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HMRC NEWS 

Autumn Budget 2017
The Chancellor delivered his budget last week. Please see CVC’s VAT Focus – Autumn Budget 2017 for the VAT highlights.

HMRC’s Help and Support for VAT
The latest webinars about what to do after you’ve registered for VAT and VAT on motoring expenses have been published online.

Policy Paper: VAT threshold maintained for two years
This tax information and impact note confirms the VAT registration and deregistration thresholds announced at Autumn Budget 2017.

Extending joint and several liability for online marketplaces and displaying VAT numbers online
This tax information and impact note deals with the extension of joint and several liability for online marketplaces announced at Autumn Budget 2017. This guidance note has also been published which explains the measure.

Policy Paper: Refunds to combined authorities, fire and rescue authorities
This tax information and impact note deals with refunds to combined authorities announced at Autumn Budget 2017.

Government Information and National Health Trusts (GIANT) online service
Government department, NHS trust or Royal Household can now use the online service to file forms VAT21 and VAT 100.

CASE REVIEW 

Court of Justice of European Union (CJEU)

1. Bad debt relief

The recent CJEU case of Mr Di Maura considered whether the Italian authorities were acting lawfully in  only allowing a taxpayer to reclaim VAT under Bad Debt rules where its customer was declared insolvent and it was established beyond doubt that a debt would not be paid. The Italian situation differs from the UK position, where it is possible to reclaim VAT paid on unpaid supplies after 6 months, subject to certain conditions.

The CJEU held that current Italian rules breached the fundamental principles of neutrality and proportionality in leading to a position where a taxpayer has paid the authorities VAT that it has not received and is not allowed to correct the position for an unreasonable period of time (insolvency proceedings in Italy can take up to ten years).

CVC comment: the current conditions attached to bad debt relief claims in Italy put businesses in Italy at a cash flow disadvantage compared to businesses trading elsewhere in the EU. This ruling may also impact other Member States that apply similar rules to Italy. The UK’s implementation of the bad debt relief rules appear to be compliant in light of this decision.

2. Content of VAT invoices

The CJEU recently ruled, in the joined cases Finanzamt News (C-374/16) and Igor Butin (C-375/16), that the supplier’s address shown on a VAT invoice does not need to be the address where it carries out its economic activity. In the cases at issue the suppliers had used their postal address on its invoices. The CJEU considered that the purpose of including the supplier’s name, address and VAT registration number is to allow the tax authorities to check whether VAT has been declared and paid. It is implied in the decision that these checks can be done regardless of which of the supplier’s addresses is included on the VAT invoice. 

CVC comment: we have not experienced a case where HMRC has refused an input tax claim because the supplier’s address was not the place where their economic activity was carried out; however, if you have had an input tax claim refused on this basis you may wish to re-visit this.

3. Sale of holiday homes

Three partners; Cussens, Jennings and Kingston, have lost a long running challenge by the Irish Revenue that they set up a scheme to avoid paying VAT on the sale of holiday homes.

The partners jointly owned a development site on which they constructed 15 holiday homes for sale. Before making the sales, they entered into lease and lease back agreements with an associated company, Shamrock Estates Limited. The leases were extinguished by mutual surrender and the partners acquired full ownership of the properties. The properties were then sold to third parties. VAT was not charged on the sale to third parties on the basis that properties had been subject to a first supply (to Shamrock Estates) on which VAT was chargeable when the long lease was granted.

The Irish Revenue contended that the lease and lease back arrangements constituted a first supply artificially created in order to avoid VAT on the subsequent sales to third parties and should be disregarded. The case was appealed to the Supreme Court which decided to stay the proceedings and refer a number of questions to the CJEU. The CJEU considered the judgment in Halifax and held that the principles of abuse of rights must be interpreted as applying to this case. 

CVC comment: although this is not a UK case it acts as a reminder that if HMRC sees arrangements as contrived and for the primary purpose of reducing VAT costs then they might try to reinstate the position that should have applied, the so called “Halifax” or “abuse of rights” anti-avoidance principle.

