Tag Archives: vat-free

VAT: Land and property quiz – Answers

By Marcus Ward 1 August 2019

The “fun” quiz.

The important thing to consider is what the purchaser does, or intends to do, with the land once purchased. This will dictate the input tax recovery position. So, can the input tax be recovered? Answers to quiz questions in the 26 July 2019 post below

Answers

On the purchased land the person constructs:

a dwelling and supplies the house on a 25-year lease

Yes

The lease is 21 years or over, so it is zero rated. However, a lease under 21 years would be an exempt so no recovery. For more details

an office and uses it for his own business supplying FS to a client in China

Yes

However, if the FS supply had been to the UK or another EU Member State, the supply would be exempt so no input tax recovery. This may change in the event of a No-Deal Brexit.

a storage facility and a fully taxable company leases it to another company in the same partly exempt VAT group after opting to tax

Unlikely to be full input tax recovery as the VAT group is itself partly exempt. The Capital Goods Scheme (CGS) may apply.

a block of ten flats with a gym and swimming pool which tenants are entitled to use. Grants 99 years leases on all flats

Yes

The supply is zero rated, notwithstanding there are additional (to usual residential dwellings) facilities.

a dwelling but uses it for short term holiday lets of no more than a fortnight.

Yes

Holiday lets are standard rated, so the business would be taxable. The purchaser would need to VAT register, however.

a warehouse which is sold on completion but without an option to tax being made before the sale

Yes

A ‘new” commercial building (one under three years old) is mandatorily standard rated, so no option to tax is required.

the land is held with the intention of constructing dwellings at some time in the future, which could be over six years

Yes

As long as the intention remains, and can be evidenced, the input tax may be attributed to the future taxable, zero rated, supply.

a factory which is not subjected to an option to tax but is leased to an US company

The place of supply (POS) is the UK as this is where the immovable property is located, regardless of the status of the client. Consequently, this is an exempt supply with no right to input tax recovery.

a block of three flats which are rented for six months before freehold sale

No, or maybe, or yes

The initial supply is exempt, so the input tax is, preliminarily, attributed to the short term lets. However, a simplified form of the partial exemption de minimis limits may be used and, depending on the scale of the development, it is possible that some, or all, of the input tax may be recovered despite the initial exempt supplies.

a sport hall by a school Academy which is leased to sporting charities and also used for its own educational purposes. No option to tax

It would be unlikely that an Academy would be able to recover all the input tax. Because it would make (exempt) business supplies, this would fall outside the VAT Act 1994, Section 33 rules, so there would be no input tax recovery in respect of those activities. There would be an apportionment and only the input tax referable to own use would be recoverable as those supplies of education would be non-business. If the Academy opted to tax the facilities (and was VAT registered), the input tax would be recoverable in full. No input tax referable to business use would be possible if the Academy was using VAT126 claims. VAT and Academies

a manufacturing plant which a company rents to a connected (non-VAT grouped) party which makes and sells toys. The option is taken

Yes

As the connected party is fully taxable the anti-avoidance rules do not apply. If the connected party was not able to recover the VAT charged to it (say it made exempt supplies) the anti-avoidance legislation would kick in and the option would be disapplied, meaning that the input tax in the hands of the developer would not be recoverable.

a car showroom and offices which a company uses for its own business of selling cars, providing finance and brokering insurance

There would be mixed use; car sales are taxable, finance and insurance are exempt, so some of the input tax would probably not be recoverable (dependent upon the de minimis limits). The development would be an overhead of the business. It is likely that the property would be an item covered by the CGS.

a care home for the elderly which a company uses for that purpose

This likely be an exempt supply, so no input tax recovery on supplies which are properly VATable. There may be reliefs on construction costs, however.

a small cabin office and the remaining land is used for a forestry business which will have no sales for ten years (when the trees are grown)

Yes

Although the intended taxable supplies are some way off, as long as the intention can be evidenced, the input tax may be recovered when incurred as it will relate to those intended taxable transactions. If the intention changes, this may impact the initial recovery. More information

a residential block which is immediately transferred to an associated company (an arm’s length transaction) on completion. No tenants are in situ.

Yes

The transfer of the freehold triggers the zero rating. The associated company may then, if it chooses, make exempt supplies without a VAT cost. This type of planning can be very helpful.

