Tag Archives: vat-planning

VAT: New HMRC guidance on duty deferment and guarantee waivers

By Marcus Ward 3 November 2020

HMRC has published guidance on a number of issues relating to duty and guarantee waivers:

How to apply for duty deferment when importing goods. This will apply to businesses bringing in goods from the EU from 1 January 2021. This means that the duty and customs payments may be delayed

How to cancel or amend a duty deferment account

How to apply for a guarantee waiver for duty deferment payments. More on guarantee waivers, including making amendments here.

We recommend any business importing goods checks all the requirements and puts plans in place to defer VAT, duties and customs payments wherever possible. Despite political promises, this significant additional red tape as a result of Brexit helps nobody and will be a costly burden. However, at least the government have put a structure in place which will aid cashflow.

VAT: New guidance on the border with the EU post-Brexit

By Marcus Ward 14 October 2020

This month the government have issued new guidance: The Border with the European Union Importing and Exporting Goods on the Border Operating Model. This provides comprehensive guidance on the movement of goods from 1 January 2021 and adds to previous guidance.

This is important information for any business moving goods between GB, the EU and NI and needs to be considered for tax planning and general preparation for Brexit. These rules will likely come into force regardless of whether the UK has negotiated an agreement with the EU.

The introduction comes in three stages:

Stage One – January 2021
Stage Two – April 2021
Stage Three – July 2021

Stage One

Business will need to:

understand the requirements of EU Member States. The necessary processes must have been done and documentation completed to comply with these requirements
obtain a GB EORI number to move goods to or from the UK
if undertaking any EU customs processes, businesses will need an EU EORI
importers; check which goods are on the controlled goods list- if they are on the controlled goods list, a full customs declaration is required
if importing non-controlled goods, decide whether to delay the customs declaration for up to six months or complete full customs declarations on import
decide how to complete customs formalities: Most businesses are expected to use a customs intermediary
consider obtaining a Duty Deferment Account (DDA). A DDA allows holders to delay customs duty, excise duty and import duty, to be paid once a month rather than on individual consignments
check to see if a facilitation would be of benefit. There are a number of facilitations, including the Common Transit Convention
if importing live animals or high-priority plants, business needs to be prepared for submitting additional documentation and checks taking place at point of destination
exporters; be prepared to submit customs export declarations
hauliers; be ready to use the “Check an HGV is ready” service

Stage Two

If businesses are importing Products of Animal Origin (POAO) or a regulated plant and plant product; they will need to:

to submit pre-notification and the relevant health documentation

Stage Three

Businesses must:

meet full customs requirements including submitting declarations, regardless of whether it is a controlled or a non-controlled good
pay VAT and excise duty where necessary
submit safety and security declarations
be prepared for customs compliance checks either at port or an inland site
be prepared for relevant SPS goods to enter GB via a Border Control Post either at port or an inland site, accompanied by sanitary and phytosanitary (SPS) documentary requirements

General

From 1 January 2021

Customs Declarations – Importers and exporters will have to complete UK and EU customs declarations after the end of the transition period. Some locations will require pre-lodgement of customs declarations prior to the movement of goods, which will particularly affect ‘roll on-roll off’ (RoRo) movements
Customs Duties – Importers will need to ensure that any customs duties applicable to their goods under the new UK Global Tariff are paid. Importers will need to determine the origin, classification and customs value of their goods. There are options available to defer any payment that is due
VAT will be levied on imports of goods from the EU, following the same rates and structures as are applied to Rest of World (RoW) imports. VAT registered importers will be able to use postponed VAT accounting. Non-VAT registered importers have the same options available to report and pay import VAT as they do for customs duties

Businesses will need to review their processes for dealing with cross-border goods, both between the EU and Northern Ireland. This includes; customs declarations, compliance, provision of data, obtaining a duty deferment account and GB/EU EORI numbers as necessary. We also advise liaising with suppliers and customers to ensure, as far as possible, that transactions are as seamless as possible in these challenging times.

