Children’s clothing made from the skin of goats is zero rated, but only if not made from Yemen, Mongolian or Tibetan goats.
Tag Archives: vat-free
A VAT: Did you know?
You pay VAT on the first 28 days of a stay at a hotel, but from the 29th the accommodation is VAT free.
VAT: Freeports – what are they? Are they beneficial?
Further to the background to Freeports here I consider the latest developments.
What are Freeports?
Freeports are a specific port where normal tax and customs rules do not apply. Imports can enter with simplified customs documentation and without paying tariffs. Businesses operating inside designated areas in and around the port can manufacture goods using the imports, before exporting again without paying the tariff on the original imported goods (however, a tariff may be payable on the finished product when it reaches its final destination).
Freeports are similar to Free zones, or “Enterprise Zones” which are designated areas subject to a broad array of special regulatory requirements, tax breaks and Government support. The difference is that a Freeport is designed to specifically encourage businesses that import, process and then re-export goods, rather than more general business support.
Use
Goods brought into a Freeport are not subject to duties until they leave the port and enter the UK market. Additionally, if the goods are re-exported no duty is payable at all.
If raw materials are brought into a Freeport and processed into final goods before entering the UK market, duties will be paid on the final goods.
Background
If a business chooses to use a Freeport to import or export goods, it will be able to:
- get relief from duties and import taxes
- use simplified declarations processes to reduce administrative burdens
- choose which rate of Customs Duty to use if processing the goods changes their classification
If goods are purchased in the UK, a business will continue to pay duties and import taxes using the normal UK rates.
Where are they?
The eight new Freeports are located at East Midlands Airport, Felixstowe and Harwich, the Humber region, Liverpool City Region, Plymouth, the Solent, the Thames, and Teesside.
Authorisation needed to use a Freeport
A business can apply to use the Freeport customs special procedure (a single authorisation combined with easier declaration requirements) to import goods for:
- processing and then export or for sale in the UK
- storage and then export or for sale in the UK
Declaring goods entering the UK Freeport
A form C21 is used to declare goods entering the UK. This can be done before the goods arrive in the UK or when the goods have arrived in the UK.
Declaring goods exported
A business will normally need to submit an exit summary declaration when goods are exported from the UK. When an exit summary declaration is not needed, a business will need to give an onward export notification to HMRC.
Disposing of goods which have been processed or repaired
When a business has finished processing or repairing goods, it must leave the Freeport and dispose of the goods by either:
- re-exporting them outside the UK
- declaring them to another customs procedure
- transferring them to another Freeport Business Authorisation holder
- destroying them – usually only possible under customs supervision
- using other simplified disposal methods
VAT on supplies in the Freeport
A business will be able to zero rate supplies within a Freeport of:
- goods declared to the Freeport
- services carried out on goods declared to the Freeport
When a zero rated VAT invoice is issued, it must include the reference “Free zone”.
Zero rating of goods applies if:
- they are declared to the Freeport
- they are sold from one authorised Freeport business to another in the Freeport
- both Freeport businesses are registered for VAT (unless they are exempt from registering for VAT and HMRC has approved this exemption)
Benefits
The Government says that Freeports and free zones are intended to stimulate economic activity in their designated areas. Government backed economic studies have found the main advantage of Freeports is that they encourage imports by lowering duty and paperwork costs. Manufacturing businesses that are inside the Freeport can benefit from cheaper imported inputs in comparison to those outside the area. However, some commentators such as the UK Trade Policy Observatory (UKTPO) suggest that whilst some form of free zones could help with shaping export-oriented and place-based regional development programmes, it is important to ensure that trade is not simply diverted from elsewhere and that wider incentives are needed.
Evasion
Considering that the European Parliament has called for Freeports to be scrapped across the EU because of tax evasion and money laundering and that they are where trade can be conducted untaxed, and ownership can be concealed it is likely that there will be a certain degree of evasion. This a result of the lack of scrutiny on imports and means that high-value items, eg; art, can be bought and easily stored in Freeports without the kind of checks and controls they would normally face.
Summary
Any business that regularly imports and/or exports goods should consider if a Freeport will benefit their business model. This is particularly relevant if work is carried out on imported goods.