So there we have it. How did you get on? I would say that any score over eight is very good.

VAT: Land and property – A “fun” quiz

By Marcus Ward 26 July 2019

VAT: Land and property

I am quite often asked the seemingly straightforward question: Can I recover VAT on this land purchase? So, by way of a little quiz, I look at why this can be a loaded question.

Background

A person purchases bare land in the UK for £450,000 which is subjected to the option to tax. So, VAT of £90,000 is incurred. Your task, should you wish to accept it, is to say yes, no, or maybe to input tax recovery in the following situations (assume the purchaser is VAT registered).

Questions

On the purchased land the person constructs:

a dwelling and supplies the house on a 25-year lease
an office and uses it for his own business supplying FS to a client in China
a storage facility and a fully taxable company leases it to another company in the same partly exempt VAT group after opting to tax
a block of ten flats with a gym and swimming pool which tenants are entitled to use. Grants 99 years leases on all flats
a dwelling but uses it for short term holiday lets of no more than a fortnight.
a warehouse which is sold on completion but without an option to tax being made before the sale
the land is held with the intention of constructing dwellings at some time in the future, which could be over six years
a factory which is not subjected to an option to tax but is leased to an US company
a block of three flats which are rented for six months before freehold sale
a sport hall by a school Academy which is leased to sporting charities and also used for its own educational purposes. No option to tax
a manufacturing plant which a company rents to a connected (non-VAT grouped) party which makes and sells toys. The option is taken
a car showroom and offices which a company uses for its own business of selling cars, providing finance and brokering insurance
a care home for the elderly which a company uses for that purpose
a small cabin office and the remaining land is used for a forestry business which will have no sales for ten years (when the trees are grown)
a residential block which is immediately transferred to an associated company (an arm’s length transaction) on completion. No tenants are in situ.

We are looking at recovery of input tax on the land purchase here, ignoring other (say; construction and professional) costs. That is another article in itself.

The questions have been simplified, usually, they tend to be rather more “involved”.

Answers

…soon!

VAT: The transport of disabled persons

By Marcus Ward 24 June 2019

HMRC have released Revenue and Customs Brief 3 (2019) RCB3 2019 which sets out the treatment of certain transport services, specifically in relation to the Jigsaw Medical Services Upper Tribunal (UT) case. This case considered emergency ambulance services contrasted with patient transport services. It was accepted that they were exempt (“the supply of transport services for sick or injured persons in vehicles specially designed for that purpose” – VAT Act 1994, Schedule 9, Group 7, item 11) but could they “also” be treated as zero rated?

Technical

Zero rating takes precedence over exemption, so if these services qualify for both exemption and zero rating, they will be treated as zero rated. Although both treatments are VAT free, zero rating is beneficial as it provides the suppler the ability to recover input tax attributable to the supplies.

Summary

The Brief clarifies that zero rating applies if the supply of transport is in any vehicle with seating to carry ten or more passengers (including the driver) or if there would be 10 seats if wheelchair adaptations were removed. If the supply is not zero rated, say, because of the number of seats test is failed, the above exemption may apply if the service is the transport of sick or injured persons. If that exemption does not apply, then the default position applies, and the service is standard rated. RCB3 also provides information on how to apply the “ten seat rule” and on adapted vehicles.

VAT: Holiday Lets – don’t get caught out

By Marcus Ward 14 June 2019

Further to the usual complexity with VAT and property, I have been increasingly asked about the VAT position of holiday lets, so this is a timely piece on the subject.

All residential letting is exempt… except holiday lets, which are standard rated at 20%. So, what is the difference? A house is a house, but the VAT treatment depends on how the property is advertised or “held out”.

If a property is held out for holiday accommodation, then the rental income is taxable.

What is holiday accommodation?

Holiday accommodation includes, but is not restricted to; any house, flat, chalet, villa, beach hut, tent, caravan or houseboat. Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. Also, increasingly, it is common for farms and estates to have cottages and converted barns within their grounds, which are exploited as furnished holiday lets so this use must be recognised for VAT purposes. Residential accommodation that just happens to be situated at a holiday resort is not necessarily holiday accommodation.

This treats holiday lets the same way as; hotels, inns and B&B were VAT applies, which is fair.