First Tier Tribunal

4. Default surcharge appeal allowed

Stylographics Limited (SL) appealed against a default surcharge on the basis it had a reasonable excuse for making a late payment in respect of its VAT return for the quarter ended 31 December 2016. The amount payable to HMRC was much larger than SL was used to. The payment was processed by SL on the due date at 4pm; however, the bank did not process the payment because there was a transaction limit on the account of £250,000 which could not be uplifted in time. The bank recommended that SL split the payment over two amounts, which SL did; however, this was done at 5.55pm on the due date for payment and the bank’s cut off time for processing same day payments is 5.45pm.

The Tribunal found that there was a series of unforeseen unfortunate events outside of the taxpayer’s control which prevented payment from reaching HMRC by the due date. The appeal was allowed and the default surcharge discharged.

CVC comment: it is unusual for default surcharge appeals to be allowed. This case demonstrates an example of a ‘reasonable excuse’. 

5. eBay trader – penalty for failure to notify liability to be VAT registered

Ms Parminder Kaur sold goods on eBay in the period June 2010 to July 2011. In February 2015 HMRC commenced an investigation into Ms Kaur’s tax affairs. Ms Kaur stated in a letter to HMRC dated 3 October 2015 “…I had made no profit no money from the venture. I did not know or was aware that I had to keep any paperwork or accounts, as I did not, so I do not know what my liability will be as I made nothing from it.”

HMRC analysed a sample of 3,983 feedback postings on Ms Kaur’s eBay account to estimate the turnover of the business. Ms Kaur objected to the sampling methodology so HMRC calculated the sales on all 20,574 feedback postings. The turnover in the period was approximately £278,000 with sales in Sterling, Euros, US Dollars and Australian Dollars. HMRC concluded that Ms Kaur was liable to be registered for VAT from 1 December 2010 and ceased trading on 17 July 2011. The VAT liability was assessed at £27,632.98 and a failure to notify penalty of £14,507.31 was applied. Following formal review HMRC reduced the penalty to £6,908.24.

The Tribunal found that the VAT liability calculation by HMRC was performed to HMRC’s best judgement and agreed with HMRC’s penalty calculation. The taxpayer’s appeal was dismissed.

CVC comment: the penalty regime is based on the taxpayer’s behaviour. Penalties may be mitigated if the taxpayer tells HMRC about the error, gives HMRC reasonable help to resolve the matter and allow HMRC access to records where necessary. We would always encourage pro-active behaviour. HMRC is paying particular attention at the moment to transactions taking place on online marketplaces such as eBay and Amazon. 

6. Zero-rating and input tax denied

C F Booth (CFB) is in the business of metal recycling and metal ingot manufacturing in Rotherham. HMRC denied a claim (in the sum of £160,281.50) by CFB to zero-rate eight supplies of metal to a Belgium registered trader on the basis of CFB’s failure to produce satisfactory export evidence. HMRC also denied input tax in the sum of £2,607,776 on the basis that 655 purchases of various metals were connected to the fraudulent evasion of VAT and that CFB knew or should have known the connections. CFB appealed both decisions and these were heard together before the Tribunal.

A vast amount of information was put before the Tribunal. Documentary evidence was contained in 23 lever arch files and evidence was heard from 19 witnesses. The Tribunal dismissed the appeal holding that CFB cannot have either acted in good faith or taken every reasonable measure not to become a participant in any fraud. Therefore, even if export evidence had been satisfactory, HMRC would have been entitled to deny zero-rating. Additionally, given its standing and history in the sector, its experience and financial strength (taking account of CFB’s £21 million overdraft facility) CFB must have known of the connection  to fraudulent evasion of VAT.

CVC comment: This case highlights that it is not enough for businesses to obtain satisfactory evidence to support a particular VAT treatment. Businesses must take reasonable steps to ensure that it does not become a participant in VAT fraud.