VAT: Brexit latest

By Marcus Ward 23 June 2020

The European Commission (EC) has published an updated Notice to Stakeholders which covers the UK leaving the EU.

The original document which was published in 2018 has been amended to reflect the latest developments which mainly include the official Brexit on 1 February 2020 and the current transition period, which, as matters stand, will end on 31 December 2020. Until that date, EU law in its entirety applies to the UK

The Notice includes:

The legal position from 1 January 2021
VAT rules for cross-border services
The VAT General Rule
MOSS
Refunds of VAT
Separation provisions of the Withdrawal Agreement
The supply of other services
Refund requests relating to VAT paid before the end of the transition period

The Notice states that; “…during the transition period, the EU and the UK will negotiate an agreement on a new partnership, providing notably for a free trade area. However, it is not certain whether such an agreement will be concluded and will enter into force at the end of the transition period”. I think that this is likely to be a charitable conclusion!

The EC advises businesses:

when they are established in the EU, to familiarise themselves with the rules applicable to services supplied to and received from third countries (which the UK will become from 1 January 2021)
when they are established in the UK, to examine whether new liability rules will apply to them with regard to their services supplied in the EU
to take the necessary steps in respect of services covered by MOSS
consider the changes in the VAT refund request procedures

The Notice does not cover the supply of goods nor digital services themself.

General

After the end of the transition period, the EU rules on VAT for services no longer apply to, and in, the UK. This has, particular consequences for the treatment of taxable transactions in services and VAT.

Businesses need to understand the probable changes and make preparations for a No-Deal Brexit.

VAT: Domestic Reverse Charge for construction services delayed until 1 March 2021

By Marcus Ward 5 June 2020

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: HMRC Toolkits updated

By Marcus Ward 4 June 2020

HMRC has updated the following online toolkits for June 2020:

Input tax

Output tax and

Partial exemption

The Toolkits

These toolkits can be a useful resource. Although designed for agents and advisers, they can equally be of assistance to businesses when completing VAT returns. The contents are based on HMRC’s view of how tax law should be applied, so they should not be used as a substitute for proper professional advice. These toolkits set out areas of risk, provide general checklists, details of record keeping and links to HMRC information. Many find that these toolkits are more user friendly than “traditional” HMRC guidance and they address many contentious areas.

Overview

For a helpful general guide to input tax and checklist please see here. And an introduction to partial exemption here.

VAT – Input tax claims. Latest from the courts

By Marcus Ward 1 June 2020

Latest from the courts

In the recent First Tier Tribunal (FTT) case of Aitmatov Academy an otherwise unremarkable case illustrates the care required when making input tax claims.

The quantum of the claim was low and the technical issues not particularly complex, however, it underlined some basic rules for making a VAT claim.

Background

A doctor organised a cultural event at the House of Lords for which no charge was made to attendees. The event organiser as shown on the event form was the doctor. Aitmatov Academy was shown as an organisation associated with the event. It was agreed that the attendees were not potential customers of Aitmatov Academy and that the overall purpose of the event was cultural and not advertising.

Issues

HMRC disallowed the claim. The issues were:

HMRC contended that the expenses were not incurred by the taxpayer but by the doctor personally (the doctor was not VAT registered)
that if the VAT was incurred by the Academy, it was not directly attributed to a taxable supply
that if the VAT was directly attributed to a taxable supply, it was business entertaining, on which input tax is blocked

Decision

The FTT found that the Academy incurred the cost and consequently must have concluded that the Academy was the recipient of the supply, not the doctor.

However, the judge decided that the awards ceremony was not directly or indirectly linked to taxable supplies made or intended to be made by the Academy, and therefore that the referable input tax should not be allowed. Consequently, the court did not need to consider whether the event qualified as business entertainment.

On a separate point, the appellant contended that, as a similar claim had been paid by HMRC previously, she could not see the difference that caused input VAT in this case to be disallowed. The Tribunal explained that its role is to apply the law in this specific instance and as such it cannot look at what happened in an early case which is not the subject of an appeal.

