Tag Archives: VAT-5%

Extension of VAT energy-saving materials relief

By Marcus Ward 22 January 2024

HMRC have published a new Policy Paper on the extension of energy-saving materials (ESMs).

Installations of ESMs in residential accommodation currently benefit from a temporary VAT zero rate until 31 March 2027, after which they revert to the reduced rate of VAT at 5%.

This measure extends the relief to installations of ESMs in buildings used solely for relevant charitable purposes, such as village halls or similar recreational facilities for a local community.

It also expands the scope of the relief to the following technologies:

electrical batteries that store electricity generated by certain ESMs and from the National Grid
water-source heat pumps
diverters that enable excess electricity from certain ESMs to be used within a building in which it is generated rather than exported to the grid

It also adds certain preparatory groundworks that are necessary for the installation of ground- and water-source heat pumps.

The changes apply from 1 February 2024

The policy objective is to incentivise the installation of ESMs across the UK to improve energy efficiency and reduce carbon emissions.

The measures are implemented by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024.

VAT: Recovering input tax on the charging of EVs

By Marcus Ward 24 April 2023

Following my last article on charging Electric Vehicles (EVs) I have been asked about the rules on recovering VAT incurred by a business on such costs.

The current rules are:

VAT incurred by businesses when charging EVs can be recovered on the business use of those vehicles, where they are charged at work or at public charging premises.

A business can also recover the VAT for charging EVs if it is a sole proprietor or a partner in a partnership business, and it charges the EV for business purposes at home.

A business must calculate how much of the cost of charging its EV is for business use and how much is for private use by keeping mileage records. The normal input tax rules then apply.

If an employee charges an EV (whether a company vehicle or not) at a public charging point, the supply of electricity is made to the company or employer. The business can recover the VAT on the cost of charging the electric vehicle, subject to the normal rules.

Again, the employer must keep detailed mileage records to calculate how much of the charging cost is used for business and private purposes.

However, where an employee charges an EV (whether a company vehicle or not) at home, the overall supply of electricity is made to the employee and not the employer. The employer is not entitled to recover the VAT on the cost of charging the electric vehicle.

NB: We understand that HMRC’s view on this may be soon be challenged.

Current developments

HMRC is currently reviewing the situation where an employee is reimbursed by the employer for the actual cost of electricity used in charging an electric vehicle for business purposes.
The Department is considering other simplification measures that may reduce administrative burdens in terms of accounting for VAT on private use.
The VAT rate applicable to public charging is 20%. We are aware that there could be a legal challenge to this and that the appropriate rate should be 5% (for all forms of EV charging). The reduced rate of VAT currently only applies to supplies of electricity to a person’s property which is less than 1,000 kilowatt-hours a month.

Hybrid cars are treated as either petrol or diesel cars for VAT purposes. The rules on input tax for petrol and diesel vehicles are here.

VAT: Fuel and Power Notice updated

By Marcus Ward 4 October 2022

HMRC Guidance: Fuel and power (VAT Notice 701/19)

This Notice has recently been updated. It now covers the VAT Reverse Charge measures for wholesale gas and electricity and construction services (Section 2) . There is more information about wholesale gas and electricity and using the VAT domestic Reverse Charge at section 3 of Notice 735: Domestic reverse charge procedure (VAT Notice 735).

Sections 4.1 and 4.3 now include more detail about hydrogen gas.

Brief overview

The reduced rate of VAT of 5% applies to supplies of fuel and power for qualifying use.

Qualifying use means:

fuel and power for domestic use
fuel and power for charity non-business use
fuel and power where the amount supplied does not exceed the small quantities, called the de minimis limits
fuel and power partly for qualifying use and partly for other purposes, where 60% or more of the supply is for qualifying use

Other supplies of fuel and power in the UK are standard rated.

VAT – Work on farm buildings

By Marcus Ward 29 September 2022

I am quite often asked if there are any VAT reliefs for farming businesses carrying out work to farm buildings.

