This Guidance provides examples to help with the completion of declarations on the Customs Declarations Service for exports. It has been updated with the addition of a standard pre-lodged export declaration document.
Tag Archives: value-added-tax
HMRC videos and seminars for new businesses on VAT basics
HMRC has updated its guidance to businesses on VAT. The helpful instruction includes: email updates, videos and seminars which cover such subjects as:
- VAT basics
- registration
- registering and joining webinars
- accounting Schemes
- late submission and payment penalties and interest changes
- error corrections
- the reverse charge for construction services
- accounting for VAT on the sale of cars on finance
- HMRC community forums
VAT and influencers
A Warning
There has been a great deal of debate on the subject of VAT and influencers, with HMRC issuing assessments for underdeclared output tax on “gifts” received by them.
What is an influencer?
An influencer is someone who has certain power to affect the purchasing decisions of others because of their; authority, knowledge, position, or relationship with their audience. These individuals are social relationship assets with which brands can collaborate to achieve their marketing objectives.
In recent years the growth of social media means that influencers have grown in importance. According to recent statistics, the projected number of global social media users in 2023 was 4.89 billion. This is a 6.5% rise from the previous year.
What is the VAT issue?
Business gifts to influencers
A business is not required to account for VAT on certain dealings if they meet certain conditions. For free gifts, the condition is that the total cost of all gifts to the same person is less than £50 in a 12-month period. Further, if the goods are “free samples” – used for marketing purposes and provided in a quantity that lets potential customers test the product, then the £50 rule does not apply. If an influencer receives free gifts or samples, there are no VAT implications for them.
HMRC Action
However, we understand that HMRC has decided that, in the majority of cases, the supply of goods to influencers were not ‘free gifts” but rather consideration for a taxable supply of marketing or advertising. They were also not considered free samples as, generally, influencers would not be in the position to test the goods, having no expertise in the field. It is also concluded that influencers, in most cases were “in business“.
The payment for the marketing, promotion or advertising services (the VAT treatment is similar, regardless of how the services are categorised) is by way of the supply of goods, rather than monetary consideration. That is; consideration is flowing in both directions. Consequently, output tax is due on this amount if the influencer is, or should be, VAT registered.
What is the value of the supply?
Non-monetary consideration
Non-monetary consideration includes goods or services supplied as payment, for example in a “barter” (including part exchange) agreement. If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the VAT chargeable, is equivalent to the consideration. Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply is deemed to be for such part of the consideration as is properly attributable to it.
In determining the taxable amount, the only advantages received by a supplier that are relevant are those obtained in return for making the supply should be recognised. Non-monetary consideration has the value of the alternative monetary payment that would normally have been given for the supply.
VAT Registration
If an influencer receives gifts valued at over £90,000 in any 12-month period, or these gifts plus other monetary consideration, VAT registration is mandatory.
More on business promotions here.
VAT: Forthcoming changes to HMRC services: GOV.UK One Login
HMRC has published guidance on changes to logging into its services. GOV.UK One Login is a new way of signing in to government services. It is said to provide a simple way for you to sign in and prove the user’s identity using an email address and password.
Over time it will replace all other sign in routes including Government Gateway that many businesses currently use.
A user will automatically be asked to create a GOV.UK One Login. It will not happen for everyone at the same time, and you do not need to do anything unless HMRC ask you to.
When you are asked to create a GOV.UK One Login you may need to go through a new authorisation and identity verification process, so will need to have some identification documents ready such as a passport or driving licence.
If you are a tax agent, or an organisation with a business tax account, you will continue to use Government Gateway until you’re asked to create a GOV.UK One Login.
At the moment, you can only use GOV.UK One Login to access some government services, which currently does not include VAT. In the future, you will be able to use it to access all services on GOV.UK.
New report finds HMRC performance the worst ever
A report by the Public Accounts Committee (PAC) has found that HMRC’s services continue to deteriorate and are now at an “all time low”.
In summary, Anne Olney MP who sits on the committee said of the new report:
- PAC expressed disappointment over the five-year decline of service levels
- Taxpayers are “exasperated”
- In 2022/2023 the number of callers waiting ten minutes or more for HMRC to answer has increased from 46.3% in 21/22 to 62.7%
- HMRC stated that it “did not have the resources to meet rising demand for its phone and post services at expected standards”
- HMRC agrees that it will not now require digital interaction until a service is of a suitable standard
- Criminal prosecutions fell from 691 in 2019/20 to 240 in 2022/23 which “sends the wrong message” (my comment: although this could partly be due to backlogs in the criminal justice system)
- The report results were “quite predictable” and were a “letdown for taxpayers”
- It is “distressing” to find people who “want to get it right, and who have no intention whatsoever of defrauding the Exchequer, but just find it really, really difficult to access the right support”.
- In failing to access the right support, taxpayers are liable. It is not on HMRC – even if the services are difficult to access, it is still the responsibility of the taxpayer to pay the right amount of tax
- There is “probably” a need for more investment and recruitment
- A smarter allocation of the resources HMRC has could see a better return for taxpayers
- Finally: “It really is important that HMRC get this right.”