Off-season lettings

If holiday accommodation is let during off-season, it should be treated as exempt from VAT provided it is let as residential accommodation for more than 28 days and holiday trade in the area is clearly seasonal.

What does this mean?

If the letting business exceeds the VAT registration threshold, currently £85,000, it must register for VAT. This usually means that either the business would lose a sixth of its income to HMRC or its letting fees would increase by 20% – which is not usually an option in a particularly price sensitive market. The only upside to registration is that VAT incurred on costs relating to the letting (input tax) would be recoverable. This may be on expenditure such as; agents’ fees, maintenance, refurbishments, laundry, websites and advertising etc.

Agents

If a property owner provides a property to a holiday letting agent and the agent itself provides the letting directly to the end users, this does not avoid the standard rating, even if the agent pays a guaranteed rent to the freeholder. This can catch some property owners out.

Sale of the property

When the owner sells the property, although it may have been used for standard rated purposes, the sale is usually treated as exempt. However, zero rating may be available for the first sale or long lease if it is a new dwelling with no occupancy restrictions. The sale of a “pure” holiday property is likely to be standard rated if it is less than three years old. To add to the complexity, it is also possible that the sale may qualify as a VAT free Transfer Of A Going Concern (TOGC). These are important distinctions because they determine, not only if VAT is chargeable, but, if the sale is exempt, there is usually a clawback of input tax previously claimed, potentially visa the Capital Goods Scheme (CGS).

Overseas properties

A final point: please do not forget overseas property lets. My article here sets out the tax risks.

Summary

There are a lot of VAT pitfalls for a business providing holiday lettings. But for a single site business, unless the property is large or very high end, it is likely that the income will below £85,000 and VAT can be ignored. However, it is important to monitor income and costs to establish whether:

registration is required
registration is beneficial (usually, but not exclusively, for major refurbishment projects).

As always, please contact me if you, or your clients, have any queries.

VAT: When is the building of a house complete? (And why is it important?)

By Marcus Ward 11 June 2019

Completion of a residential dwelling

A technical point which comes up surprisingly often and seems innocuous is: when is a building “complete”? The following case is helpful, and I thank Les Howard for bringing it to my attention.

The date that the construction of a dwelling is deemed to be complete is important for a number of reasons. The issue in the case of Mr and Mrs James was whether certain works could be zero rated via the VAT Act Schedule 8 Group 5 Item 2 (The supply in the course of the construction of a building designed as a dwelling…) or as HMRC contended, they were the reconstruction or alteration of an existing building and the work should be standard rated.

Background

The James used a contractor to plaster the entire interior of their house in the course of its construction. However, the work was demonstrably defective to such an extent that the James commenced legal proceedings. A surveyor advised that all of the old plaster needed to be hacked off and replaced by new plastering installed by a new firm. The stripping out and replacement works took place after the Certificate of Completion had been issued.

The James claimed input tax on the house construction via the DIY Housebuilders’ Scheme.

Technical

HMRC refused the James’ claim to have the remedial work zero-rated because, in their view, the re-plastering works amounted to the reconstruction or alteration of the house which was, when the supplies were made, an “existing building”. They proffered Note 16 of Schedule 5 which provides that “the construction of a building” does not include “(a) … the conversion, reconstruction or alteration of an existing building”.

They stated that zero-rating only applied if the work formed part of the construction of a zero-rated building. They had previously decided that the work of snagging or correction of faults carried out after the building had been completed could only be zero-rated if it was carried out by the original contractors and correction of faults formed part of the building contract. When the snagging is carried out by a different contractor, the work is to an existing building and does not qualify for zero rating.

The James stated that the Customs’ guidelines on snagging do not take into account extraordinary circumstances. Their contention was that the re-plastering works were zero rated because they had no choice but to engage the services of a different contractor other than the one who carried out the original works.

Decision

The judge found for the appellant – the re-plastering works were zero rated.

There was a query as to why The James applied for a Certificate of Completion before the plastering was completed. In nearly all cases such a certificate would crystallise the date the building was complete.

The reasons were given as:

the need for funds. The James could not remortgage the house without the certificate and they needed to borrow a substantial amount
they could not reclaim VAT under the DIY Housebuilders’ Scheme until the Certificate of Completion had been issued
they were aware that the building inspector was beginning to wonder why the building works were taking such a long time
they needed the house assessed for Council Tax which could only happen when the certificate had been issued
the Certificate was issued as part of the procedure required by the Building Act 1984 and the Building Regulations of 2000

These reasons were accepted by the judge.

