The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:
Interest rates for all other taxes here.
Details of default surcharge here.
HMRC has issued updated guidance for businesses which need to check whether an entity which stores goods in the UK on its behalf is registered with the Fulfilment House Due Diligence Scheme (FHDDS).
The published list is alphabetical order by company name.
The list should be used if you are a business that is not established in the EU to see if the business that stores your goods in the UK is registered with the FHDDS.
If your business is outsourcing or considering outsourcing its fulfilment operations, then the fulfilment house you are using or intending to use of must be legally accredited by HMRC to do so.
Businesses that must be registered
Businesses are required to be registered if it stores any goods where all of the following apply:
It is illegal to operate outside of the scheme and any fulfilment company found doing so will be prevented operating a fulfilment business and may be subject to a £10,000 penalty and a criminal conviction.
Latest from the courts
In the Julie Lalou t/a Dogs Delight First Tier Tribunal (FTT) case the issue was whether the teaching of dog grooming qualified as private tuition and was therefore exempt.
Background
The Appellant operated a business providing dog grooming and dog grooming courses. The appeal was concerned only with the supplies of dog grooming tuition as it was accepted that dog grooming in itself is taxable.
Technical
The sole issue in dispute in this appeal was whether the supplies fall within the private tuition exemption as for provided by The Value Added Tax Act 1994, Schedule 9, Group 6, item 2 “The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer”.
HMRC’s view was that “to be eligible for exemption dog grooming would need to be a course that is ‘ordinarily’ taught in schools and universities which it is not…”
The appellant wrote to HMRC giving a list of seven “local Colleges and Universities where the Level 3 Dog Grooming Diploma is ordinarily taught”. The appellant went on to state “There are many more within the UK” which were said to represent around 30% of English colleges. Further it was stated that the business was a City & Guilds approved centre and that the courses were not recreational.
Decision
It was accepted that the courses that the appellant taught involved her making supplies of tuition in that she transferred to her students skills and knowledge.
But, unsurprisingly, the appeal was dismissed. The appellant had failed to demonstrate that dog grooming is taught at a wide number of schools and universities
The court also determined that the appellant needed to provide some evidence of whether dog grooming was taught at schools and universities in the EU (again, something she had failed to do).
Commentary
The exemption for private tuition is fraught with complexities and the amount of case law on the subject is significant, which indicates the difficulties in analysing the VAT position. An example here. It is important to establish what is being provided and that research is carried out to consider the degree of ubiquity of the subject in education. A general guide to education here. The phrase “ordinarily taught” is rather nebulous and it would be prudent to obtain as much evidence as possible that a subject is s commonly or ordinarily taught in schools and universities if a supply is treated as exempt.
Latest from the courts
In the Rufforth Park Limited (RPL) First Tier Tribunal (FTT) case the issue was whether pitches for car boot and auto jumble sales were subject to VAT or were they a simple licence to occupy land and exempt?
Background
The appellant has been running car boot sales at Rufforth Park for the more than forty years. When RPL began the car boot sales, the VAT office was asked to confirm that it did not need to charge VAT on the fees for the pitches. It was told that it should charge VAT, and did so. After a number of years, RPL demonstrated to the VAT office that other businesses in a similar position were not charging VAT. HMRC then agreed and the VAT the company had paid was refunded with interest. The company has not charged VAT on the pitch fees since. After a routine inspection HMRC formed the view that there were a number of services that, together, formed a standard rated supply and assessed for VAT on that basis. RPL appealed against this decision.
Technical
HMRC concluded that the fees for the pitches should be standard rated because the supply of the pitches was provided with other goods and services which constituted a single overarching supply of a service, not merely the right to occupy land. The reasons were:
This was said to show there was more to the supply than the exempt passive supply of land for a stall to sell items.
The appellant submitted that the supply in this case is a single supply of a pitch rental and one must look at all the circumstances in order to establish its nature. Regard must be had to the commercial and economic realities. The renting of a pitch in a car boot sale in the present case was a relatively passive activity linked to the passage of time and not generating any significant added value and so is VAT free.
