HMRC has published the annual yearly and spot foreign exchange rates in CSV format.
You should use these exchange rates if you have to convert any foreign currency to sterling for Customs and VAT purposes.
When searching for exchange rates a business should consider what it requires the rates for and and the type of rate needed.
HMRC have published guidance on the use of exchange rates for tax and accounting purposes:
While we await the fine details, trade between GB and Northern Ireland is likely to be subject to new rules. These are set out under the heading of The Windsor Framework published by HM Government.
(Very) General
Via the Northern Ireland Protocol (NIP), Northern Ireland operated under the EU VAT rules. There are revised VAT rules set out in The Windsor Framework. The EU rules on VAT rates will not apply to a list of goods for consumption in Northern Ireland in certain circumstances.
The Windsor Framework amends the legal text of the NIP to ensure that Northern Ireland will be subject to the same VAT and excise rules that apply in the rest of the UK.
The Framework means that legislation to apply the zero-rate of VAT to energy saving materials can be introduced. A number of other flexibilities should enable UK-wide VAT changes to apply in Northern Ireland. It is anticipated that future VAT issues can be addressed in order to manage any divergences in policy between GB and Northern Ireland.
A bit more detail
The Windsor Framework sets up a new UK internal trade scheme, based on commercial data-sharing rather than traditional international customs processes.
Under the NIP, a framework exists that allows goods to move from GB to Northern Ireland tariff-free. If the goods do not fall within that framework, they are treated as if moving across an international border and full customs declarations are required.
This Framework introduces arrangements through a new UK internal market system (colloquially called the “Green Lane”) for internal trade. Goods being sold in Northern Ireland will not be subject to “unnecessary paperwork, checks and duties”.
The new scheme will significantly expand the number of businesses able to move goods using the Green Lane by being classed as internal UK traders.
The Changes
To ensure that internal UK trade is protected, the agreement expands the number of businesses able to be classed as internal UK traders and move goods as ‘not at risk’ of entering the EU through three changes:
Businesses in the scheme that can show their goods will stay in Northern Ireland will gain access to a simplified process for goods movements, using ordinary commercial data rather than customs data.
Goods moving to the EU will be subject to normal third-country processes and requirements.
Reduction in so-called frictions
The Framework seeks to address a range of issues that added frictions or costs for internal UK trade:
HMRC has, last week, set out the main reasons why online VAT registration applications submitted by agents are delayed. In such cases a caseworker is required to review the application and usually raise additional queries.
The “Top Five” reasons for delay
If an agent can avoid these, then the chances of a quick and successful registration is enhanced.
It is important to have all the business details available when completing the application. There can be difficulties when an application is started but set aside while more information is sought. There is only a seven-day limit once the process is underway.
This is the Principal Place of Business (PPOB) and should be where the day-to-day activities of the business take place. It is not the applicant’s residence (unless the business is run from home) or the agent’s address.
Bank details for VAT repayments must be:
If the entity is a partnership the account name may be in the name of a partner. If no UK account exists when the application is being made, this can be added later, but thus itself can cause issues.
These are cases where the applicant has chosen to provide identification documents by post. There is a facility to attach digital ID and this should be used wherever possible to avoid delays. Three items of ID are required: one a photo ID (passport or driving licence) and the other two non-photo documents (utility bills or birth certificates etc).
This is often when the business belongs overseas or does not yet have an Unique Taxpayer Reference (UTR). Again, it is preferrable to have all this information to hand before the process is started.
Information which an agent needs
Previously HMRC has commented on delays and set out these additional common errors:
And I will add; do not forget form VAT5L when registering a business which is involved in land and property transactions.
Girls Brigade officers’ dress hats are standard rated. Girls Brigade soft forage hats are zero-rated.
HMRC has published updated guidance on deliberate behaviour. It clarifies the definition of these actions in respect of extended time limits.
What is deliberate behaviour?
A deliberate inaccuracy in a document occurs when a person (or another person acting on behalf of that person) knowingly gives HMRC an inaccurate document.
“A person who submits a document containing a deliberate inaccuracy might assert that they did not intend to cause a loss of tax. For the purpose of assessing this loss of tax, the person or any persons acting on their behalf will be treated as deliberately causing the loss of tax if they consciously intended to mislead HMRC”.
Examples
(This list is not exhaustive and HMRC provide more examples in the guidance).
Why is it important?
Mainly, there are different time limits within which HMRC can take action.
A 20 year time limit applies where tax has been underdeclared, or over-repaid, as a result of a deliberately inaccurate return or other document. The normal cap is four years.
Other action
Although HMRC can make assessments to recover any tax lost, it also have a criminal investigation policy and will refer the most serious cases for consideration of criminal proceedings where appropriate.