Despite the respondents stating that:

for the reasons given above
the fact that the James had been living in the house for some time
they had obtained the Certificate of Completion
the new plastering work had been done by the new plasterer such that the house had been constructed before supply of the new plasterer’s services had been made
the house was an “existing building”

the judge was satisfied that in the circumstances the new plastering work was supplied in the course of the construction of the building as a dwelling house and that there was no reconstruction or alteration of an existing building in the sense contemplated by Note (16) to Group 5 Schedule 8.

He observed that the Certificate of Completion records that the substantive requirements of the Building Regulations have been satisfied. But to the naked eye the old plasterwork was obviously inadequate and dangerous ad he could not possibly consider that the construction project had finished until the new plasterwork was installed. The James’ construction project was to build a new dwelling house. Plasterwork of an acceptable standard was an integral part of the construction works. The new plasterwork was done at the earliest practicable opportunity.

Commentary

Care should be taken when considering when the completion of a house build takes place. There are time limits for DIY Housebuilders’ Scheme clams and clearly, as this case illustrates, usually work done to a house after completion does not qualify for zero rating. So, if the owner of a house is thinking of, say, building a conservatory for example, it is more prudent in VAT terms to construct it at the same time as a new house is built, and certainly before completion.

I would say that the appellant in this case achieved a surprisingly good result.

VAT: What is a TOGC? Why is it important?

By Marcus Ward 6 June 2019

What is a Transfer of a Going Concern (TOGC)?

Normally the sale of the assets of a VAT registered business will be subject to VAT at the appropriate rate. A TOGC, however is the sale of a business including assets which must be treated as a matter of law, as “neither a supply of goods nor a supply of services” by virtue of meeting certain conditions. It is always the seller who is responsible for applying the correct VAT treatment and will be required to support their decision.

Where the sale meets the conditions, the supply is outside the scope of VAT and therefore VAT is not chargeable.

The word ‘business’ has the meaning set out in The VAT Act 1994, section 94 and ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation, as distinct from its being only an inert aggregation of assets.

TOGC Conditions

The conditions for VAT free treatment of a TOGC:

The assets must be sold as a business, or part of a business, as a going concern
The assets must be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part (HMRC guidance uses the words “intend to use…” which, in some cases may provide additional comfort)
There must be no break in trading
Where the seller is a taxable person (VAT registered) the purchaser must be a taxable person already or immediately become, as a result of the transfer, a taxable person
Where only part of a business is sold it must be capable of separate operation
There must not be a series of immediately consecutive transfers
Where the transfer includes property which is standard-rated, either because the seller has opted to tax it or because it is a ‘new’ or uncompleted commercial building the purchaser must opt to tax the property and notify this to HMRC no later than the date of the supply. This may be the date of completion or, if earlier, the date of receipt of payment or part payment (eg; a deposit). There are additional anti-avoidance requirements regarding the buyer’s option to tax

Please note that the above list has been compiled for this article from; the legislation, HMRC guidance and case law. Specific advice must be sought.

Property transfer

The sale of a property may qualify for TOGC if the above tests are met. Usually, but not exclusively, a TOGC sale is the sale of a tenanted building when the sale is with the benefit of the existing lease(s) – (the sale of a property rental business rather than of the property itself). Another example of a property TOGC is where a property under construction is sold (a development business). As may be seen, timing with a property TOGC is of utmost importance. For example, an option to tax one day late will invalidate TOGC treatment. A guide to land and property.

What purpose do the TOGC rules serve?

The TOGC provisions are intended to simplify accounting for VAT when a business changes hands. The main purposes are to:

relieve the buyer from the burden of funding VAT on the purchase, helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole
protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed by the new business but not paid by the selling business

What if it goes wrong?

TOGC treatment is not optional. A sale is either a TOGC or it isn’t. It is a rare situation in that the VAT treatment depends on; what the purchaser’s intentions are, what the seller is told, and what the purchaser actually does. All this being outside the seller’s control.

Add VAT when TOGC treatment applies:

Often, the TOGC point can be missed, especially in complex property transactions.

