Tag Archives: VAT-services

VAT: B2B and B2C – The distinction and importance

By Marcus Ward 1 August 2023

A key feature of the place of supply rules is the distinction between B2B (business to business) and B2C (business to consumer) supplies. The distinction is important because it determines, inter alia, whether GB VAT is applicable to a supply made by a GB supplier.

Status of the customer:

B2C: A supply is B2C when the customer is a private individual, an organisation with only non-business activities or the supply is wholly for private use (eg for the private use of a business owner)
B2B: A supply is B2B when the customer has any level of business activity (though if a supply is wholly for private use it remains B2C). It does not matter if the supply is for a non-business activity of the customer or if the customer is not VAT registered. All that matters is the customer has some level of business activity – this includes VAT exempt activity and taxable activity below the VAT registration threshold VAT place of supply.

To apply the B2B treatment a GB supplier must obtain evidence that the customer has business activities. If the supplier cannot obtain any evidence, they should apply B2C treatment.

If the customer is VAT registered, the customer’s VAT number is evidence of status and it is good practice to quote this on the supplier’s invoice. A GB supplier should check the customer’s VAT registration number is in the correct format for the country concerned. This can be done via the EC Vies website. for EU customers. NB: Special evidence rules apply to electronically supplied services.
If the customer is not VAT registered, a GB supplier should obtain and retain evidence that the customer has business activities. HMRC state “If your customer is unable to provide a VAT number, you can accept alternative evidence.This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities”.

A supplier needs to identify where his customer belongs in order to establish the place of supply.

VERY broadly, depending on the nature of the supply, the rule of thumb is that a B2B service is GB VAT free (it is subject to a reverse charge by the recipient as it is deemed to be “supplied where received”) but a B2C service is generally subject to GB VAT, regardless of the place of belonging of the recipient. There are exceptions to these rules however, such as the use and enjoyment provisions, land related services, hire of transport and admission to events.

VAT: Where’s my reply?!

By Marcus Ward 21 July 2022

HMRC has launched a new service dashboard which aims to let taxpayers who have written to HMRC know when to expect a reply.

This sounds like a significant development and a very helpful tool for taxpayers and advisers alike. However…

it only covers applications for registration, deregistration and group registration – and only those made by post.

Any other checks are met with a screen stating “You need to use another service to get an update”.

So, a small step in the right direction.

VAT: The meaning of “business” and “non-business”- New guidance

By Marcus Ward 15 June 2022

HMRC has issued new guidance: Revenue and Customs Brief 10(2022) on how to determine if an entity carries out business or non-business (NB) activities. This goes to the core of the tax and establishes whether a person:

is registerable for VAT
charges output tax
can recover input tax

It mainly affects charities, NFP, an organisation which receives grants or subsidies and entities which are carrying out NB activities.

Previous tests

Since 1981 previous cases (mainly Lord Fisher and Morrison’s Academy) have set out the following business tests:

Is the activity a serious undertaking earnestly pursued?
Is the activity an occupation or function, which is actively pursued with reasonable or recognisable continuity?
Does the activity have a certain measure of substance in terms of the quarterly or annual value of taxable supplies made?
Is the activity conducted in a regular manner and on sound and recognised business principles?
Is the activity predominantly concerned with the making of taxable supplies for a consideration?
Are the taxable supplies that are being made of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them?

Changes

The guidance states that the ‘predominant concern’ is now irrelevant. The focus is on whether there is a direct link between the services the recipient receives, and the payment made rather than on the wider context of the organisation’s charitable objectives or motive. This is as a result of the Longbridge case.

I often think it helps if a person bears in mind here the comment in the EC case of Tolsma translated as: “…the question is whether services carried on by [a person] were carried on for the payment or simply with the payment”.

There is now a two-part test derived from the Wakefield College Court of Appeal case.

Test One:

The activity results in a supply of goods or services for consideration. This requires a legal relationship between the supplier and the recipient. The initial question is whether the supply is made for a consideration. An activity that does not involve the making of supplies for consideration is not a business activity.

