We know that size matters for VAT – see marshmallows. Also, if you buy a small amount of bicarbonate of soda it is VAT free. However, bigger tubs are VATable.
Tag Archives: vat-free
VAT: Changes to the DIY Housebuilders’ Scheme
The DIY Housebuilders’ Scheme is a tax refund mechanism for people who build, or arrange to have built, a house they intend to live in. It also applies to converting commercial property into a house(s). This puts a person who constructs their own home on equal footing with commercial housebuilders. There is no need to be VAT registered in order to make the claim.
The Scheme can be complex, but here is our Top Ten Tips for claimants.
The Changes
From 5 December 2023, the follow changes apply:
- claimants will be allowed to submit claims electronically
- the deadline for making claims will be extended to six months (from three)
- the list of documents required to support a claim has been amended
- a new requirement for additional evidence when a derelict building has been converted into dwelling(s) – to be made on a specific form
These changes are set out in The Value Added Tax (Refunds to “Do-It-Yourself” Builders) (Amendment of Method and Time for Making Claims) Regulations 2023 and guidance is provided by HMRC here.
The new deadline applies to claims made on, or after 5 December 2023. The deadline, broadly, begins when a dwelling is complete. There is sometimes a dispute on the completion date, so this case and commentary may be of assistance.
VAT: Updated guidance on zero-rated exports
has been updated. The Notice sets out how and when a business can apply zero-rate exported goods.
Information on the types of fuel that the Extra Statutory Concession 9.2 does not apply to, and when you cannot zero rate the export of a motor vehicle has been updated.
And: Information on evidence relating to zero rating and direct exports – paragraphs 6.1, 6.5, 7.3 and 7.4.
VAT: What is culture? The Derby Quad case
Latest from the courts
In the Derby Quad Ltd First-Tier tribunal (FTT) case the issue was whether the appellant’s supplies of admission to a screening were of a theatrical performance which would be cultural and exempt, or akin to a cinema presentation which is standard rated.
Background
A RSC live performance of The Tempest performed at Stratford-upon-Avon was live screened at The Quad venue in Derby by way of a broadcast – A so-called live event performed by a company other than DQ. The Quad is a comprehensive creative centre with indie cinema, art gallery, café-bar and event spaces for hire. DQ pays theatre companies a percentage of the proceeds from ticket sales to the screenings, and a small flat fee per simultaneous screening to help offset the satellite transmission costs.
The core of the dispute was whether the live events were a ‘live performance’ as required by The VAT Act 1994, Schedule 9, Group 13 item 2(b) for exemption.
The Arguments
The appellant contended that a live event was different from a cinematic film where the admission price is subject to VAT – it is an “experience”. The event is thought of as an experience on its own and is of artistic merit. It allows for audience participation and interaction even remotely.
To support this, it was stated that 84% percent of audiences “felt real excitement” because they knew the performance was being broadcast live that evening. Watching the show with others was also an important factor. Audiences tended to applaud at the end of the screening and they appear to feel connected to the performance and the audience. Further, the majority of audiences attending live events enjoyed the collective experience of watching as a group. This differs from audiences at cinemacasts of films and or recordings who typically watch as an individual or as a couple.
HMRC’s position was that admission charges to cinematic performances, and to live performances broadcast from other locations, were taxable.
Decision
The differences in the experiences of members of the audience and the actors/performers between a live theatre performance and at a live event are ones of kind, and not just degree, as they go to the essence of what makes and constitutes a theatrical performance and require interaction. A live event is, consequently, not capable of being a ‘theatrical performance’.
The actors in Stratford would receive no feedback from the audience in The Quad in a way they would from the audience at the live ‘physical’ event.
The FTT found that this is not a modern variant of a theatre performance and the appeal was dismissed.
Commentary
An interesting case which highlights the fact that subtle variations of supplies, and their interpretations can significantly affect the VAT outcome. In light of technical advances in this area we will need to watch how the definition of ‘theatrical performances’ develops.
VAT: Revoke an option to tax after 20 years have passed – update
HMRC’s Form VAT1614J has been updated. This form is used to revoke an option to tax (OTT) land or buildings for VAT purposes after 20 years have passed. There is a new address to which the form and supporting documents are sent:
BT VAT
HM Revenue and Customs
BX9 1WR
Scanned copies of the form can be emailed to: optiontotaxnationalunit@hmrc.gov.uk
Background: Revoking an option where more than 20 years have elapsed since it first had effect.