The addition of VAT is sometimes considered a “safe” VAT position. However, output tax will have been charged incorrectly, which means that when the buyer claims VAT shown on the relevant invoice, this will be disallowed. This can lead to;

potential penalties and interest from HMRC
the buyer having to recover the VAT payment (often the seller, having sold a business can be difficult to track down and then obtain payment from)
significant cash flow issues (HMRC will need to be repaid the input tax claim immediately)
if a property sale, SDLT is likely to be overpaid

Sale treated as a TOGC when it is a taxable supply:

When VAT free TOGC treatment is applied to a taxable supply (possibly as one, or more of the TOGC conditions are not met) then there is a tax underdeclaration. The seller will be assessed by HMRC and penalties and interest are likely to be levied. There is then the seller’s requirement to attempt to obtain the VAT payment from the buyer. Similarly to above, this is not always straightforward or possible and it may be that the contract prohibits additional payment. There is likely to be unexpected funding issues for the buyer if (s)he does decide to make the payment.

Considering the usually high value of sales of businesses, the VAT cost of getting it wrong can be significant.

Summary

This is a complex area of the tax and an easy issue to miss when there are a considerable number of other factors to consider when a business is sold. Extensive case law (example here and changes to HMRC policy here ) insists that there is often a dichotomy between a commercial interpretation of a going concern and HMRC’s view. I sometimes find that the buyer’s intentions change such that the TOGC initially applied becomes invalid when the change in the use of assets (from what was notified to the seller) actually takes place. HMRC is not always sympathetic in these situations. One of the questions I am often asked is: “How long does the buyer have to operate the business after purchase so that TOGC treatment applies?” Unsurprisingly, there is no set answer to this and HMRC do not set a specific period. My view, and it is just my view, is that an absolute minimum time is one VAT quarter.

Contracts are important in most TOGC cases, so it really pays to review them from a VAT perspective.

I very strongly advise that specialist advice is obtained in cases where a business, or property is sold. Yes, I know I would say that!

The ABC of VAT – property

By Marcus Ward 28 May 2019

A glossary

Anyone who has had even the slightest brush with VAT will know that it is a very complex tax. Now, multiply that complexity by the intricacy and occasionally arcane nature of property law and one may see that the outcome will be less than straightforward. I have produced a general guide and an article on residential property VAT Triggerpoints

I hope the following glossary will help with steering through some of the difficulties.