Test Two:

The supply is made for the purpose of obtaining income therefrom (remuneration)

More on the definition of taxable supply here.

Where there is a direct or sufficient nexus between the supplies provided and the payments made, the activity is regarded as business (a taxable supply). The Wakefield case made a distinction between consideration and remuneration. Simply because a payment is received for a service provided does not itself mean that the activity is business. For an activity to be regarded as economic it must be carried out for the purpose of obtaining income (remuneration) even if the charge is below cost.

HMRC states that although it will no longer apply the above Lord Fisher tests, it accepts that they “can be used as a set of tools designed to help identify those factors which should be considered.” So Lord Fisher lives on in some form.

Further information

More detail is provided by HMRC in the updated Internal Guidance VBNB10000

Further reading

The following articles consider case law and other relevant business/NB issues:

Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft

Healthwatch Hampshire CIC

Pertempts Limited

VAT: Day-care services by private bodies are taxable

By Marcus Ward 22 June 2021

Latest from the courts

Following the Supreme Court decisions in Life Services Ltd and The Learning Centre (Romford) Ltd HMRC have published guidance in Revenue & Customs Brief 9 (2021).

NB: This guidance applies to bodies in England and Wales only – Scotland and Northern Ireland have different rules.

The relevant cases concerned the VAT liability of day-care services provided by private bodies to vulnerable adults in England. They confirmed that HMRC’s interpretation of the legislation is correct; that providers of day-care must be charities, public bodies or regulated by the relevant authority (“approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act”) in order to be able to exempt these services.

The legislation is: The VAT Act 1994, Schedule 9, group 7, item 9.

It is understood that there were a significant number of claims stood behind the Supreme Court cases and these will now fail.

HMRC state that providers who have not accounted for VAT on supply of these services must do so with immediate effect.

Commentary

This is a further example of the VAT complexity in the provision of health and welfare services. It has always been an area ripe for disputes and such bodies and their advisers would be prudent to review the tax treatment of their supplies. There are usually two discrete areas of potential problems; whether services are business or non-business, and if business – do they fall within the various exemptions found at Schedule 9, group 7, items 1 to 11.

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: Crowdfunding – What is taxable?

By Marcus Ward 9 April 2020

What is crowdfunding?

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet on specifically designed platforms and is an alternative to traditional ways of raising finance. The model is usually based on three parties: the project initiator who proposes the idea or project to be funded, individuals or groups who support the idea, and a moderating organisation (the “platform”) that brings the parties together to launch the idea.

VAT Treatment

The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements, for example; sponsorship, donations and investments made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.

Examples

Donations

where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar

Goods and/or services

where the funder receives goods or services that have a real value associated with them, for example; clothing, tickets, DVDs, film viewings, output tax will be due

Combination

where the payment is for a combination of the two examples above, if it is clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation and the supply will be taxable. If a donation element cannot be carved out, it is likely that all of the payment will be considered as VATable

Investment

where the funding takes the form of an investment where the funder is entitled to a financial return such as; interest, dividends or profit share, any payment due to the funder is unlikely to be liable to output tax, The reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes

Royalties

if the arrangement is that the funder receives royalties based on a supply of intellectual property or some other similar benefit the payment is likely to be consideration for a taxable supply and output tax will be due

VAT registration

If income from the sources above which are deemed to be subject to VAT exceeds the VAT registration limit (currently £85,000 in any twelve-month period) the person, in whichever legal identity, such as; individual, company, partnership, Trust etc will be liable to register for VAT. If income is below this limit, it will be possible, but not mandatory to VAT register. The benefits of voluntary registration here.

Input tax recovery

If VAT registered, any input tax incurred on costs relating to crowdfunding is usually recoverable (see here for exceptions). However, if the costs relate to donations or some types of investment then input tax claims are specifically blocked as they would relate to non-business activities.

Commentary

There can be difficulties in establishing the tax liability of crowdfunding and in a broader sense “sponsorship” in general. However, experience insists that the biggest issue is initially identifying that there may be a VAT issue at all. If you, or your clients are involved in crowdfunding, or have sponsors, it would be prudent to review the VAT treatment of the activities.