Indeed, there are some areas of the VAT rules which may be of assistance to owners of farms and farm buildings. Clearly, the best position is to avoid VAT being charged in the first place. If this is not possible, then we need to consider if the VAT may be recovered.

Repairs and Renovations of Farmhouses

The following guidelines apply to businesses VAT registered as sole proprietors or partnerships. Where the occupant of the farmhouse is a director of a limited company (or a person connected with the director of the company) it is unlikely that any VAT incurred on the farmhouse may be recovered. The following notes are provided by HMRC after consultations with the NFU:

Where VAT is incurred on repairs, maintenance and renovations, 70% of that VAT may be recovered as input tax provided the farm is a normal working farm and the VAT-registered person is actively engaged full-time in running it. Where farming is not a full-time business for the VAT-registered person, input tax claimable is likely to be between 10%–30% on the grounds that the dominant purpose is a personal one.
Where the building work is more associated with an alteration (eg; building an extension) the amount that may be recovered will depend on the purpose for the construction. If the dominant purpose is a business one then 70% may be claimed. If the dominant purpose is a personal one HMRC would expect the claim to be 40% or less, and in some cases, depending on the facts, none of the VAT incurred would be recoverable.

Other farm buildings

As a general rule, when VAT is incurred on non-residential buildings, then, as long as they are used for business purposes, it would be expected that 100% of the VAT is recoverable. Care should be taken if any buildings are let and it may be that planning is necessary in order to achieve full recovery.

It should be noted that if any work to a building which is not residential results in the building becoming residential, eg; a barn conversion, then the applicable VAT rate should be 5%. If the resulting dwelling is sold then generally the 5% VAT is recoverable. If the dwelling is to be lived in by the person converting it; the VAT incurred may be recovered, but the mechanism is outside the usual VAT return and a separate claim can be made. In these circumstances it is not necessary for the “converter” to be VAT registered.

As may be seen, in many cases it will be necessary to negotiate a percentage of recovery with HMRC. We can assist with this, as well as advising on VAT structures and planning to ensure as much input tax as possible is either not chargeable to you, or is recoverable.

VAT: The importance of due diligence. The 50 Five (UK) Limited case

By Marcus Ward 10 May 2022

Latest from the courts

In the First Tier Tribunal (FTT) case of 50 Five (UK) Limited the issue was the VAT rate applicable to energy saving materials. An additional twist was that there was a sale of the business between the tax point of the relevant supplies and HMRC’s assessment.

Background

The appeal was brought in the name of the Appellant in respect of assessments raised by HMRC against the company prior to the date on which it was purchased by the present owners. The present owners were not made aware of the assessment at the time of purchase. It had not been disclosed to them as part of the due diligence which was undertaken.

The Appellant’s business was that of supply and installation of heating and hot water systems. The customers were supplied with fully installed systems. The Appellant did not ask the customers to separately source the parts for such systems and then simply fit them. These supplies were treated as those of energy saving materials and the reduced rate of 5% was applied.

HMRC raised an assessment after taking the view that the supply should have properly been standard rated at 20%.

Decision

The FTT decided that legislation which permits the sale of energy saving materials at the reduced rate of VAT apply only where the supply of those materials is independent of an installation service. In this case, as the Appellant was the provider of the goods, and also the installer, the supply to the end customer was standard rated (a composite supply).

It was noted that this outcome was counter intuitive and the result does indeed seem unfair to the taxpayer, but as there was no reasonable prospect of the appeal succeeding, it was struck out. The assessment and interest was now payable by the new owners.

Commentary

An unfortunate outcome for the new owners, but it highlights three VAT issues:

always carry out appropriate due diligence when buying a business. VAT is often an issue and if the buyer had discovered the assessment, it could have either abandoned the purchase, or negotiated on the price
never assume that a lesser rate of VAT applies without carrying out appropriate research or seeking advice
always consider whether a supply is separate or composite. This is a difficult area of the tax as the amount of case law testifies

The only recourse the new owners have now is taking action against the sellers of the business.