Annex– a building which is joined to or is next to a larger main building usually an extension or addition to a building
Assign – to transfer the right or interest in a property from one party to another
Break clause – a clause allowing either landlord or tenant to give written notice after a particular date or period of the tenancy in order to end the tenancy
Beneficial owner – party deemed to make a supply of property rather than the legal owner
Blocked input tax – VAT which a developer is unable to recover when constructing a new dwelling. Typically, expenditure on good such as; carpets, fitted furniture, and gas and electrical appliances
Building materials– goods ordinarily incorporated into a property which attracts similar VAT treatment to the construction services.
Capital Goods Scheme(CGS) – a method of calculating the recovery amount of input tax incurred on property over a ten-year period, Details of the CGS here
Certificate – a document issued to a supplier in order to obtain certain zero-rated or reduced-rated building work
Change of number of dwellings– usually a conversion from commercial to residential, or a single house into flats (or flats into a single house) at 5% VAT
Consideration– a thing done or given in exchange for something else = a supply. Usually quantified in money, but in some cases non-monetary consideration
Construction of new dwellings – a zero rated supply
Contract – legal document detailing the agreement of terms between the vendor and buyer
Contractor – entity responsible for building works
Conversion–work on a non-residential building which results in a property designed as a dwelling(s) being created
Covenants – rules governing the property in its title deeds or lease. May impact the definition of dwellings
Curtilage– either a garden, or an area surrounding a building which is deemed to be part of the property
Designed as a dwelling– a property initially designed for residential use, regardless of any subsequent alternative use
Dilapidations – items that have been damaged during a tenancy for which the tenant is responsible for the cost of repair or replacement. Usually VAT free
DIY Housebuilders’ Scheme – a scheme which ‘self-builders’ to recover VAT on a new build dwelling or conversion. Details here
Dwelling– a building deemed to be residential
Empty house – if, in the ten years before work on a dwelling starts, it has not been lived in, the work may be subject to 5% rather than 20% VAT
Exempt– a supply that is VAT free. It usually results in attributable input tax falling to be irrecoverable
Facade– a wall (or two walls on a corner plot) which may be retained without affecting the zero rating of a new dwelling construction
Grant– a supply of an interest in land
Holiday home – the sale or long lease of a holiday home cannot be zero-rated even if it is designed as a dwelling
Housing Association – a non-profit organisation which rents residential property to people on low incomes or with particular needs
In the course of construction– meaningful works that have occurred in relation to the construction of a building (but prior to its completion)
Incorporated goods – goods sold with a new dwelling which are zero rated and to which the input tax block does not apply. See white goods
Input tax– VAT incurred on expenditure associated with property
Interest in, or right over, land– the right to access to and use of, land. Usually via ownership or lease
Lease – legal document governing the occupation by the tenant of a premises for a specific length of time
Licence to occupy– a permission to use land that does not amount to a tenancy
Live-work units – a property that combines a dwelling and commercial or industrial working space. Usually subject to apportionment
Major interest–a supply of a freehold interest or a lease exceeding 21 years
Multiple occupancy dwelling – a dwelling which is designed for occupation by persons not forming a single household
New building–a commercial building less than three years old the sale of which is mandatorily standard
Non-residential– a commercial building which is not used as a dwelling
Open market value – likely sale price with a willing seller and buyer, with a reasonable period of marketing and no special factors affecting the property
Option to tax (OTT) – act of changing the exempt sale or letting of a commercial into a taxable supply. The purpose is to either; recover input tax or avoid input tax being charged. Details here
OTT disapplication– the legal removal of a vendor’s option to tax
OTT not applicable – the OTT does not apply to residential buildings (so VAT can never apply to dwellings)
OTT revocation– the ability to revoke an option to tax after six months or twenty years
Partial exemption– a calculation to attribute input tax to exempt and taxable. Generally, VAT incurred in respect of exempt supplies is irrecoverable
Person constructing – a developer, contractor or sub-contractor who constructs a building
Premium – upfront payment for a supply of property
Relevant Charitable Purpose (RCP)–the use by a charity for non-business purposes or for use as a village hall or similar
Relevant Residential Purpose (RRP)– dwelling used for certain defined residential purposes, eg; children’s home, a hospice or student accommodation
Reverse surrender– a tenant surrenders an onerous lease to the landlord and makes a payment to surrender
Share of freehold – where the freehold of the property is owned by a company and the shareholders are the owners of the property
Single household dwelling– a building designed for occupation by a single household
Snagging – the correction of building faults. Usually follows the VAT liability of the original work
Stamp Duty Land Tax (SDLT) – tax paid by a purchaser of a property. SDLT is increased if the sale of a commercial property is the subject of an option to tax
Substantial reconstruction– certain significant works to a listed building
Surrender– a tenant surrenders the lease to the landlord in return for payment
Taxable supply– a supply subject to VAT at the standard, reduced or zero-rate
Use as a dwelling – a building which was designed or adapted for use as someone’s home and is so used
Vendor – entity selling a property
Transfer of a Going Concern (TOGC) – the VAT free sale of the assets of a business as a going concern. This may include a tenanted property
Zero-rated– a taxable supply subject to VAT at a rate of 0%

We strongly recommend that advice is obtained if any property transaction is being undertaken.

Details of our land and property services may be found here.

VAT: Worldwide rates and registration limits

By Marcus Ward 20 May 2019

It can be difficult finding the answer to simple questions on VAT/GST. So, I provide a summary below of the rates of VAT applicable in the major countries which apply VAT/GST and the amount of income per year that a domestic business may receive before it is required to VAT register. You, or your clients, will need to be aware of these if they have a Place Of Supply (POS) overseas. I hope that it is useful to have this information all in one place – a “cut out and keep” type document!

