consider the implications, particularly where main competition is with other EU businesses
  • Access details of which countries have FTA with the EU
  • Identify purchases from other countries which have FTA or Generalised System of Preferences (GSP) agreements with the EU.
  • Identify sales to EU customers who incorporate those goods into their products, for re-export to countries with FTAs. Check whether supplier declarations are provided
  • Cash flow – Consider protecting against foreign exchange fluctuations within your business
  • Map and audit supply chains. Even if a company is ready for Brexit, it will be disrupted if a supplier is not prepared and cannot meet its contracts
  • Check international contracts and renegotiate if required. Some intra-EU contracts will not include incoterms, the legal provisions for importing and exporting that define who is responsible for shipping goods across borders
  • Develop a contingency plan – There is no guarantee that border procedures will operate smoothly immediately after Brexit, and businesses may need a contingency plan in case systems fail
  • Stay up to date by registering for HMRC’s EU Exit update service www.gov.uk/hmrc/business-support, select ‘business help and education emails’, add your email address, select ‘Submit’, select ‘Add subscription’, choose ‘EU Exit’ then ‘Submit’
  • Customs checks – Establish what level of risk of physical or documentary examination might apply for your goods imported from, or exported to EU countries
  • For goods being exported to the EU which are not “wholly obtained” in the UK, and which have undergone processing in another third country as part of their production, it is important to understand the supply chain of components going into the product.  Goods with components coming from non-UK countries will mean that that product is not able to benefit from any continued zero-tariff trade with the EU unless arrangements are put in place between the EU and UK

I hope that this is helpful. Please contact us if you have any queries.

VAT and Brexit – Latest

By   21 January 2019

HMRC has released additional information on a No Deal Brexit. The so-called Partnership Pack It covers:

  • Customs
  • Excise
  • VAT
  • Regulatory changes
  • Trade Tariff
  • Trading goods regulated under the ‘New Approach’

This is a quite detailed document at 119 pages and it states that:

“The government will work closely with industry to ensure that cross-border activity continues to be conducted in a way which minimises delays and additional burdens for legitimate trade, while robustly ensuring compliance.”

We shall see how well this works in practice in the event of a No Deal Brexit.

Specifically, there are details for the following matters:

  • Businesses importing from the EU only
  • Businesses exporting to the EU only
  • Trading with the EU and the rest of the world
  • Trading with the rest of the world only
  • Service industries
  • Businesses supplying services to the EU
  • Express courier industry and postal services
  • Tour operators
  • Creative, cultural and sport
  • Agrifood, animals and plants
  • Business importing and exporting plants and plant products from/to the EU and elsewhere
  • Businesses buying and selling timber or timber products in the EU Updates to this pack
  • Businesses selling duty-suspended alcohol, tobacco or fuel in the UK
  • Businesses and individuals exporting controlled goods
  • Businesses supplying medicines and medical devices
  • Businesses producing and exporting chemicals from outside the European Economic Area (EEA)
  • Businesses shipping waste into and out of the EU
  • Transporters
  • Haulage companies operating between the UK and the EU
  • Ferry or Channel Tunnel operators moving goods between the UK and the EU
  • Freight forwarders
  • Other operators at the UK border
  • Customs agents
  • Ports and airports
  • Customs warehouses
  • Temporary storage operators
  • Communication resources

This list is not exhaustive.

It is a useful document for any business to read but I hope that it is never required.

VAT: No Deal Brexit – new regulations for “imports”

By   14 January 2019

A new Statutory Instrument (SI) SI 2018/1376 has been issued which sets out certain measures to be adopted in the event of a No Deal Brexit in respect of postal packets. A background to VAT and Brexit here

If the UK leaves the EU without a deal it will be unable to treat the movement of goods between EU Member States in the same way as previously. Such a movement of goods now become an import – similar to any other goods currently entering the UK from outside the EU. A guide to imports here

These regulations mean that certain overseas businesses will be required to register in the UK and pay import VAT on a consignment of goods up to the value of £135.

I have summarised below the most salient parts of the SI.

What is a qualifying import?

The regulations state that a “qualifying importation” is made where—

  • A supplier supplies goods for a consideration to a recipient in the course or furtherance of a business carried on by the supplier
  • the supplier is not established in the UK
  • the goods are dispatched from a place outside the United Kingdom to the United Kingdom in a postal packet
  • the value of the contents of the postal packet is £135 or less
  • the postal packet does not contain goods of a class or description subject to any duty of excise

There are two exceptions (there always appear to be exceptions in VAT…)

  • the supplier ensures that a UK-established postal operator has a legally binding obligation to pay any import VAT that is chargeable on that qualifying importation to the Commissioners
  • a non UK-established postal operator has an obligation under an agreement with the Commissioners to pay any import VAT that is chargeable on that qualifying importation.

Requirement to register

A supplier must be registered under the new regulations with effect from the date on which the first qualifying importation is dispatched by the supplier. There is no de minimis limit.

Application for registration

  • a notification of a requirement to be registered and an application to be registered must be made using electronic communications in such form and manner to be specified by HMRC
  • it must provide such information as specified by HMRC

Returns

Returns will be known as “Postal Packet Returns” and will be quarterly and will be due on the first calendar day after the last day of the month next following the end of the period.

Penalties

This being VAT – of course there are penalties for getting wrong.

The penalty for failure to register is a flat rate of £1000.

The SI also contains regulations for others to be jointly and severally liable for that import VAT in certain circumstances. Further, as expected, (see here) the SI also removes Low Value Consignment Relief (LVCR) for the import of commercial goods with a value of £15 or less.

A No Deal Brexit will undoubtedly increase administration, red tape and cause delays and uncertainties, and VAT is only one aspect of that. Let us hope that this SI is not needed…