Tag Archives: reduced rate

CVC VAT Focus 27 September 2018

27th September 2018

HMRC NEWS

Trading Goods Regulated Under the “New Approach” if There Is No Brexit

How trading in harmonised goods regulated under the New Approach would be affected if the UK leaves the EU with no deal.

Software Suppliers Supporting Making Tax Digital for VAT

Find out which software suppliers HMRC is working with to produce suitable Making Tax Digital for VAT software for businesses and their agents.

Customs Declaration Service

The Customs Handling of Import and Export Freight (CHIEF) process is being replaced by CDS, a modern and flexible system that can handle anticipated future import and export growth.

CHANGE OF WEBSITE AND EMAIL ADDRESSES

Constable VAT Consultancy is in the process of updating its website to make it easier to access information about our services and to keep you up to date all the upcoming changes in VAT. The first step in this process is a change in our website and email addresses from ukvatadvice.com to constablevat.com. You don’t need to do anything to continue to access our website or your usual contacts, all mail and website traffic will automatically be rerouted. However, you will notice that emails coming to you will show our new email addresses. If you are in any doubt at any time as to whether an email you receive from us is genuine please call our office on 01206 321029.

CASE REVIEW

Upper Tier Tribunal

1. Splitting Single Supplies

This appeal concerns whether the VAT legislation allows application of a reduced rate of VAT to a component of what is, for VAT purposes, otherwise regarded as a single, standard rated supply. The Appellant had received assessments from HMRC for underpaid output VAT owing to the fact that single supplies were being split between standard and reduced rates of VAT.

A N Checker supplied and installed boilers along with energy-saving materials in domestic properties. The question before the Tribunal was whether the supplies were single supplies subject to either one or two rates of VAT. A N Checker did not argue that the whole supply should benefit from the reduced rate because of the reduced-rated component of the supply but that the reduced-rated component should benefit from the reduced rate despite being part of a single, standard rated supply of the installation of boilers.

The Tribunal found that, in the absence of a legislative provision for apportionment, a component of a single supply does not benefit from a reduced rate when forming part of a single, standard rated supply. It was asserted that, despite ambiguity in the construction of the legislation, there is no presumption in favour of a more liberal application or interpretation of the reduced rating provisions. The appeal was dismissed.

Constable Comment: Whilst certain supplies may be clearly defined and their treatment definitively described in VAT legislation, there are businesses which may make complex supplies of combined goods and services. In light of this decision, these businesses may wish to refresh existing practices and seek professional advice around the VAT treatment of their supplies.

First Tier Tribunal

2. Alteration or Annexe

This decision concerned the VAT liability of construction works undertaken at a church building, the Roman Catholic Diocese of Westminster sought to argue that the construction of a new hall attached to the old building after the remodelling of the church constituted an annexe to an existing building and should qualify for zero-rating. HMRC argued that the new hall constituted an alteration, enlargement or extension and was excluded from the zero-rate.

Prior to the construction, the Church had been separated into two areas, a worship area and a hall. The two were distinct from each other. The new hall had its own doors and was kept separate from the Churches area of worship; the hall being used for social events such as whist drives. The Tribunal considered that the construction work had been carried out in order to expand worship space for the Church and therefore, that the hall was a supplementary structure and an annexe to an already existing building.

The FTT also considered that the annexe could operate separately from the main Church with its own doors, toilet facilities, kitchen and radiators. It is held that the costs incurred were correctly treated as zero-rated by the Diocese.

Constable Comment: This case will be of interest to anyone carrying out construction works. It is prudent to seek professional advice before works begin as if the incorrect rate of VAT is applied throughout a lengthy and expensive project, it is possible that HMRC will seek to recover any input VAT incorrectly claimed or issue VAT penalty assessments if a certificate is issued to a contractor claiming zero-rating in error.

3. DIY Housebuilder’s Scheme

This appeal is against a decision by HMRC to refuse a refund of VAT incurred on the construction of a building as a DIY Housebuilder.

The Appellant received planning permission in 2011 for a proposed building to be used for tourism purposes only. This was an explicit term in the permission and it was specifically stated that the property “…shall not be occupied on a permanent basis.” Following completion of the construction, the DIY VAT refund claim was submitted to HMRC seeking to recover the VAT incurred on the costs of the build.

