Tag Archives: pos

VAT: More on agent/principal – Latest from the courts

By   3 July 2017
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Lowcost Holidays Ltd

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 growing amount of on-line sales and different parties being involved in a single sale.

By way of background, I looked at this issue at the end of last year here

The case

On a similar theme, the First Tier Tribunal (FTT) case of Lowcost Holidays Ltd the issue was whether the Tour Operators’ Margin Scheme (TOMS) applied to Lowcost’s activities.

Background

Lowcost was a travel agent offering holiday accommodation in ten other EU Member States, and other countries outside the EU, for the most part to customers based in the UK. The issue between the parties is whether Lowcost provided holiday accommodation to customers as a principal, dealing in its own name, under article 306 of Directive 2006/112, the Principal VAT Directive and therefore came within TOMS or whether it acted solely as an intermediary or agent (in which case TOMS would not apply and the general Place Of Supply rules apply).

Decision

The FTT found in favour of the appellant. HMRC had argued that Lowcost was buying and selling travel and accommodation as principal, however, the FTT decided that the contracts which Lowcost entered into with; hotels, transport providers and holidaymakers were clear that the arrangement was for the appellant acting as agent. The helpful Supreme Court case of SecretHotels2 (which I commented on here) was applied in this case. The main point being that the nature of a supply is to be determined by the construction of the contract – unless it is a ‘sham’ and great weight was given to the terms of Lowcost’s contracts rather than what HMRC often call the “economic reality”.  Specifically highlighted to the court was the fact that Lowcost set the prices for the holidays, which HMRC pointed out would be inconsistent with an agency arrangement. The FTT decided that this was outweighed by the actual terms of the contracts.

Consequently, as Lowcost acted as agent (for the providers of the services not the holidaymaker) the Place Of Supply was determined by reference to where the supply was received under the general rule.  In this case, this is VAT free when the services were received by principals located outside the UK.

As with all TOMS and agent/principal matters it really does pay to obtain professional advice.

VAT evasion by non-EU online sellers

By   26 April 2017
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Investigation by The National Audit Office (NAO) into overseas sellers failing to charge VAT on online sales.

The NAO have investigated concerns that online sellers outside the EU are avoiding charging VAT. Full report here

The NAO has published the findings from its investigation into the concern that online sellers based outside the EU are not charging VAT on goods located in the UK when sold to UK customers. Online sales accounted for 14.5% of all UK retail sales in 2016, just over half of these were non-store sales, mainly through online marketplaces.

VAT rules require that all traders based outside the EU selling goods online to customers in the UK should charge VAT if their goods are already in the UK at the point of sale. In these cases, sellers should pay import VAT and customs duties when the goods are imported into the UK and charge their customers VAT on the final selling price. The sellers should also be registered with HMRC and are required to submit regular VAT returns.

Some of the key findings of the investigation are as follows:

HMRC estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 but this estimate is subject to a high level of uncertainty. This estimate represents between 8% and 12% of the total VAT gap (The VAT gap is the difference between the amount of VAT that should, in theory, be collected by HMRC, against what is actually collected) of £12.2 billion in 2015-16. UK trader groups believe the problem is widespread, and that some of the biggest online sellers of particular products are not charging VAT. These estimates exclude wider impacts of this problem such as the distortion of the competitive market landscape.

HMRC recognised online VAT fraud and error as a priority in 2014, although the potential risk from online trading generally was raised before this. In 2013 the NAO reported that HMRC had not yet produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading. The report found HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance but had shown less urgency in developing its operational response. Trader groups claim that online VAT fraud has been a problem as early as 2009, which has got significantly worse in the past five years. The Chartered Trading Standards Institute shares this view. Based on the emergence of the fulfilment house (a warehouse where goods can be stored before delivery to the customer) model, HMRC recognised online VAT fraud and error as one of its key risks in 2014 and began to increase resources in this area in 2015.