Worldwide VAT/GST rates			Annual turnover limit for Registration
	Standard rate	Reduced rates	National currency	Limit
Australia	10.0	0.0	AUD	75 000
Austria	20.0	10.0/13.0	EUR	30 000
Belgium	21.0	0.0/6.0/12.0	EUR	25 000
Canada	5.0	0.0	CAD	30 000
Chile	19.0	N/A	CLP	None
Czech Republic	21.0	10.0/15.0	CZK	1 000 000
Denmark	25.0	0.0	DKK	50 000
Estonia	20.0	0.0/9.0	EUR	40 000
Finland	24.0	0.0/10.0/14.0	EUR	10 000
France	20.0	2.1/5.5/10.0	EUR	82 800
Germany	19.0	7.0	EUR	17 500
Greece	24.0	6.0/13.0	EUR	10 000
Hungary	27.0	5.0/18.0	HUF	8 000 000
Iceland	24.0	0.0/11.0	ISK	2 000 000
Ireland	23.0	0.0/4.8/9.0/13.5	EUR	75 000
Israel	17.0	0.0	ILS	99 003
Italy	22.0	4.0/5.0/10.0	EUR	65 000
Japan	8.0	N/A	JPY	10 000 000
Korea	10.0	0.0	KRW	30 000 000
Latvia	21.0	5.0/12.0	EUR	40 000
Lithuania	21.0	5.9/9.0	EUR	45 000
Luxembourg	17.0	3.0/8.0/14.0	EUR	30 000
Mexico	16.0	0.0	MXN	None
Netherlands	21.0	9.0	EUR	1 345
New Zealand	15.0	0.0	NZD	60 000
Norway	25.0	0.0/12.0/15.0	NOK	50 000
Poland	23.0	5.0/8.0	PLN	200 000
Portugal	23.0	6.0/13.0	EUR	10 000
Slovak Republic	20.0	10.0	EUR	49 790
Slovenia	22.0	9.5	EUR	50 000
Spain	21.0	4.0/10.0	EUR	None
Sweden	25.0	0.0/6.0/12.0	SEK	30 000
Switzerland	7.7	0.0/2.5/3.7	CHF	100 000
Turkey	18.0	1.0/8.0	TRY	None
United Kingdom	20.0	0.0/5.0	GBP	85 000

Source National Delegates – position as at 1 January 2019

Notes

Reduced rates include zero-rates applicable to domestic supplies (ie; exemption with right to deduct input tax). They do not include zero-rated exports or other supplies subject to similar treatment such as international transport.

Registration/collection thresholds identified in this table are general concessions that relieve domestic suppliers from the requirement to register for and/or to collect VAT/GST until such time as they exceed the turnover threshold. Thresholds shown in this table apply to businesses established in the country. In most countries, the registration threshold does not apply to foreign businesses ie;. businesses having no seat, place of business, fixed establishment, domicile or habitual residence within the country.

The future of VAT and online marketplaces

By Marcus Ward 7 May 2019

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The Organisation for Economic Co-operation and Development (OECD) recently held a forum which considered how to level the playing field between traditional and online businesses and to collect the correct amount of tax. It is recognised that the current rules and different application of those rules in different countries has led to VAT not being collected in full in respect of online transactions.

OECD

The OECD Global Forum on VAT is a platform for a global dialogue on international VAT standards and key issues of VAT policy and operation.

The report

The subsequent report The role of digital platforms in the collection of VAT/GST on online sales focuses on the design of rules and mechanisms for the effective collection of VAT on digital sales of goods, services and intangibles, including sales by offshore digital sellers. It states that it provides “practical guidance to tax authorities on the design and implementation of a variety of solutions for enlisting the platforms economy, including e-commerce marketplaces and other digital platforms, in the effective and efficient collection of VAT/GST on digital sales”.

Background

Tax action is necessary as global B2C e-commerce sales of goods alone are now estimated to be worth in the region of USD 2 trillion annually with projections indicating they may reach USD 4.5 trillion by 2021, USD 1 trillion of which is estimated to be cross-border e-commerce with approximately 1.6 billion consumers buying online. This clearly represents considerable VAT revenue which is at stake.

See details on online evasion here

Issues

The problems which have been identified in previous report are:

imports of low-value parcels from online sales which are treated as VAT free in many jurisdictions, and
the strong growth in the trade of services and intangibles, particularly B2C, on which often no, or an inappropriately low amount of VAT is levied due to the complexity of enforcing VAT payment on such supplies

Exemptions for imports of low-value goods have become increasingly controversial in the growing digital economy. At the time when most of these exemptions were introduced, internet shopping did not exist and the level of imports benefitting from the relief was relatively small. Over recent years, many countries have seen a significant and rapid growth in the volume of low-value imports of goods on which VAT is not collected. This results in decreased VAT revenues and unfair competitive pressures on domestic retailers who are required to charge VAT on their sales.