The VAT repayment was denied on the grounds that the property was only for business purposes; one of the covenants attached to the planning permission being that the property be used for tourism purposes only. HMRC contended that this meant that the property had been constructed in the course of business and so the DIY housebuilders scheme was inapplicable.

Giving a reasonable amount of time to the Appellant’s submissions, the Tribunal found in favour of HMRC and upheld its refusal to repay VAT incurred on the grounds that the intention and planning permission for the development was specifically for business purposes and prohibited domestic use.

Constable Comment: The DIY Housebuilder’s scheme enables people wishing to build their own homes to put themselves on a level playing field with property developers who can recover their input tax provided that they intend to make taxable supplies. It can be a complex process and standards of proof can be very high. If you are considering submitting a DIY Housebuilder’s claim or beginning a project then please do not hesitate to contact Constable VAT. In this case the appellant could have VAT registered voluntarily, supplies of holiday accommodation being standard rated, and reclaimed VAT incurred. VAT would have to have been accounted for on supplies of holiday accommodation moving forward.

4. Personal Export Scheme

This is an appeal against a decision by HMRC to refuse to allow the personal export scheme to apply to the Appellant’s export of a vehicle.

Hofmanns Henley Limited (HHL) is a car dealership which agreed the sale of a car to a customer resident in Jersey. It was intended that the Personal Export Scheme be applied to export the car at the zero-rate of VAT. Having agreed the sale and sent the appropriate paperwork to HMRC, the car was supplied to the customer.

HMRC refused the application to use the scheme claiming that HHL did not have the necessary pre-approval to zero-rate the car’s export; whilst the forms had been sent off, they had not been approved prior to the car’s removal from the UK.

HHL conceded that it had made a mistake but asserted that it was, at least in part, the fault of HMRC’s misdirection given over the telephone. HMRC also concede that the incorrect information was given to the Appellant over the ‘phone but state that the complaints in relation to this had been handled separately through the formal grievance procedure.

The Tribunal held in favour of HMRC as the criteria for the application of the Personal Export Scheme had not been met.

Constable Comment: Whilst this case revealed mistakes by both sides it serves to prove an important point. HMRC telephone conversations and Public Notices are not to be relied on as the law. For any high value purchase or acquisition with a potentially complex cross-border transaction and application of a special scheme it is vital to seek professional advice to ensure the highest degree of compliance. In circumstances such as these, HMRC often state “the law is the law” even in cases of official error. Where doubt or ambiguity exists, submitting a non-statutory clearance application to HMRC is the safest approach because HMRC will be bound by this, provided full facts have been presented.

CVC VAT Focus 12 July 2018

12th July 2018

HMRC NEWS

VAT grouping eligibility criteria changes

This latest measure will allow certain non-corporate bodies to join VAT groups. For example a charitable trust which is VAT registered as a partnership may now be able to form a group VAT registration with its wholly owned trading subsidiary.

VAT treatment of vouchers

Draft legislation about the implementation of an EU Directive of the VAT treatment of vouchers.

VAT Notes 2018 Issue 2

This note explains how to receive payments by Bankers Automated Clearing System (BACS) and applications to the Fulfilment House Due Diligence Scheme.

Revenue and Customs Brief 4 (2018)

This brief sets out HMRC’s policy on the changes to the time limits for VAT refund schemes if you are a local authority, police or similar body.

HMRC and online marketplaces agreement to promote VAT compliance

Find out more about the agreement and how it will help build collaborative relationships. The list of signatories has been updated.

OTHER NEWS

CVC advises many charities. Our clients include a number who offer support to vulnerable people and those with disabilities. The recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people.

This article by one of our partners, Stewart Henry, gives an engaging analysis of the Court’s criticisms of HMRC and how it struggles to handle some of the challenges presented when dealing with more vulnerable members of the public.

CASE REVIEW

CJEU

1. Transfer of immovable property from a Municipality to the Treasury

This referral from the Polish Court asked whether the transfer of ownership of immovable property owned by the Municipality for compensation constitutes a taxable transaction for VAT purposes where the property continues to be owned by the Municipality as a representative of The Treasury.