HMRC’s assessment is that online VAT losses are due to a range of non-compliant behaviours, but has not yet been able to assess how much is due to lack of awareness, error or deliberate fraud. Amazon and eBay consider that lack of awareness of the VAT rules is a major element of the problem. Amazon and eBay have focused on educating overseas sellers and providing tools to assist with VAT reporting and compliance. HMRC’s strategic threat assessment, carried out in 2014, concluded it was highly likely that both organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online.

HMRC introduced new legal powers to tackle online VAT fraud and error in September 2016. The new joint and several liability power gives HMRC a new way to tackle suspected non-compliance, and is the first time any country has introduced such a power for this purpose. The new powers include making online marketplaces potentially jointly and severally liable for non-payment of VAT when HMRC has informed them of an issue with a seller, and they do not subsequently take appropriate action.

Conclusion

Online VAT fraud and error causes substantial losses to the UK Exchequer and undermines the competitiveness of UK businesses. Compliance with the VAT rules is a legal requirement. Not knowing about the rules does not excuse non-compliance. The UK trader groups who raised the issue report having experienced the impact of this problem through progressively fewer sales. They consider HMRC has been slow in reacting to the emerging problem of online VAT fraud and error and that there do not seem to be penalties of sufficient severity to act as a substantial deterrent.

It is too soon to conclude on the effectiveness and impact of HMRC’s new powers and whether the resources devoted by HMRC to using them match the scale of the problem. We recognise that HMRC must consider effort and efficiency in collecting VAT but its enforcement approach to online trade appears likely to continue the existing unfair advantage as perceived by UK trader groups. This is contrary to HMRC’s policy of encouraging voluntary compliance and it does not take account of the powerful effect that HMRC’s enforcement approach has on the operation of the online market as a whole. We intend to return to this subject in the future.

Further to the above, this article suggests that HMRC should have acted even earlier.

VAT legislation – relationship between EU and UK law. A guide

By   10 April 2017
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How does the UK system fit with EU legislation?

Further to my recent article on the legal impact of The Great Repeal Bill and Article 50 here I thought it would be a good idea to take a step back and look at the background. We now know that on the day the UK leaves the EU the following rules will still apply and that there will be no immediate changes to the status quo. After Brexit there is likely to be a review of the VAT position, but we expect any changes to the system to be subtle at first with any significant changes (if any) being made over a much longer period.

So where are we now?

As most people will know, UK domestic VAT law is derived from EU legislation, but what is the actual relationship?

It is important to understand how both elements of legislation work in cases of dispute with HMRC as it often provides additional ammunition.

History

Most Member States already had a system of VAT before joining the EU but for some countries VAT had to be introduced together with membership of the EU.

When the UK joined the EU in 1972 it replaced two taxes; purchase tax and selective employment tax with VAT.

In 1977, the Council of the European Communities sought to harmonise the national VAT systems of its Member States by issuing the Sixth Directive to provide a uniform basis of assessment and replacing the Second Directive promulgated in 1967.

Council Directive 2006/112/EC (the VAT Directive) sets out the infrastructure for a common VAT system which each Member State is required to implement by means of its own domestic legislation. This important Directive codifies into one piece of legislation all the amendments to the original Sixth Directive, thus clarifying EU VAT legislation currently in force.

Intention

The aim of the VAT Directive is to harmonise the indirect tax within the EU, and it specifies that VAT rates must be within a certain range. The basic aims are:

  • Harmonisation of VAT law
  • Harmonisation of content and layout of the VAT declaration
  • Regulation of; accounting, providing a common legal accounting framework
  • Common framework for detailed description of invoices and receipts
  • Regulation of accounts payable
  • Regulation of accounts receivable
  • Standard definition of national accountancy and administrative terms

EU Statements

There are four types of EU statements:

  • Regulations – Are binding in their entirety and have general effect to all EU Member States. They are directly applicable in the UK legal system
  • Directives – Are binding as to result and their general effect is specific to named EU countries. The form and methods of compliance are left to the addressees.
  • Decisions – Are binding in their entirety and are specific to an EU country, commercial enterprise or private individual.
  • Recommendations and Opinions – Are not binding and are directed to specific subjects on which the Council’s or Commission’s advice has been sought.