VAT: Construction of a dwelling – zero-rated? The CMJ (Aberdeen) case
Latest from the courts
The First-Tier tribunal (FTT) considered the case of CMJ (Aberdeen) Limited (CMJ) and whether the supply of building services in respect of the construction of a dwelling were correctly zero rated by the appellant. HMRC deemed that the construction services were standard rated on the basis that the works were not carried out in accordance with the terms of the relevant statutory planning consent.
Background
HMRC’s view was that, although planning consent was in place at the time the construction services were supplied by the appellant, that planning consent permitted only the alteration or enlargement of a dwelling and did not allow for the construction of a dwelling. HMRC accept that the property was constructed as a new building, but that this was not permitted by the planning consent and so the construction was not carried out in accordance with it.
CMJ contended that statutory planning consent had been obtained for the construction via a combination of the planning consent and a construction building warrant which it had obtained from the relevant authority, and which allowed for the construction of a new building.
Legislation
The zero rating for the construction of new dwellings is contained in The VAT Act 1994, Schedule 8, Group 5, item 2
“The supply in the course of the construction of
(a) a building designed as a dwelling…”
Note 2 to Group 5 of Schedule 8 to the VAT Act include the following:
“(2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied…
…(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.
Decision
The appeal was dismissed. It was judged that the building warrant did not comprise statutory planning consent for the purposes of note 2 (d) because:
- Planning consent and building warrants operate under different statutory regimes.
- Breach of planning consent is dealt with separately from a breach of the building warrant legislation, and each is dealt with by the specific statutory regime . If there is a breach of planning consent, it would not affect the validity of the building warrant, and vice versa.
- The Building Standards Handbook states that the purpose of the building standards system is setting out the standards to be met when building work takes place. This is different from planning consent which is consent to allow the authority to permit development on a piece of land. They are distinct and separate regimes aimed at distinct and separate issues. While planning permission is about how the house will look, a building warrant is about whether it meets building standards.
- Both planning permission and a building warrant is required. One is no substitute for the other.
- It is possible to obtain retrospective planning consent, the judge did not believe it is possible to get a retrospective building warrant.
It was not possible to carry out works of construction in accordance with a valid statutory consent, since no such consent had been given for construction at the time that the building works were carried out.
Commentary
The legislation covering building work is complex and there are many traps for the unwary. Even the seemingly straightforward matter of whether a new dwelling is constructed can produce difficulties, as in this case. We always counsel that proper VAT advice is sought in such circumstances.
VAT: Is the supply of football pitches an exempt right over land? The Netbusters case.
Latest from the courts.
In the First-tier Tribunal (FTT) case of Netbusters (UK) Limited the issue was whether the supply was the standard rated provision of sporting facilities, or an exempt right over land.
Background
Netbusters organised football and netball leagues and provided the playing facilities (artificial pitches for football and courts for netball). The hire of the facilities was for a defined period of time and no other party had the right to access the pitches during those times. The hire could be a block, or one-off booking. The appellant contended that the supplies were exempt via VAT Act 1994, Sch 9, Group 1 – “The grant of any interest in or right over land or of any licence to occupy land…” However, item 1 Note (para m) excludes the “the grant of facilities for playing any sport or participating in any physical recreation” in which case they become standard rated. To add complexity, Note 16 overrides the exception for sporting facilities (so they are exempt) if the grant of the facilities is for:
“(a) a continuous period of use exceeding 24 hours; or
(b) a series of 10 or more periods, whether or not exceeding 24 hours in total, where the following conditions are satisfied—
(i) each period is in respect of the same activity carried on at the same place;
(ii) the interval between each period is not less than one day and not more than 14 days;
(iii) consideration is payable by reference to the whole series and is evidenced by written agreement;
(iv) the grantee has exclusive use of the facilities; and
(v) the grantee is a school, a club, an association or an organisation representing affiliated clubs or constituent associations.”
I have a simplified flowchart which may assist if you, or your clients, need to look at these types of supplies further.
Another issue was whether Netbusters’ league/tournament management services which were, in principle, available independently of pitch hire, but in practice rarely were provided in that way, were separate supplies or composite. There was a single price payable for both pitch hire and league management services.