A business may revoke an OTT without prior permission from HMRC where more than 20 years have elapsed since the option first had effect. This is done by submitting the Form VAT1614J.
When the OTT first has effect: An OTT first had effect on the day it was exercised, or any later day that was specified when opting to tax.
Who can revoke: The relevant guidance VAT Notice 742A – which has the force of law here states that the ‘Taxpayer’ can revoke the OTT. The taxpayer is defined as the person who exercised the option to tax or is treated as making that option by virtue of a real estate election.
When the revocation will take effect: The revocation will take effect from the day that the taxpayer specifies when HMRC is notified, but this cannot be any earlier than the day on which the taxpayer notifies HMRC.
Outcomes of revoking an Option To Tax
- any income (rent or sale) relating to the property becomes exempt
- any input tax relating to the property is not recoverable (subject to the de minimis rules)
- if no other taxable supplies are made a business must deregister
Revocation of option: The VAT Act 1994, Schedule 10, 25(1)(a).
VAT reliefs for charities – A brief guide
Unfortunately, there is no “general” rule that charities are relieved of the burden of VAT.
In fact, charities have to contend with VAT in much the same way as any business. However, because of the nature of a charity’s activities, VAT is not usually neutral and often becomes an additional cost. VAT for charities often creates complex and time consuming technical issues which a “normal” business does not have to consider.
There are only a relatively limited number of zero rated reliefs specifically for charities and not for profit bodies, so it is important that these are taken advantage of. These are broadly:
- advertising services* received by charities
- purchase of qualifying goods for medical research, treatment or diagnosis
- new buildings constructed for residential or non-business charitable activities
- self-contained annexes constructed for non-business charitable activities
- building work to provide disabled access in certain circumstances
- building work to provide washrooms and lavatories for disabled persons
- supplies of certain equipment designed to provide relief for disabled or chronically sick persons
* HMRC have set out its views on digital/online advertising in Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief.
There are also special exemptions applicable to supplies made by charities:
- income from fundraising events
- admissions to certain cultural events and premises
- relief from “Options to Tax” on the lease and acquisition of buildings put to non-business use
- membership subscriptions to certain public interest bodies and philanthropic associations
- sports facilities provided by non-profit making bodies
Although treating certain income as exempt from VAT may seem attractive to a charity, it nearly always creates an additional cost as a result of the amount of input tax which may be claimed being restricted. Partial exemption is a complex area of the tax, as are calculations on business/non-business activities which fundamentally affect a charity’s VAT position.
The reduced VAT rate (5%) is also available for charities in certain circumstances:
- gas and electricity in premises used for residential or non-business use by a charity
- renovation work on dwellings that have been unoccupied for over two years
- conversion work on dwellings to create new dwellings or change the number of dwellings in a building
- installation of mobility aids for persons aged over 60
Additionally, there are certain Extra Statutory Concessions (*ESCs) which benefit charities. These zero rate supplies made to charities, these are:
- certain printed stationery used for appeals
- collection boxes and receptacles
- lapel stickers and similar tokens, eg; remembrance day poppies
* ESCs are formal, published concessions but have no legal force.
We strongly advise that any charity seeks assistance on dealing with VAT to ensure that no more tax than necessary is paid and that penalties are avoided. Charities have an important role in the world, and it is unfair that VAT should represent such a burden and cost to them.
A VAT Did you know?
We know that burying a deceased person is exempt, but exhumation is standard rated and we now know, thanks to the UK Funerals On-line Ltd FTT case, that the service of the repatriation of the body of a deceased person can be viewed as either an exempt supply of funeral services or a zero-rated supply of transport services.
This being the case, zero rating trumps exemption via of The VAT Act 1994, section 30(1).
VAT – Tour Operators’ Margin Scheme (TOMS) A Brief Guide
Introduction
The tour operators’ margin scheme (TOMS) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK and wholly outside the UK.
Under the scheme:
- VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
- A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
- There are special rules for determining the place, liability and time of margin scheme supplies.
- VAT invoices cannot be issued for margin scheme supplies.
- In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
- No UK VAT is due via TOMS on travel/accommodation/tours enjoyed outside the UK.
Who must use the TOMS?
TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by
- Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
- Coach operators who buy in hotel accommodation in order to put together a package
- Companies that arrange conferences, including providing hotel accommodation for delegates
- Schools arranging school trips
- Clubs and associations
- Charities.
The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.
Supplies covered by the TOMS
The TOMS must be used by a person acting as a principal or undisclosed agent for
- ‘margin scheme supplies’; and
- ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).
‘Margin scheme supplies’ are those supplies which are
- bought in for the purpose of the business, and
- supplied for the benefit of a ‘traveller’ without material alteration or further processing
by a tour operator in an EU country in which he has established his business or has a fixed establishment.
A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.
Examples
If meeting the above conditions, the following are always treated as margin scheme supplies.
- Accommodation
- Passenger transport
- Hire of means of transport
- Use of special lounges at airports
- Trips or excursions
- Services of tour guides
Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include
- Catering
- Theatre tickets
- Sports facilities
This scheme is complex and specialist advice should always be sought before advising clients.
VAT: Land related services
Whether a service is “related to land” is important because there are distinct rules for this type of supply compared to the General Rule. The place of supply (POS) of land related services is where the land is located, regardless of where the supplier or recipient belong.
The rule applies only to services which relate directly to a specific site of land. This means a service where the land is a central and essential part of the service or where the service is intended to legally or physically alter a property.
It does not apply if a supply of services has only an indirect connection with land, or if the land related service is only an incidental component of a more comprehensive supply of services.
What is land?
For the purpose of determining the POS, land (also called immoveable property in legislation) means:
- a specific part of the earth, on, above or below its surface
- a building or structure fixed to, or in, the ground above or below sea level which cannot be easily dismantled or moved
- an item making up part of a building without which it is incomplete (such as doors, windows, roofs, staircases and lifts)
- items of equipment or machinery permanently installed in a building which cannot be moved without destroying or altering the building
What services directly relate to land?
HMRC provide the following examples:
- construction or demolition of a building or permanent structure
- surveying and assessing property
- valuing property
- providing accommodation in hotels, holiday camps, camping sites or timeshare accommodation
- maintenance, renovation and repair of a building
- property management services carried out on behalf of the owner
- arranging the sale or lease of land or property
- drawing up of plans for a building or part of a building designated for a particular site
- services relating to the obtaining of planning consent for a specific site
- on-site security services
- agricultural work on land
- installation and assembly of machines which, when installed, will form a fixture of the property that cannot be easily dismantled or moved
- the granting of rights to use all or part of a property (such as fishing or hunting rights and access to airport lounges)
- legal services such as conveyancing and drawing up of contracts of sale or leases, including title searches and other due diligence on a specific property
- bridge or tunnel toll fees
- the supply of space for the use of advertising billboards
- the supply of plant and equipment together with an operator
- the supply of specific stand space at an exhibition or fair without any related services
What services are only indirectly related to land?
The following HMRC examples are not deemed to be land related services:
- management of a property investment portfolio
- drawing up of plans for a building that do not relate to a particular site
- arranging the supply of hotel accommodation or similar services
- installation, assembly, repair or maintenance of machines or equipment which are not, and do not become, part of the building
- accountancy or tax advice, even when that relates to tax on rental income
- the supply of storage of goods in property without a right to a specific area for the exclusive use of the customer
- advertising services including those that involve the use of a billboard
- marketing, photography and public relations
- the supply of equipment with an operator, where it can be shown that the supplier has no responsibility for the performance of the work
- general legal advice on contractual terms
- legal services connected with fund raising for property acquisitions or in connection with the sale of shares in a company or units in a unit trust which owns land
- stand space at an exhibition or conference when supplied as part of a package with related services, eg; design, security, power, telecommunications, etc.
These examples are mainly derived from case law and the department’s understanding of the legislation and they are not exhaustive.
The Reverse Charge
If an overseas supplier provides land related services in GB, the POS is GB and the reverse charge applies if the recipient is GB VAT registered.
If a GB supplier provides services directly related to land where the land is located outside GB, the POS is not GB. This means that there is a supply in another country. VAT rules in different countries vary (even across the EU) – some countries use the reverse charge mechanism, but others require the GB supplier to VAT register in the country of the POS (where the land is physically located).
A VAT Did you know?
Popcorn is standard rated, but microwavable popcorn is VAT free.