EU Legislation as part of UK Legislation

EU law is made effective for UK legislation via European Communities Act 1972 section 2. The effects of EU law as regards UK VAT legislation is summarised as follows.

Direct effect

The Court of Justice has held “wherever the provisions of a directive appear … to be unconditional and sufficiently precise, those provisions may … be relied upon as against any national provision which is incompatible with the directive insofar as the provisions define rights which individuals are able to assert against the state” – Becker.  Also, in UFD Ltd it was stated that “in all appeals involving issues of liability, the Tribunal should consider the relevant provisions of the Council directives to ensure that the provisions of the UK legislation are consistent therewith”.

Primacy of EU Directives over UK legislation

A UK court which is to apply provisions of EU law is under a duty to give full effect to those provisions, if necessary refusing of its own motion to apply any conflicting provision of national legislation.

Interpretation of UK law

If UK VAT legislation is unclear or ambiguous, Tribunals are “entitled to have regard to the provisions of the relevant EU Directive in order to assist in resolving any ambiguity in the construction of the provisions under consideration’ (English-Speaking Union of the Commonwealth).

Legal principles

In implementing the common VAT structure, domestic legislation is required to recognise certain legal principles.

Examples of some of these are the principle of:

  • Equality of citizens
  • Subsidiarity and proportionality
  • Non-discrimination on grounds of nationality
  • Fiscal neutrality
  • Legal certainty and the protection of legitimate expectations.

Practical application for most taxpayers

Practically, a result of the above is that taxpayers are regularly able to recover VAT (plus interest) paid to HMRC in error in cases where the UK domestic legislation has not implemented EU law correctly.  However, HMRC has no right to recovery where VAT has been under-collected as a result of inappropriate implementation of the EU legislation.

VAT Triangulation – What is it? Is it a simple “simplification”?

By   24 March 2017
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Unusually in the VAT world, Triangulation is a true simplification and is a benefit for businesses carrying out cross-border trade in goods.

What is it?

Triangulation is the term used to describe a chain of intra-EU supplies of goods involving three parties in three different Member States (MS). It applies in cases where, instead of the goods physically passing from one to the other, they are delivered directly from the first to the last party in the chain. Thus:

trig (2)In this example; a UK company (UKco) receives an order from a customer in Germany (Gco). To fulfil the order the UK supplier orders goods from its supplier in France (Fco). The goods are delivered from France to Germany.

Basic Treatment

Without simplification, UKco would be required to VAT register in either France or Germany to ensure that no VAT is lost.  That is; if registered in France, French VAT (TVA) would be charged to UKco, this would be recovered and the onward supply to Gco would be VAT free. The supply to Gco would be subject to acquisition tax in Germany.  VAT therefore is neutral to all parties.  Alternatively, UKco may choose to VAT register in Germany.  This would mean that it would be able to produce a German VAT number to Fco so to obtain the goods VAT free.  UKco would recover acquisition tax it applies to itself on the purchase and charge German VAT to Gco. Again, VAT is neutral to all parties.

Triangulation does away with these requirements.

To avoid creating a need for many companies to be structured in this way, Triangulation simplification was created via the EU VAT legislation (which is implemented across all MS) so, in this example, UKco is not required to register in any MS outside the EU.