New VAT rate for hospitality

By Marcus Ward 13 August 2021

A reminder that a new VAT rate of 12.5% comes into force on 1 October 2021.

This is the first time this rate has been used and affected businesses should ensure that they are prepared.

The government announced on 8 July 2020 that it intended to legislate to apply a temporary 5% reduced rate of VAT to certain supplies relating to certain hospitality, supplies.

The reduced rate was initially introduced to last for a temporary period between 15 July 2020 and 12 January 2021. This period was subsequently extended to 31 March 2021.

The government then announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of the relief will remain unchanged.

From 1 April 2022 the usual 20% standard rate will apply, unless there are further government concessions.

The 12.5% applies to

hospitality: supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
attractions: admission to attractions not covered by the cultural exemption.

The VAT Fractions

This is used to calculate the VAT element of a VAT inclusive figure.

5% = 1/21

12.5% = 1/9

20% = 1/6

Deposits

If a deposit is received, output tax will be calculated on the VAT rate in place at the time the deposit is received.

Other Issues

If a business supplies hospitality services and goods, but also makes sales not covered by the new rate, eg; alcohol, it must be able to identify the values at the different rates.

Does your accounting package have a defined 12.5% tax rate? It may be necessary to add this new rate to your software package.

VAT: Budget 2021 – hospitality, holiday accommodation and attractions

By Marcus Ward 4 March 2021

Further to my articles here and here the government have announced further measures for hospitality, holiday accommodation and tourist attractions.

These measures introduce

an extension to the temporary reduced rate of VAT (5%) for a further 6 month period until 30 September 2021. A new reduced rate of will then be introduced until 31 March 2022.
a new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.

Aims

These changes are aimed at supporting the reopening of the economy following the outbreak of the coronavirus pandemic and help to re-establish habits such as eating out in restaurants.

The measures will help to protect an estimated 2.4 million jobs in these industries.

VAT: e-publications – New reduced rates

By Marcus Ward 8 January 2020

Background

Further to my article on the ongoing issue of e-books, in October 2018, the European Council (EC) agreed to allow Member States to apply reduced VAT rates to electronic publications (eg; e-books and e-newspapers) thereby allowing alignment of VAT rates for electronic and physical publications. The reasoning was for the EC to modernise VAT for the digital economy, and to keep pace with technological progress.

Under Directive 2006/112/EC, electronically supplied services are taxed at the standard VAT rate, whereas physical publications of the dead tree variety; books, newspapers and periodicals, benefit from non-standard rates in many Member States – these goods being zero rated in the UK and around 5% or below in other countries.

Amendments to the Directive allowed Member States to apply reduced VAT rates to electronic publications as well. Super-reduced and zero rates will only be allowed for Member States that currently apply them to physical publications.

The new rules will apply temporarily, pending the introduction of a new, ‘definitive’ VAT system. The EC has issued proposals for the new system, which would allow member states more flexibility than at present in setting VAT rates.

New rates

Some Member States have now introduced reduced rates:

Austria 10%, from 1 January 2020

Belgium 6%, from 1 April 2019

Croatia 5%, from 1 January 2019

Czech Republic new 10% rate from 1 May 2020

Finland: 10% from 1 July 2019

Germany 7%, from 1 January 2020

Ireland 9%, from 1 January 2019

Luxembourg 3%, from 1 May 2019

Malta 5%, from 1 January 2019

The Netherlands 9%, from 1 January 2020

Poland 5%, from 1 November 2019

Portugal 6%, from 1 January 2019

Slovenia 5% from 1 January 2020

Sweden: 6%, from 1 July 2019

It is anticipated that the remaining Member States are likely to introduce reduced rates in the future. The UK, being subject to Brexit, is in a more complicated position. If the UK brought e-publications in line with the VAT treatment of physical publications, it would apply the zero rate. However, the current EU legislation prevents any introduction of new zero rating. As matters stand, the UK may only apply the zero rate after an exit from the EU.

Watch this space…