If you or your clients are subject to an investigation, please seek professional advice immediately. There is a dark side to VAT.
HMRC has published an updated Internal Manual which provides guidance on the ADR mechanism. I have written about this in detail here.
What is ADR?
ADR is the involvement of a third party (a facilitator) to help resolve disputes between HMRC and taxpayers. It is mainly used by SMEs and individuals for VAT purposes, although it is not limited to these entities. Its aim is to reduce costs for both parties (the taxpayer and HMRC) when disputes occur and to reduce the number of cases that reach statutory review and/or Tribunal. The facilitator is impartial and independent and aims to assist both parties in resolving the tax dispute.
Changes
The changes are mainly in connection with disagreements about whether a case is suitable for ADR. These include cases where requests have been made for ADR, for example:
An ADR Panel, which consists of senior personnel from HMRC, will consider requests for ADR in circumstances where there is uncertainty about the suitability of a case for ADR. The ADR Panel will aim to provide assurance that applications by taxpayers in the most complex or potentially contentious cases for ADR are properly assessed and that decisions are consistent and principled.
HM Treasury has published a consultation paper on the treatment of the service of management of special investment funds (SIFs).
SIF meaning in VAT terms
There is no definition of a SIF in existing legislation.
Morgan Fleming Claverhouse Trust plc (case C-363/05) ruled on the interpretation of the term ‘Special Investment Funds as defined by Member States’.
The key points in this judgment are:
According to the Court, the purpose of the exemption is to facilitate investment in securities for investors through investment undertakings. This requires there to be VAT neutrality between the direct investment in securities and investment through collective investment undertakings, as the latter incurs a management charge. Furthermore, there must be equality of VAT treatment for funds which are similar to, and in competition with, funds falling within the scope of the exemption.
As a result of the case, the exemption was extended so that there was a level VAT playing field for all similar collective investment undertakings which compete in the UK retail market. This includes closed and open-ended collective investment undertakings, umbrellas and sub-funds, as well as some pension schemes.
The fund management exemption is limited to the management of SIFs. Consequently, the management of other investment funds will generally be standard-rated.
Legislation
The current VAT fund management regime is provided for by UK legislation, retained EU law and case law. The VAT Act 1994 implemented the Directive. Schedule 9, Group 5, Items 9 and 10 of the Act lists specific types of funds, the management of which is exempted from VAT.
Place of supply
This is important for SIFs management as if the supply is in respect of overseas funds the services are excluded from the exemption (they are outside the scope of UK VAT) when received overseas. This means that there is no output tax on the supply, but unlike exemption, it affords full recovery on input tax incurred in the UK. The perfect VAT outcome.
HMRC Consultation
The technical consultation sets out proposed reform of the legislation that provides for the VAT treatment of fund management. This is required because the fund management industry continues to innovate and introduced new types of funds to the marketplace, and the existing approach has struggled to keep pace with the evolution of the industry and proliferation of fund types.
The purpose of the exercise is to improve the legislative basis of the current VAT treatment of fund management.
Danger?
It is proposed that the following criteria for a fund to be considered a SIF would be legislated for:
a) the fund must be a collective investment
b) the fund must operate on the principle of risk-spreading
c) the return on the investment must depend on the performance of the investments, and the holders must bear the risk connected with the fund; and
d) the fund must be subject to the same conditions of competition and appeal to the same circle of investors as a UCITS (Undertakings for Collective Investment in Transferable Securities), that is funds intended for retail investors
There is a danger that if the exemption is broadened, fund managers which can now recover input tax may be denied so in the future.
If you have any queries, please contact us.
Latest from the courts
The First-Tier Tribunal (FTT) case of Daniel Dunne demonstrates the fact that the details of the construction are very important when making a claim under the DIY Housebuilders’ Scheme (the scheme)
Background
Mr Dunne applied for planning permission (PP) for a rear extension to his existing house, which was granted. After completion of the building works a Building Control Completion Certificate was issued which described the relevant works as “construction of a single storey extension to the rear” of the property. The appellant submitted a scheme claim which HMRC rejected.
Technical
Superficially, the legislation covering the scheme: The VAT Act 1994 section 35 states, as relevant:
“(1) Where—
(a) a person carries out works to which this section applies,
(b) his carrying out of the works is lawful and otherwise than in the course or furtherance of any business, and
(c) VAT is chargeable on the supply. or importation of any goods used by him for the purposes of the works,
the Commissioners shall, on a claim made in that behalf, refund to that person the amount of VAT so chargeable.
(1A) The works to which this section applies are—
The notes to Group 5 of Schedule 8 state, as relevant:
…(2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied—
(a) the dwelling consists of self-contained living accommodation;
(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
c) the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent….