Simplification

Under the simplification procedure Fco issues an invoice to UKco without charging VAT and quoting UKco’s VAT number. UKco, in turn, issues an invoice to Gco without charging VAT. The invoice is required to show the narrative “VAT Simplification Invoice Article 141 simplification”.  Gco should account for the purchase from UKco in its German VAT Return using the Reverse Charge mechanism. Details of the Reverse Charge here

The Conditions

EU VAT Directive 2006/112/EC, Article 141 sets out the conditions which must be met for Triangulation simplification to apply. Using the example above these may be summarised as:

  • There are three different parties (separate taxable persons) VAT registered in three different MS
  • The goods are transported directly from Fco to Gco
  • The invoice flow involves Fco selling the goods to UKco (the intermediate supplier)
  • UKco supplier in turn invoices its customer, Gco
  • UKco must obtain a valid VAT number from Gco (MS of destination) and quote this number on its invoice
  • UKco must quote “Article 141 simplification” on its invoice to Gco.

Impact on businesses

A business may be involved in triangulation as either:

  • the first supplier of the goods (Fco in the example above),
  • the intermediate supplier (UKco in the example above), or
  • the final consumer (Gco in the example above).

In whichever role, it is important to ensure all relevant details have been obtained and the documentation is correct.

And after Brexit?

As in many areas, we do not yet know how Brexit will affect the UK’s relationship with the EU. In general, the “worse” case scenario for UK business is that this simplification will be unavailable and all cross-border transactions will be treated as exports and imports similar to any other transactions with countries outside the EU and UK business will need to VAT register in one or more MS in the EU. This will add complexity and possibly delays at borders for goods moving to and from the UK. It is also likely to create additional cash flow issues.

In these uncertain times it makes sense to keep abreast of the (likely) changing requirements and take advantage of the simplification while it lasts.

VAT Latest from the courts – Reverse Charge

By   13 February 2017
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The First Tier Tribunal case of University Of Newcastle Upon Tyne is a useful reminder of the impact of the Reverse Charge.

A brief guide to the Reverse Charge is included below.

Background

As with many UK universities, Newcastle was keen to encourage applications to study from new students from overseas. This is an important form of income for the institution.  It used local (overseas) agents to recruit students. Some 40% of those students were studying as undergraduates, 40% as postgraduates on one year “taught” courses and 20% as postgraduate research students studying for doctorates.  In 2014 the University had agreements with more than 100 agents worldwide. The agents used their own resources to recruit students for universities around the world, including in the UK. The University entered into contractual arrangements with agents and paid commission to them. In 2008 the University paid agent commissions of £1.034m, rising to £2.214m in 2012.

The Tribunal was required to consider whether the services supplied by the agents were a single supply to University or separate supplies to both the University and students. If the entire supply is to the University then the Reverse Charge is applicable and, because the University is partly exempt, this would create a VAT cost to it. If the supplies are to both the students and the University, the Reverse Charge element would be less and the VAT cost reduced. (There were changes to the Place Of Supply legislation during the period under consideration, but I have tried to focus on the overall impact in this article.)

The University contended that agents made two supplies: a supply to the University of recruitment services and a supply to students of support services. The commission paid by the University should therefore be apportioned so as to reflect in part direct consideration paid by the University for supplies of services to it, and in part third party consideration for services supplied to the students. The supplies to students would not made in the UK and therefore were not subject to UK VAT.

Decision

After thorough consideration of all of the relevant material, the judge decided that the agents made a single supply of services to the University and make no supplies to students. This meant that the University must account for VAT on the full value of services received since 2010 under the Reverse Charge (although before 2010 different rules on place of supply applied).  Additionally,  it was decided the University was not entitled to recover as input tax VAT for which it is required to account by means of a Reverse Charge. There was no direct and immediate link between the commission paid to agents and any taxable output of the University or the economic activities of the University as a whole.

Commentary

It is understood that the way the University recruited students using overseas agents is common amongst most Universities in the UK, so this ruling will have a direct impact on them.  It was hardly a surprising decision, but underlines the need for all businesses to consider the impact of the application of the Reverse Charge.  Of course, the Reverse Charge will only create an actual VAT cost if a business is partly exempt, or involved in non-business activities.  The value of the Reverse Charge also counts towards the VAT registration threshold.  This means that if a fully exempt business receives Reverse Charge services from abroad, it may be required to VAT register (depending on value). Generally, this means an increased VAT cost. This situation may also affect a charity or a NFP entity.