Summary

The focus was on the rôle of digital platforms. These are capable of collecting a vast amount of data. The report stated that it is reasonable to require this information/data to be shared and that is proportionately relevant for VAT compliance purposes, ie; necessary to satisfy the tax authorities that the tax for a supply has been charged and accounted for correctly by the underlying supplier.

The two potential models are:

to make the digital platform fully liable for the payment and remittance of VAT on the online sales they facilitate
or, alternatively, to limit the responsibility of the digital platforms to simply assisting authorities in the collection of VAT

Implementation

Two options could be considered for the implementation of any information sharing obligation for digital platforms in connection to online sales:

provision of information on request. Under this option, a jurisdiction requires that a digital platform retains records of the sales that are subject to VAT in that jurisdiction, and that this information be made available on request.
systematic provision of information. Via this option, a digital platform is required to systematically and periodically provide information on online sales carried out via the platform to the tax authority of the jurisdiction of taxation.

Overall

The report is a good “solid” and long study (I cannot however, recommend it as holiday reading, although the above précis may assist). The proposed solutions are sensible, considered and workable and are likely to, at least, provide more equality and a better way for tax authorities to collect tax which is due.

VAT: Transactions in Bitcoins

By Marcus Ward 1 May 2019

Further to my articles here and here concerning transactions involving cryptocurrencies, and considering the increased use of them, it seems timely to provide an update on the VAT treatment of certain business activities which use Bitcoins as a value for exchange, or payment for goods or services.

What is cryptocurrency?

Cryptocurrency is a line of computer code that holds monetary value. Cryptocurrency is also known as digital currency and it is a form of money that is created by mathematical computations. In order for a Bitcoin transaction to take place, a verification process is needed, this is provided by millions of computer users called miners and the monitoring is called mining. Transactions are recorded in the blockchain which is public and contains records of each and every transaction that takes place. Cryptocurrency is not tangible, although they may be exchanged for traditional cash. It is a decentralised digital currency without a central bank or single administrator (which initially made it attractive) and can be sent from user to user on the peer-to-peer network without the need for intermediaries.

What is Bitcoin?

Bitcoin was the first popular cryptocurrency and it first appeared in 2009. The advantage of bitcoin is that it can be stored offline on the owner’s local hardware (a process called cold storage) which protects the currency from being taken by others. If a person loses access to the hardware that contains the bitcoins, the currency is lost forever, and it is estimated that as much as 23% of bitcoin has been mislaid by miners and/or investors.

Exchange between currencies and bitcoin

The VAT treatment of transactions exchanging traditional currencies for Bitcoin, or Bitcoin for currencies carried out for consideration (added by the supplier) are exempt services in a similar way to any other currency transactions via The VAT Directive Article 135(1)(e).

Paying for goods or services using Bitcoin

Similar to any other payment method, simply using Bitcoin to obtain goods or services is outside the scope of VAT and no VAT is due on the value the Bitcoin represents. That is to say that the authorities do not consider that such a transaction is a barter.

Provision of goods or services in return for Bitcoin payment

The provision of goods or services paid for in Bitcoin are treated in a similar way as any supplied for consideration consisting of

Traditional currencies, or
Non-monetary consideration

and the value is; anything received by the supplier in consideration of that supply.

Should the consideration be in Bitcoin, there two alternatives for the conversion of foreign currencies into the main currency of a Member State (although these were drafted before the introduction of Bitcoin and originally relate simply to foreign currencies)

the latest exchange rate recorded on the most representative exchange market of the Member State, or
the latest exchange rate published by the European Central Bank

However, as above, because Bitcoin is not administered by any bank, this may make valuation difficult. The VAT Committee of the European Commission (EC) has indicated that a potential resolution is to use Open Market Rate (OMR*) as the exchange of the virtual currency. This would be the responsibility of the supplier. This is likely to be commercially available information from the websites of the likes of; coindesk, Cryptocompare or Cointelegraph for eg.

All of the above seems logical, although confirmation provided by the EC VAT Committee is welcome.

* OMR is the amount for which an asset is transferred between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.