Decision
The court found that that the nature of the supply provided in return for the pitch fees is a licence to occupy land within The VAT Act, Schedule 9, Group 1, Item 1 and accordingly the fees were exempt. The appeal was allowed.
Commentary
Yet another case demonstrating the uncertainty in this area. Superficially, there is little difference in the facts of this case to those in the Upper Tribunal (UT) case of Zombory-Moldovan (trading as Craft Carnival) which found that supplies of pitches at craft fairs were standard rated. However, the court found that this case could be distinguished on its facts. Which may be summarised as:
It is important when considering these two decisions to establish precisely what is being supplied, as small differences in facts can affect the VAT treatment. The more “basic” the supply, the more likely that exemption will apply, but it is a question of small degrees of difference.
HMRC has published a new Revenue and Customs Brief 2(2022) which replaces Revenue and Customs Brief 12 (2020): VAT early termination fees and compensation payments.
It introduces a revised policy on early termination payments and compensation fees. Following representations from industry the Brief issued in September 2020 was suspended in January 2021. HMRC has reviewed the policy in the light of those representations and is adopting a revised policy which will take effect from 1 April 2022. The new policy will result in fewer early termination payments being subject to VAT than in the 2020 guidance.
The new Brief also advises businesses that adopted the treatment outlined in Brief 12 (2020) on what action they should now take.
Background
Whether a payment is for a VAT supply depends on whether anything is being done in return for a consideration. Where a party agrees to do something in return for a fee there is a supply. How that fee is described does not affect whether there is a supply for VAT. What matters is whether something is done and if there is a direct link between what is done and the payment received, and reciprocity between the supplier and the customer (see VATSC05100).
Previous HMRC guidance stated that when customers are charged to withdraw from agreements to receive goods or services, these charges were not generally for a supply and were outside the scope of VAT.
Following the Court of Justice of the European Union (CJEU) judgments in Meo (C-295/17) and most recently in Vodafone Portugal (C-43/19), it is evident that some of these charges are additional consideration for the supply of goods or services. Most early termination fees and some cancellation fees are therefore liable for VAT if the goods or services for which the fees have been paid are liable for VAT, even if they are described as compensation or damages.
The main impact of the revised policy is that fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply. For example, if a customer is charged a fee for exiting a mobile phone contract early, or if they terminate a car hire contract early, it will be liable for VAT.
The new guidance can be found at VATSC05910, VATSC05920 and VATSC05930.
Rabbits are zero-rated, even if sold as pets. Sales of pets are standard rated.
Latest from the courts
In the First Tier Tribunal (FTT) case of Errol Willy Salons Ltd (2022) TC 08370 the issue was whether the rent of two rooms were an exempt right over land, or the standard rated supply of facilities.
Background
Room hire is usually exempt from VAT unless it is subject to an option to tax. However, it can be subsumed into a different rated another supply if something more than a “bare” room is provided. In such cases, it would follow the VAT treatment of the composite supply.
The Issue
In the Errol Willy Salons case, HMRC formed the view that what was being supplied was facilities (the room occupation being a minor part of the supply) and therefore subject to VAT. In its opinion the economic and social reality was that the beauticians were provided with a licence to trade from the premises. The appellant occupied the ground floor – operating a hairdressing business. The rooms over the saloon were rented to third party beauticians. The occupants furnished the rooms themselves, provided their own equipment, set their own pricing and opening hours. They did have use of certain services and facilities; a receptionist and toilets, but it was understood that the services were rarely used. Unsurprisingly, the appellant disagreed and contended that the other services were incidental or subsidiary to the exempt supply of the room rental.
The decision
The Tribunal allowed the appeal against the assessment. It found that “non-rent” services provided to the beauticians were limited in nature and not essential to the beauticians’ businesses Consequently, the arrangements amounted to a supply of property (a licence to occupy the rooms) rather than a supply of taxable facilities and was therefore exempt.