The case also highlights the importance of contracts, documentation and website wording (should any more reminders be needed).  VAT should always be borne in mind when entering into similar arrangements. It may also be possible to structure arrangements to avoid or mitigate VAT costs if carried out at an appropriate time.

We can assist with any of the above and are happy to discuss this with you.

Guide – Reverse charge on services received from overseas
Normally, the supplier of a service is the person who must account to the tax authorities for any VAT due on the supply.  However, in certain situations, the position is reversed and it is the customer who must account for any VAT due.  This is known as the ‘Reverse Charge’ procedure.  Generally, the Reverse Charge must be applied to services which are received by a business in the UK VAT free from overseas. 
Accounting for VAT and recovery of input tax.
Where the Reverse Charge procedure applies, the recipient of the services must act as both the supplier and the recipient of the services.  On the same VAT return, the recipient must
  • account for output tax, calculated on the full value of the supply received, in Box 1;
  • (subject to partial exemption and non-business rules) include the VAT stated in box 1 as input tax in Box 4; and;
  • include the full value of the supply in both Boxes 6 and 7.
Value of supply.
The value of the deemed supply is to be taken to be the consideration in money for which the services were in fact supplied or, where the consideration did not consist or not wholly consist of money, such amount in money as is equivalent to that consideration.  The consideration payable to the overseas supplier for the services excludes UK VAT but includes any taxes levied abroad.
Time of supply.
The time of supply of such services is the date the supplies are paid for or, if the consideration is not in money, the last day of the VAT period in which the services are performed.
The outcome
The effect of the provisions is that the Reverse Charge has no net cost to the recipient if he can attribute the input tax to taxable supplies and can therefore reclaim it in full. If he cannot, the effect is to put him in the same position as if had received the supply from a UK supplier rather than from one outside the UK. Thus the charge aims to avoid cross border VAT rate shopping. It is not possible to attribute the input tax created directly to the deemed (taxable) supply. 

VAT (GST) Introduction in India delayed

By   23 January 2017
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It was recently announced that the Indian version of VAT: Goods & Services Tax – GST is intended to be rolled out across the country on 1 July 2017 rather than the previously announced date of April 2017. This is after details of how the income will be shared between various authorities has been agreed.

It is anticipated that GST will follow the European model and that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions.  GST will incorporate and replace all the various central taxes such as: Central Excise Duty, Additional Excise Duty, Service Tax, Additional Custom Duty and Special Additional Duty as well as state-level taxes such as Value Added Tax or Sales Tax, Central Sales Tax, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax.

The introduction of GST is likely to bring in significant changes to doing business in India or with Indian suppliers/customers cross-border.

Please contact us should you have any queries on this matter.

VAT – Overseas Holiday Lets: A Warning

By   16 January 2017
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Do you, or your clients, own property overseas which you let to third parties when you are not using it yourself?

It is important to understand the VAT consequences of owning property overseas.

The position of UK Holiday Lets

It may not be commonly known that the UK has the highest VAT threshold in the EC. This means that for many ‘sideline’ businesses such as; the rental of second or holiday properties in the UK, the owners, whether they are; individuals, businesses, or pension schemes, only have to consider VAT if income in relation to the property exceeds £83,000 pa. and this is only likely if a number of properties are owned.

It should be noted that, unlike other types of rental of homes, holiday lettings are always taxable for VAT purposes.