In terms of VAT, we can confirm from personal experience that HMRC’s performance is at an unacceptably inferior level; from telephone responses, to written replies and a generally poor “attitude”. This is supported anecdotally by clients and colleagues’ experiences.
VAT registration HMRC update
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.
A VAT Did you know?
Where goods are located in a shop can affect the VAT treatment. Nuts sold in the bakery aisle are VAT free, but those sold with snacks or confectionary are standard rated.
The interaction between Transfer Pricing and VAT
Are Transfer Pricing (TP) adjustments subject to VAT? – Usually no, but…
What is TP?
A transfer price is the price charged in a transaction between two parties. The transfer pricing legislation concerns itself with the prices charged in transactions between connected parties as, in such circumstances, the price charged may not necessarily be that which would have been charged if the parties had not been connected.
The UK’s transfer pricing legislation details how transactions between connected parties are handled and in common with many other countries is based on the internationally recognised ‘arm’s length principle’.
The UK allows only for a transfer pricing adjustment to increase taxable profits or reduce a tax loss. It is not possible to decrease profits or increase a tax loss.
The UK’s transfer pricing legislation also applies to transactions between any connected UK entities.
The arm’s length principle applies to transactions between connected parties. For tax purposes such transactions are treated by reference to the profit that would have arisen if the transactions had been carried out under comparable conditions by independent parties.
So, is a TP adjustment additional consideration for a supply?
VAT
Value of the supply – what is the consideration?
TP is a direct tax concept which does not necessarily align with VAT considerations. Unhelpfully, there are no provisions in UK legislation which provides for the VAT treatment of TP adjustments. Additionally, there is no case law on this subject.
As a TP adjustment is solely for direct tax purposes, it does not usually affect the value of the supply for VAT purposes. Consequently, such adjustments are usually outside the scope of VAT.
However, price adjustments of previous supply of goods/services must be recognised for VAT market value rules only when:
- the supply is taxable
- the relevant input tax is not fully recoverable and
- HMRC issues an ‘Open Market Value Notice’ to the parties requiring them to apply market values for VAT.
VAT Act 1994, Schedule 6, Part 2, para 1 gives HMRC the vires to issue such a Notice.
Latest
We understand that a case: Arcomet Romania is due to be heard by the CJEU on whether TP adjustments represent consideration and we await the outcome which may provide clarity. (Although after Brexit, the previous position: that the UK VAT Act is to be interpreted with EU case law and general principles of EU law has ended. UK courts whilst still relying on the UK VAT Act and its EU VAT Directive principles, will be able to deviate from ECJ case law).
VAT and BIK – Double cab pick-ups
VAT and BIK – Double cab pick-ups
The changes to benefit-in-kind tax purposes from 1 July 2024 means that double cab pick-up trucks will no longer be classified as vans but as cars. This brings them into line with the VAT treatment of these vehicles, so here we look at the VAT rules:
HMRC and the Society of Motor Manufacturers and Traders (SMMT) have agreed how the one tonne payload test will be applied in practice to double cab pick-ups.
Cars are treated quite differently for VAT purposes from commercial vehicles:
- most ordinary business cars are subject to a block on input tax recovery which is a proxy for taxing the private use of the car
- the private use of commercial vehicles is taxed either by means of an input tax apportionment or a periodic output charge on actual private use
- a business that converts a commercial vehicle into a car becomes liable to an output tax charge on a “self-supply” of the vehicle to itself para 14 Notice 700/57.
SMMT members will take steps to make dealers aware of the ex-works payloads of their double cab models.
Vehicles are not treated as cars for VAT purposes if they have a payload of one tonne or more. Payload is the difference between a vehicle’s maximum gross weight and its kerbside weight. In practice the change mainly affects those vehicles generally described as double cab pick-ups.
Given the different treatment of cars and commercial vehicles it is important for manufacturers, distributors, dealers, and business customers to know the payload of any double cab vehicle which is bought.
It is especially important to be aware that by adding accessories to the ex-works model they may, by lowering the payload of the vehicle, convert it into a car. This would make the vehicle liable to the self-supply charge. Such conversions are most likely to occur with double cabs that have an ex-works payload of 1000 to 1050 kg.
Accessories fitted by dealers or customers
HMRC will, with one exception, ignore as de minimis the addition of accessories. The exception is the addition of a hard top consisting of metal, fibreglass or similar material, with or without windows. In practice this means that a manufacturer, dealer or customer can fit any accessory to the vehicle, other than a hard top, and still rely upon its payload as being the ex-works payload. HMRC will accord all hardtops a generic weight of 45kgs.
In order to provide simplicity and certainty, HMRC and the SMMT have agreed to simplify the treatment of these vehicles. Full details of the agreement can be found at para 23 Notice 700/57 – Administrative agreements entered into with trade bodies.
Please see the recent The Three Shires Trailers case on input tax recovery and the self-supply of cars/commercial vehicles.
UPDATE!
Double-cab pickups go back to being vans, not cars for BIK (only). A week after the new guidance that classified double-cab pickups as cars rather than vans, the HMG has now reversed this decision on 19 February 2024.
VAT: Evidence for exports. The H Ripley case
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.