The appellant contended that its supplies were exempt via VAT Act 1994, Sch 9, Group 1 or that Revenue and Customs Brief 8 (2014): sports leagues, is applicable which states “HMRC accepts that the decision of the FTT is applicable to all traders who operate in circumstances akin to Goals Soccer Centres plc. This includes traders who hire the pitches from third parties such as local authorities, schools and clubs…”
HMRC argued that there was no intention to create a tenancy and the agreements between the parties did not provide for exclusive use of the premises, so the supplies fell to be standard rated.
Decision
The appeal was allowed; the supply was a singe exempt supply because the objective character of the supplies were properly categorised as the granting of interests in, rights over or licenses to occupy land. It was found to be significant Netbusters (or its customers) had the ability to exclude others from the pitches during the period of the matches.
It was therefore unnecessary to consider whether Netbusters’ supplies grants of facilities satisfy all the conditions set out in Note 16 (although the FTT were disinclined to do this anyway as a consequence of the way respondent prepared its case).
Commentary
The issue of the nature sporting rights has a long and acrimonious history both in the UK and EU courts. Any business providing similar services are advised to review the VAT treatment applied.
Ten Questions every business should ask about VAT
1. Am I sure that a VAT inspection would not find any errors?
- An inspection can result in significant assessments, penalties and interest, apart from a business becoming “known” to HMRC. Peace of mind is a valuable benefit for a business owner too!
2. Am I sure that I am reclaiming as much VAT as possible?
- We often find that businesses miss out on recovering input tax, this clearly results in an actual cost.
3. Do I take full advantage all available VAT reliefs, customs exemptions and duty refund schemes?
- Failure to do so will create a tax cost and may be putting a business in a less competitive position.
4. Am I up to date on the indirect tax developments in my key markets?
- Indirect tax changes rapidly, and so does the market place. Being unaware of changes that affect you may result in VAT being overpaid, or penalties being levied if you have underdeclared tax. It may also put you at a competitive disadvantage.
5. Have I considered the impact of tax rate changes on my pricing and margin, and have I taken the necessary measures?
- Budgeting is affected by VAT. Failure to consider indirect taxes may eat into profit.
6. Do I collect all the data about my customers and transactions that could be required by tax authorities?
- As in many VAT circumstances, getting it wrong or missing something results in penalties.
7. Do I comply with all indirect tax requirements in the jurisdictions where I operate or where my customers belong?
- VAT and GST does exist outside the UK and ignoring overseas indirect tax obligations may result in action being taken by foreign authorities which will prove to be very uncomfortable and expensive. It is important to understand the rules for indirect tax in each country/area you trade. Don’t get caught out.
8. Do I have the tools to analyse my indirect tax flows and data?
- Allocating sufficient technical and human resources to VAT is important. Seeking professional advice at the appropriate time is also prudent.
9. Could changes in the way my business is structured or how transactions are organised improve my indirect tax position and/or reduce complexity?
- Saving money and reducing tax complications must be near the top of every business’ wish list. Seeking professional advice on structuring a business or a transaction goes a long way to achieving this
10. Is my business using the right VAT scheme?
- There are many special schemes that a business may use, from the Flat Rate Scheme to Margin Schemes. Most are optional, but some, like the Tour Operators’ Margin Scheme are compulsory. Choose the wrong one, or being unaware of a beneficial scheme could cost.
It is important to constantly monitor a business’ VAT position. The nature of trade changes, technology changes, case law changes and the VAT rules are constantly in a state of flux. It is easy to assume that everything is alright because it has always been done that way, but there may be significant exposures and missed opportunities out there. Things will also change once the terms of Brexit have been agreed (or not). We offer services from a basic healthcheck to a full technical review. A review will let you rest easy in your bed if nothing else!
VAT: Domestic Reverse Charge for construction services delayed until 1 March 2021
Further to my article on the Domestic Reverse Charge (DRC) for builders being deferred, HMRC has announced a further delay from 1 October 2020 until 1 March 2021 due to the impact of the coronavirus on the construction sector.
Revenue and Customs Brief 7 (2020 sets out the details.
Changes
HMRC announced that there will be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers. Details of the DRC here and here.
VAT: Additional time for zero rating exported goods due to the coronavirus
COVID-19 Update
HMRC has published concessions in VEXP30310 relating to the conditions for the zero rating of exports.