In this case the State acquired, by compulsory purchase, immoveable property in order to develop a new national road from the Municipality. Concluding that the Municipality is a taxable person, the Court went on to outline three criteria necessary for a taxable supply to have arisen; a transfer of a right of ownership, made in the name of or by order by a public authority and there must have been payment.

On analysis of the circumstances in the case, it was concluded that there was a transfer of legal title of the property. With regard to the compensation received, as this was a State purchase of a Municipality piece of land, the purchase was handled as an internal accounting entry which it was argued prevented it being seen as payment for a taxable supply. The Court held that it was irrelevant as there had been consideration for a taxable supply of immoveable property; internal accounting or not.

In summary, the CJEU held that in circumstances where there is compensation given in exchange for immoveable property between taxable persons there is a taxable supply for VAT purposes even where the compensation is by way of an internal accounting entry.

CVC Comment: A supply of immovable property in exchange for consideration will constitute a taxable supply, even where the consideration is made purely by way of an internal accounting entry. A transfer is a transfer and the Court will be reluctant to read into supplies that they are not taxable transactions in the absence of any substantive evidence to the contrary. Before making any transfer of a significant value, or where operating in a grey-area, then it is always prudent to seek professional advice.

2. Buying back shares by transferring immovable property: A taxable supply?

The CJEU has responded to a Polish referral asking if the transfer by Polfarmex, a limited company, to one of its shareholders of immovable property as consideration for shares in that limited company by way of a share buy-back constitutes a taxable supply. Polfarmex argued that the plan was to restructure the share capital of the company by buying shares back and it was therefore not subject to VAT as the transaction did not form part of its business activities.

The Court stated as common ground that the transaction proposed by Polfarmex and the shareholder would lead to the transfer of the right of ownership of immovable property and that Polfarmex is a taxable person in Poland. In the absence of any place of supply issues, the main question looked at by the Court is when a supply of goods is made for “consideration”. It was held that a supply is made for consideration only where there is a legal relationship between both parties which requires reciprocal performance.

It was concluded that if the transfer of the immovable property to buy-back shares in Polfarmex would be subject to VAT if the actions by Polfarmex are ruled by the referring Court to constitute a part of its economic activity. The Court did not give direction on this topic.

CVC Comment: When restructuring companies and acquiring shares, complex VAT issues arise, as is demonstrated by this case. Before taking on the challenge of restructuring a company it is vital that professional advice is sought in order to ensure the highest degree of compliance is maintained.

3. Exemption on imported goods subsequently despatched to a taxable person different to that named on the invoice for the supply.

This decision relates to Enteco Baltic (EB), a Lithuanian wholesaler of fuel who imported fuel from Belarus free of VAT as it was to be sold onto third parties in other European Union member states.

Complying with relevant EU and domestic rules, EB provided the tax authorities with their own, the supplier’s and the purchaser’s VAT registration numbers and certificates of origin within the relevant time limits prior to import. However, EB’s intended supplies did not go ahead and the fuel was subsequently sold to businesses in other EU Member States. In order to remain compliant and to continue to benefit from the exemption for import VAT when an onward supply to a taxable person in another member state, EB declared this to the tax authorities with the VAT registration numbers of the new intended recipients. Whilst initially the tax authorities accepted this, an inspection in 2014/15 led to a discovery that the recipients’ VAT registration numbers declared on the initial import document did not correspond with those of the actual recipients.

In reaching a conclusion, the CJEU held that the exemption from VAT applying in the present circumstances is available where three core criteria are met;

The supplier has the right to dispose of the goods,
The supplier establishes that those goods are shipped to another Member State
As a result of the despatch the goods physically move out of the territory.

The inclusion of the purchasers VAT registration number on the invoice for the supply is not, therefore, essential, especially in situations such as those in these proceedings where the tax authorities were informed of the situation. It was held that application of the relevant exemption cannot be prohibited unless the supplier intentionally is participating in tax evasion.