Commentary

A helpful reminder of some of the tests that need to be passed in order for an input tax claim to be valid. I have written about some common issues with claims and provided a checklist. Broadly, in addition to the tests in this case, a business needs to consider:

whether there was actually a supply
is the documentation correct?
time limits
the VAT liability of the supply
the place of supply
partial exemption
non-business activity – particularly charity and NFP bodies
if the claim is specifically blocked (eg; cars, and certain schemes)

I have also looked at which input tax is specifically barred.

Finally, “entertainment” is a topic all of its own. I have considered what is claimable here in article which includes a useful flowchart.

As always, the message is; if a business is to avoid penalties and interest, if there is any doubt over the validity of a claim, seek advice!

The penalty regime……the dark side of VAT

By Marcus Ward 22 May 2020

VAT Penalties

I have made a lot of references to penalties in other articles over the years. So I thought it would be a good idea to have a closer look; what are they, when are they levied, rights of appeal, and importantly how much could they cost if a business gets it wrong?

Overview

Broadly, a penalty is levied if the incorrect amount of VAT is declared, either by understating output tax due, or overclaiming input tax, or accepting an assessment which is known to be too low.

Amount of penalty

HMRC detail three categories of inaccuracy. These are significant, as each has its own range of penalty percentages. If an error is found to fall within a lower band, then a lower penalty rate will apply. Where the taxpayer has taken ‘reasonable care,’ even though an error has been made, then no penalty will apply.

An error, when reasonable care not taken: 30%;
An error which is deliberate, but not concealed: 70%;
An error, which is deliberate and concealed: 100%.

Reasonable care

There is no definition of ‘reasonable care’. However, HMRC have said that they would not expect the same level of knowledge or expertise from a self-employed person, as from a large multi-national.

HMRC expect that, where an issue is unclear, advice is sought, and a record maintained of that advice. They also expect that, where an error is made, it is adjusted, and HMRC notified promptly. They have specifically stated that merely to adjust a return will not constitute a full disclosure of an error. Therefore, a penalty may still be applicable.

Notification

What the penalty is based on

The amount of the penalty is calculated by applying the appropriate penalty rate (above) to the ‘Potential Lost Revenue’ or PLR. This is essentially the additional amount of VAT due or payable, as a result of the inaccuracy, or the failure to notify an under-assessment. Special rules apply where there are a number of errors, and they fall into different penalty bands.

Defending a penalty

The percentage penalty may be reduced by a range of ‘defences:’

– Telling; this includes admitting the document was inaccurate, or that there was an under-assessment, disclosing the inaccuracy in full, and explaining how and why the inaccuracies arose;

– Helping; this includes giving reasonable help in quantifying the inaccuracy, giving positive assistance rather than passive acceptance, actively engaging in work required to quantify the inaccuracy, and volunteering any relevant information;

– Giving Access; this includes providing documents, granting requests for information, allowing access to records and other documents.

Further, where there is an ‘unprompted disclosure’ of the error, HMRC have power to reduce the penalty further. This measure is designed to encourage businesses to review their own VAT returns.

A disclosure is unprompted if it is made at a time when a person had no reason to believe that HMRC have discovered or are about to discover the inaccuracy. The disclosure will be treated as unprompted even if at the time it is made, the full extent of the error is not known, as long as fuller details are provided within a reasonable time.

HMRC have included a provision whereby a penalty can be suspended for up to two years. This will occur for a careless inaccuracy, not a deliberate inaccuracy. HMRC will consider suspension of a penalty where, given the imposition of certain conditions, the business will improve its accuracy. The aim is to improve future compliance and encourage businesses which genuinely seek to fulfil their obligations.

Appealing a penalty

HMRC have an internal reconsideration procedure, where a business should apply to in the first instance. If the outcome is not satisfactory, the business can pursue an appeal to the First Tier Tribunal. A business can appeal on the grounds of; whether a penalty is applicable, the amount of the penalty, a decision not to suspend a penalty, and the conditions for suspension.