Overseas Holiday Lets

Other EC Member States have nil thresholds for foreign entrepreneurs.  This means that if any rental income is received, VAT registration is likely to be compulsory. Consequently, a property owner that rents out a property abroad will probably have a liability to register for VAT in the country that the property is located.  Failure to comply with the domestic legislation of the relevant Member State may mean; payment of back VAT and interest and fines being levied. VAT registration however, does mean that a property owner can recover input tax on expenditure in connection with the property, eg; agent’s fees, repair and maintenance and other professional costs.  This may be restricted if the home is used for periodical own use.

Given that every EC Member State has differing rules and/or procedures to the UK, it is crucial to check all the consequences of letting property overseas. Additionally, if any other services are supplied, eg; transport, this gives rise to a whole new (and significantly more complex) set of VAT rules.

A final word of warning; I quite often hear the comment “I’m not going to bother – how will they ever find out?”

If an overseas property owner based in the UK is in competition with local letting businesses, those businesses generally do not have any compulsion in notifying the local authorities. In addition, I have heard of authorities carrying out very simple initiatives to see if owners are VAT registered. In many resorts, income from tourism is vital and this is a very important revenue stream for them so it is well policed.

Please contact us if you are affected by this matter; we have the resources to advise and act on a worldwide basis.

www.marcusward.co

VAT – A Christmas Tale

By   12 December 2016
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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 – EC proposal for new rules for e-commerce and online businesses

By   1 December 2016
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The EC has announced measures to simplify VAT for e-commerce businesses in the EU. The proposals will purportedly allow consumers and businesses to buy and sell goods and services more easily online.

 New VAT rules for sales and goods and services online

Currently, online traders have to register for VAT in all the Member States to which they sell goods. Often cited as one of the biggest barriers to cross-border e-commerce, these VAT obligations cost businesses around €8,000 for every EU country into which they sell. We are now proposing that businesses make one simple quarterly return for the VAT due across the whole of the EU, using the online VAT One Stop Shop. This system already exists for sales of e‑services such as mobile phone apps, and has been proven successful with more than €3 billion in VAT being collected through the system in 2015. Administrative burdens for companies will be reduced by a staggering 95%, giving an overall saving to EU business of €2.3 billion and increasing VAT revenues for Member States by €7 billion.

Simplifying VAT rules for micro-businesses and start-ups

A new annual threshold of €10,000 in online sales will be introduced under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. This will make complying with VAT rules easier for 430,000 companies across the EU, representing 97% of all micro-business trading cross‑border. A second new yearly threshold of €100,000 will make life easier for SMEs when it comes to VAT, with simplified rules for identifying where their customers are based. The thresholds could be applied as early as 2018 on e‑services, and by 2021 for online goods. Other simplifications would allow the smallest businesses to benefit from the same familiar VAT rules of their home country, such as invoicing requirements and record keeping. The first point of contact will always be with the tax administration where the business is located and businesses will no longer be audited by each Member State where they have sales.

VAT fraud from outside the EU – Removal of Low Value Consignment (LVC) relief

Small consignments imported into the EU that are worth less than €22 are currently exempt from VAT. With around 150 million parcels imported free of VAT into the EU each year, the EC says that this system is open to massive fraud and abuse, creating major distortions against EU business. Firstly, EU businesses are put at a clear disadvantage since unlike their non-EU competitors, they are liable to apply VAT from the first eurocent sold. Secondly, imported high-value goods such as smartphones and tablets are consistently undervalued or wrongly described in the importation paperwork in order to benefit from this VAT exemption. The Commission has therefore decided to remove LVC relief

Equal rules for taxing e-books, e-newspapers and their printed equivalents

Current rules allow Member States to tax printed publications such as books and newspapers at reduced rates or, in some cases, super-reduced or zero rates. The same rules exclude e-publications, meaning that these products must be taxed at the standard rate. Once agreed by all Member States, the new set-up will allow (but not oblige) Member States to align the rates on e-publications to those on printed publications.

Action

Please contact us if any of the above affects your business or your client’s businesses.

VAT Latest from the courts – more on agent or principal

By   2 November 2016
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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.