CVC Comment: This complicated set of circumstances came down to a three-point test by the Court in order to reach a conclusion. The judgment reached shows that the Court will have regard to the economic reality of the transactions taking place where rigorous application of the law results in an unfair result.

Court of Appeal

4. VAT is not recoverable on supplies incorrectly treated as exempt by UK law

Here The Court of Appeal considered a question of whether the appellant, Zipvit, was entitled to deduct input tax on services received from Royal Mail which were treated as exempt by UK law at the time of supply but which should have been treated as standard rated according to EU law.

Royal Mail believed its supplies to be VAT exempt and it did not issue VAT invoices to Zipvit, nor pay over VAT to HMRC. The contract between the two parties made no comment with regard to VAT. Zipvit contended that it had a right to deduct VAT that should have been charged and should be deemed to be included in the invoices it had already received.

Two main issues fell before The Court; was VAT due or paid on the supplies by Royal Mail and whether the lack of VAT invoices barred any input VAT recovery by Zipvit anyway. Ultimately, the decisions of the FTT and UT were upheld by the Court; no VAT was paid over by Royal Mail and no right to deduct had arisen for Zipvit. The judgment focussed particularly on the importance of the lack of VAT invoices issued to Zipvit which ultimately ensured that no right to deduct had arisen.

CVC Comment: Zipvit has been a lead case and it will be interesting to see if it is appealed further as there have been many cases “stood behind” this judgment. Whilst this is a disappointing result for the appellants and others, it serves as an important reminder to always give consideration to VAT when drafting contracts in order to avoid complex and potentially costly situations such as the one at hand arising. The decision also emphasises the importance of obtaining correct evidence to support a right to deduct VAT incurred.

First Tier Tribunal

5. Failed zero-rating of a disposal of a renovated property

This case concerned an appeal against a decision reducing the input tax claim of a property development company.

Fireguard Developments Limited (Fireguard) renovated and subsequently sold a property (the property), believing the house had been vacant for ten years making the onward supply zero-rated. To reflect this Fireguard sought to reclaim the VAT incurred on the renovation in respect of the VAT accounting period ending 31 December 2016 on its VAT return. HMRC contended that the property had not been vacant for ten years prior to disposal and therefore that the supply was exempt meaning recovery of input VAT should be restricted.

The FTT found in favour of HMRC who submitted PAYE records and electoral role entries to support its position that the property had not been vacant for ten years prior to the refurbishment and disposal. As the property was found not to have been empty for ten years immediately prior to its sale the disposal was exempt and directly attributable input VAT was therefore irrecoverable.

CVC Comment: In cases where a business is seeking to benefit from a reduced or zero-rate of VAT it is essential to ensure that all material facts are known. The rules around when the reduced and zero-rates of VAT apply are complex and before taking on any significant or high value land or property related projects it is safest to seek professional advice.

CVC VAT Focus 21 June 2018

21st June 2018

HMRC NEWS

Help and support for Making Tax Digital

Watch webinars and videos for help with using software to send Income Tax updates and VAT Reports to HMRC if you are an agent or a business.

Revenue and Customs Brief 5 (2018): VAT liability on goods supplied on approval

HMRC has reviewed the guidance in this area, this brief should be read by mail order retailers and anyone supplying goods delivered on approval.

Insolvency and VAT (Notice 700/56)

Find out how to account for VAT and who to contact if you are an insolvency practitioner and you are appointed over insolvent VAT-registered businesses.

Cancelling your VAT registration

The VAT7 PDF has been replaced with a print and post iForm.

OTHER VAT NEWS

We understand that HMRC has begun to contact firms directly regarding the VAT treatment of electronic searches following the Brabners LLP VAT case summarised on our website. The Law Society has issued guidance which can be viewed here.

CASE REVIEW

CJEU

1. Right to deduct: Supply never made

The CJEU has responded to the requests from German courts to rule on whether the deduction of input tax on a payment made on account is blocked where the ultimate supply is not made. In the two combined cases in question (Kroloβ and Wirtl), both companies ordered combined heat and power stations from G-GmbH (GA) and agreed to make payments on account to cover the cost, including the VAT element of the purchase. Ultimately GA became insolvent and delivery of the units never took place.