The normal time limit for penalties to four years. Additionally, where there is deliberate action to evade VAT, a 20 year limit applies. In particular, this applies to a loss of VAT which arises as a result of a deliberate inaccuracy in a document submitted by that person.

These are just the penalties for making “errors” on VAT returns. HMRC have plenty more for anything from late registration to issuing the wrong paperwork.

Even darker

There are even more severe penalties for deliberate acts, including significant terms of imprisonment. That is the subject of another article.

Assistance

My advice is always to check on all aspects of a penalty and seek assistance for grounds to challenge a decision to levy a penalty. We have a very high success rate in defending businesses against inappropriate penalties. It is always worth running a penalty past us.

VAT: Additional time for zero rating exported goods due to the coronavirus

By Marcus Ward 19 May 2020

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: Intention is crucial – The Sonaecom case

By Marcus Ward 18 May 2020

We cannot control the future…

The Sonaecom case

In the opinion* of the CJEU AG (C-42/19) the importance of a taxpayer’s intention was of utmost importance, regardless of whether that intention was achieved.

Background

Sonaecom intended to acquire a telecoms provider company. As is usual in such cases, input tax was incurred on consultancy received, from, amongst others; accountants and legal service providers. The intention post acquisition was for Sonaecom to make certain charges to the acquired co. These would have been taxable supplies.

Unfortunately, the intended purchase was aborted.

The issue

The issue before the AG was; as no taxable supplies took place as the deal fell through – to what should the input tax incurred on advice be attributed?

Opinion

In the AG’s view the fact that the acquisition was aborted was no reason for the claim for input tax to denied. This was based on the fact that:

Sonaecom was not a “pure holding company”
There was a genuine intention to make taxable supplies (to the acquired co)
There was a direct and immediate link between the costs and the intended supplies
Although the acquisition costs would exceed the proposed management charges, this was not a reason to invalidate the claim
The above analysis was not affected by the fact that the transaction did not take place

Commentary

There are often issues in relation to intentions of a taxpayer. It is clear, and was emphasised in this case, that intention is all important. Of course, intentions can change over a period of time and commercial and political events may thwart or cause intentions to be re-evaluated. There is often an issue about evidencing an intention. HMRC usually require comprehensive documentary evidence to demonstrate an objective. Such evidence is sometime not available for various reasons. Consequently, it is prudent for businesses to record (board meeting minutes etc at the very least) the commercial reasons for taking a certain course of action. This issue quite often arises in transactions in land and property – which can create additional technical issues.

There is legislation in place to cover situations when intentions, or actual events change and which affect the original input tax position: The Capital Goods Scheme (CGS) and The Value Added Tax Regulations 1995, Regs 108 and 109.

Other areas of VAT which often to raise issues are management charges and holding companies. HMRC apparently continue to be eager to attack taxpayers in these areas and I have looked at the role of holding companies and the VAT treatment here, here and here.

I think it is useful to bear in mind a question which, in itself does not evidence an intention, but provides commercial coherence – Why were the costs incurred if there was no intention to make the acquisition? This does leave aside the future management charges position but goes some way to provide business logic.

It will be interesting to see how this case proceeds, but I would find it very surprising if the court diverges from this AG opinion.

* AG’s Opinion

The Court of Justice of the European Union (CJEU) consists of one judge from each Member State, assisted by eleven Advocates General whose role is to consider the written and oral submissions to the court in every case that raises a new point of law, and deliver an impartial opinion to the court on the legal solution.

VAT: Where do I belong?

By Marcus Ward 7 May 2020

The place of belonging

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted)

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to a supplier and the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is also not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

for suppliers, from which establishment the services are actually provided
for recipients; at which establishment the services are actually consumed, effectively used or enjoyed
which establishment appears on the contracts, correspondence and invoices
where directors or others who entered into the contract are permanently based, and
at which establishment decisions are taken and controls are exercised over the performance of the contract

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues. It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

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