Background
Most exports of goods from the UK are subject to zero rating. However, in order for VAT free treatment to apply, certain conditions must be met, otherwise 20% VAT applies to the sale. One of the conditions is that the goods must be exported within specified time limits.
Time limits
Generally, goods can be zero rated provided that:
- they are exported within 3 months of the time of supply, and;
- valid evidence of export is obtained within 3 months of the time of supply
COVID-19
During the pandemic, it may not be possible for businesses to export goods within the prescribed time. HMRC recognises that some intended exports have been delayed due to circumstances outside a business’ control. Therefore, the guidance sets out the circumstances in which HMRC may agree to additional time for the export before any tax is collected.
Additional time
The time limits for the export of goods from the UK are set out in legislation. However, HMRC has discretion to permit non-observance of the conditions and time limits for export of goods – VAT Act 1994, Section 30(10). HMRC has said that it will use its discretion to temporarily waive the prescribed time limits for export on a case by case basis. The goods must, however, have either already been exported or will be as soon as is reasonably practicable after the date a business is notified that HMRC is temporarily waiving the tax. An application for HMRC to waive the time limits must be made in writing.
Conditions
HMRC will permit a temporary waiver of time limits if the following conditions are met:
- it has not been possible to export goods within the prescribed time limit due to the COVID-19 emergency
Examples include:
- the UK or another Government has imposed restrictions on the movement of goods or people due to COVID-19 that prevent the goods being exported to the intended destination
- cancellation of the intended mode of transport for reasons directly related to COVID-19
- a participant in the export is ill due to COVID-19 and a substitute cannot be found
This list is not exhaustive.
2. the goods have been/will be exported or removed at the earliest opportunity
3. all other conditions for zero rating exports or removals are met – exporters’ responsibilities here
Expiry
Any waiver will expire
- one month after any government-imposed restrictions are lifted or
- one month after any COVID-19 impediment to the export or removal ceases, or
- there ceases to be an intention to export or remove the goods from the UK (Information on intention here)
whichever is the earlier.
If a business considers there are extenuating circumstances that mean additional time is needed to export goods beyond that permitted by the extension, it should contact HMRC setting out the details in full.
Evidence
A business must retain evidence that supports its case for the waiver (eg; cancellation notes demonstrating that the transport intended to use to take goods out of the UK did not take place, or screen shots of government rules preventing the export or removal of the goods).
Please contact us if you require any further advice or assistance.
VAT: Where do I belong?
VAT Notice 700/57 Administrative agreements with trade bodies – Update
HMRC has published an updated version of VAT Notice 700/57: Administrative agreements with trade bodies.
This is an unusual publication as it lists situations where there are, or can be, deviations from “normal” VAT rules.
The agreements in the Notice permit members of trade bodies to use procedures which take into account their individual circumstances so they may meet their obligations under VAT law. The agreements apply only to areas where HMRC can exercise discretion, and HMRC say that they convey no direct financial advantage or relief from the legal requirements of the tax. However, there can be benefits a business can derive from the arrangements, including, but not limited to; simplification, cashflow, compliance and management.
The agreements can provide unique solutions to particular problems and reduce the burdens on businesses. Some of them might usefully be applied by other businesses, but it should be born in mind that a business cannot adopt any special method based on these agreements unless HMRC has given approval in advance.
The trade bodies covered in the Notice are:
London Bullion Market Association
Brewers’ Society
Association of British Factors and Discounters
Finance Houses Association Ltd
Association of British Insurers
Association of Investment Trust Companies
British Printing Industries Federation
Marine, Aviation and Transport Insurance Underwriters
Association of British Insurers, Lloyd’s of London, the Institute of London Underwriters and British Insurance and Investment Association
National Caravan Council Limited and the British Holiday and Home Park Association Limited
Association of Unit Trust and Investment Managers
British Bankers’ Association
British Vehicle Rental and Leasing Association
Society of Motor Manufacturers and Traders
Gaming Board for Great Britain and the British Casino Association
British Phonographic Industry
Thoroughbred Breeders Association and the British Horseracing Board
Meat and Livestock Commission
Society of Motor Manufacturers and Traders Limited
Retail Motor Industry Federation
if you or your clients are involved in business covered by, or similar to, the above entities, it maybe worthwhile considering whether any specialised trade agreements may be of benefit.