Both Kroloβ and Wirtl sought a deduction of input VAT incurred on these payments on account only to have the claims rejected. After successfully appealing these decisions, the German court asks whether the requirement as to the certainty that a supply will take place, as a condition of the deduction of input tax on a payment on account, is to be determined purely objectively or from the point of view of the person making the payment. It was also asked if the competent tax office must refund VAT to that person where it cannot be recovered from the recipient of that payment.

The CJEU concluded that a potential buyer may not be refused the right to deduct VAT in situations such as those in the main proceedings where all the relevant information concerning the future supply was known or should have been known by the buyer and the supply appeared to be certain.

CVC Comment: It is important to make sure before agreeing to a purchase that customers are aware of the position of the supplier and the likelihood of their insolvency or failure to carry out the order. The Court stressed that a potential buyer may not be refused the right to deduct VAT relating to a payment on account only when, at the time the payment was made, all the relevant information concerning the future supply could be regarded as known by the buyer and the future supply appears to be certain.

Upper Tribunal

2. Energy saving materials or a new roof?

This case concerned the classification for VAT purposes of a product offered by Wetheralds Construction Limited (Wetheralds) which is designed for conservatory insulation. The First Tier Tribunal (FTT) agreed with Wetheralds on its assertion that the supply being made was a single supply of the installation of energy saving materials and therefore attracted the reduced rate of 5%. HMRC disputed this decision, claiming that the installation amounted to more than energy saving materials and should be regarded as a supply of a new roof as new tiles were put down, meaning the supply was standard rated as more than merely insulating material was supplied.

The case before the Upper Tribunal (UT) in this instance is whether the FTT erred in its application of relevant case law and principles.

The UT concluded that the FTT had failed to consider, in enough detail, the extent to which the supply was a roof rather than an addition of energy saving materials to the pre-existing roof. In this vein it was also considered how customers interpreted the supply being made to them, the UT deciding that the supply would be taken by consumers to be an energy efficient replacement roof rather than insulation. A replacement roof is not an energy saving material, it is a roof and thus the supply should have been standard rated. It is stated that what should have been considered by the FTT is whether or not the supply was confined to a supply of energy saving materials, not whether it included a supply of this nature.

The UT agreed with HMRC and set aside the decision of the FTT, allowing HMRC’s appeal.

CVC Comment: When making supplies which could benefit from the reduced or zero rates of VAT, it is essential to know how to categorise the goods or services in order to prevent mistakes. If incorrectly applied to supplies, the reduced rate or zero-rate could leave businesses owing HMRC substantial amounts in respect of retrospective sales. HMRC may also apply penalties in respect of VAT accounting errors. HMRC can charge a 30% penalty of the VAT due for a failure to take reasonable care.

3. Services of agreeing discounts: taxable supplies?

The Upper Tribunal heard an appeal by Redwood Birkhill Limited (Redwood) which owns and manages public houses and hotels. In the course of this business it negotiates discounts with brewers by combining the buying force of Redwood and a number of publicans.

Paid back to Redwood as a rebate, the discounts were passed on to each publican in proportion in accordance with their agreement with Redwood. Redwood retained a proportion of the rebates paid over to it, amounts of which neither the publicans nor the brewers were aware. The issue before the UT in this scenario was whether the amounts retained by Redwood were consideration for supplies made to the publicans. HMRC had contended that taxable supplies were taking place, a position with which the FTT agreed. Redwood sought to argue that no supply was made and that the economic reality of the situation was that the publicans agreed to transfer their right to claim a discount to Redwood in exchange for the payments made to them by Redwood.

The UT disagreed with this, stating that the economic and commercial reality of the circumstances dictated that the supply should be characterised as a supply of services consisting of negotiating and administrating an arrangement with the Brewers. The purchases made by Publicans were aggregated with the effect of achieving higher discounts.

CVC Comment: When carrying on any business activity it is important to ensure that you are aware of any activity carried on which may be constituted as a taxable supply. Arranging rebates or discounts and acting as a ‘middle-man’ receiving commissions can be particularly complicated. Any businesses using this style of model should be aware of the potential VAT implications.