Commentary
This is the latest in a long line of issues on composite/separate supplies and room hire/facilities disputes, especially in relation to weddings. It is important to establish precisely what is being provided to establish the correct VAT treatment and advice should be ought if there is any doubt about the VAT liability.
The CIOT has long advocated that it is not the case that every package of supplies involving room hire and other things must be a composite supply of something other than an exempt letting of land.
NB: This case is different to hairdresser chair rentals which remain standard rated.
The new system for the way penalties and interest is charged due to be introduced on 1 April this year has been deferred to 1 January 2023.
The new points-based regime has been delayed to allow HMRC to implement the necessary IT changes.
I wonder if that represents a reasonable excuse for HMRC being late…
Earlier this month, I wrote an article on VAT registration. A query which commonly follows an initial registration query is: can I split my business into separate parts which are all under the VAT registration turnover limit to avoid registering? Prima facie, this seems a straightforward planning point. But is it possible?
You will not be surprised to learn that HMRC don’t like such schemes and there is legislation and case law for them to use to attack such planning known as “disaggregation”. This simply means artificially splitting a business.
What HMRC will consider to be artificial separation:
HMRC will be concerned with separations which are a contrived device set up to circumvent the normal VAT registration rules. Whether any particular separation will be considered artificial will, in most cases, depend upon the specific circumstances. Accordingly, it is not possible to provide an exhaustive list of all the types of separations that HMRC will view as artificial. However, the following are examples of when HMRC would at least make further enquiries:
Separate entities supply registered and unregistered customers
Same equipment/premises used by different entities on a regular basis
Splitting up of what is usually a single supply
Artificially separated businesses which maintain the appearance of a single business
One person has a controlling influence in a number of entities which all make the same type of supply in diverse locations
The meaning of financial, economic, and organisational links
Again, each case will depend on its specific circumstances. The following examples illustrate the types of factors indicative of the necessary links, although there will be many others:
Financial links
Economic links
Organisational links
HMRC often attack structures which were not designed simply to avoid VAT registration, so care should be taken when any entity VAT registers, or a conscious decision is made not to VAT register. Registration is a good time to have a business’ activities and structure reviewed by an adviser.
As with most aspects of VAT, there are significant and draconian penalties for getting registration wrong, especially if HMRC consider that it has been done deliberately to avoid paying VAT.
VAT Inspections
The first point to make is that inspections are usually quite standard and routine and generally there is nothing to worry about. They are hardly enjoyable occasions, but with planning they can be made to go as smoothly as possible. As an inspector in my previous life, I am in a good position to look at the process from “both sides”. If you are concerned that the inspection is not routine (for any reason) please contact us immediately.
Background
Typically, the initial meeting will begin with an interview with the business owner (and/or adviser) to go through the basic facts. The inspector will seek to understand the business and how it operates and will usually assess the answers with specific tests (further tests will be applied to the records). After the interview the inspector(s) will examine the records and will usually have further queries on these. More often than not they will carry out; bank reconciliations, cash reconciliations, mark-up exercises, and often “references” which are the testing of transactions using information obtained from suppliers and customers. There are many other exercises that may be carried out depending on the type of business. Larger businesses have more regular inspections where one part of the business is looked at each meeting. The largest businesses have more or less perpetual inspections (as one would expect). The length of the inspection usually depends on:
The above measurements will also dictate how often a business is inspected.
More details on certain inspections/investigations here
The initial inspection may be followed by subsequent meetings if required, although HMRC state that they aim is to conclude matters at the time of the first meeting.
The inspection – how to prepare
The inspection – during the visit
The inspection – at the end of the visit
The inspector should:
You should:
After the inspection
HMRC will write to you confirming:
On a final point: Never simply assume that the inspector is correct in his/her decision. It always pays to seek advice and challenge the decision where possible. Even if it is clear that an error has been made, mitigation may be possible.
We can provide a pre-inspection review as well as attending inspections if required. It is quite often the case that many HMRC enquiries may be nipped in the bud at the time of the inspection rather than becoming long drawn out sagas. We can also act as negotiator with HMRC and handle disputes on your behalf.