…For the purpose of this Group, the construction of a building does not include—
(a) the conversion, reconstruction or alteration of an existing building; or
(b) any enlargement of, or extension to, an existing building except to the extent the enlargement or extension creates an additional dwelling or dwellings; or
(c)…, the construction of an annexe to an existing building…”
excludes a claim as the construction was an extension rather than a “dwelling”. The PP plans showed the extension as a square building connected to the existing residential property by a corridor.
However, Mr Dunne’s evidence was that although the initial plan had been for the rear extension to be attached to the existing property, the plans were changed so that it became a standalone detached building, unconnected to the existing property and the building is therefore a detached bungalow. He discussed the changes informally with the local authority building control, who agreed that he did not need to build the corridor connecting the building to the existing property. The fact that they had issued the planning certificate was, he contended, evidence that the building was compliant with the planning department requirements and so should be regarded as being PP for a dwelling.
HMRC contended that, even without the corridor, the PP was for an extension of the existing building and not for a separate dwelling. An extension is specifically precluded from being the construction of a building by note 16 of the notes to The VAT Act 1994, Schedule 8, Group 5. The construction was not in accordance with the planning consent given by the local authority and so the claim could not be accepted.
The respondents further submitted that the building could not be disposed of separately to the existing building and that although the building had a separate postal address this did not create a separate dwelling.
Decision
The FTT found that for a claim to succeed, it is not sufficient that a standalone building was created; the PP must be for a dwelling. The PP, as informally amended, was for the extension of an existing dwelling and not for the creation of a new dwelling.
The relevant PP correspondence did not contemplate, let alone confirm, that approval was given for a new dwelling. The agreed informal amendment, to remove the connecting corridor from the plans, cannot be interpreted to imply a grant of permission for a dwelling.
The statutory requirements for a claim include the requirement that PP has been granted in respect of a dwelling and that the construction is in accordance with that planning consent. It was found that PP (and its informal amendment) was granted for an extension and not a dwelling, and so it followed that appeal could not succeed.
Commentary
It is crucial for a claim to succeed that all of the conditions of the scheme are met. Any deviation will result in a claim being rejected. It is usually worthwhile having any claim reviewed professionally before submission.
Further
More information and Scheme case law here, here and here, here and here.
Further to my article on repayment interest, I thought it may be helpful if I looked at how HMRC process repayment returns, and what can delay payments.
Once a business submits a repayment return it is subject to a number of set steps:
HMRC records the date a return is submitted online via MTD.
Automated credibility checks are applied to all claims. HMRC say that most returns pass these tests. If this is the case, they proceed immediately for payment.
Credibility queries (or “pre-cred” queries) – returns that fail the automated tests are checked manually and are either resolved by the credibility team, or sent to officers to carry out further investigation.
Returns sent for further checks – HMRC say that high priority is given to these verifications and any queries are handled with the minimum involvement of, or inconvenience to, a business. Experience insists that this is not always the case.
Credibility queries are returned to the credibility team – results of the officer’s action, including any amendments required, are returned with a certificate detailing the amount of time taken and any official delay. Claims are passed for payment.
Payment of the claim – once a claim has been accepted, repayment is made immediately. HMRC’s systems check whether repayment interest is applicable. If it is, the interest is paid automatically at the same time as the repayment.
Commentary
Most issues usually arise when returns show “unexpected” repayments – eg; a business regularly submitting payment returns submits an one-off claim, or when a first return shows a significant repayment. The pre-cred checks are undertaken to protect the revenue, that is; to ensure that the claim is valid before money is released. Normally, these checks involve a request for copies of purchase invoices, a telephone conversation, or a physical visit by an officer. Not unreasonably, the quantum of the claim impacts significantly the way HMRC handle it.
However, delays can occur on both sides. A business will have to reply to all HMRC requests timeously (and this is in its interest) but more often a claim will be ‘lost” in the system, or inspectors take an unacceptable time to deal with queries. I have one claim that is still in the system after being lodged in January 2021, despite us providing all information requested immediately.
Reasons for unexpected repayments
There are a number of reasons why a return may be an unusual repayment, which include, but are not limited to a:
HMRC has published new guidance on repayment interest – in cases where HMRC is late in settling a repayment claim for overpaid VAT.
If HMRC is late in paying an amount representing a repayment, ie; when a return shows more input tax than output tax, or a claim is made for VAT previously overpaid, a business may be entitled to repayment interest on the VAT that it is owed. From 1 January 2023 repayment interest replaced the repayment supplement.
Amount of interest
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
Start date
VAT already paid to HMRC
The day after the later of these two dates:
VAT not paid to HMRC
The day after the later of these two dates:
End date
Repayment interest ends when HMRC either repays the VAT or sets it off against a different VAT or tax amount that is deemed to be owed.
Notes