News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
NEWSLETTER, FEBRUARY 2023
This newsletter is a summary of important recent developments in the field of VAT. I hope you find it interesting and useful. If you would like further details on any of the topics covered or assistance on any other matter, please contact me using the details shown at the end of the newsletter
The default position for sales and rentals of land and buildings is that the supply is exempt. The result is that any input VAT incurred in the course of making the supply is irrecoverable. However, the supplier may “opt to tax” the property, with the result that a supply which would otherwise be exempt becomes standard-rated, and related input VAT becomes recoverable.
In certain circumstances, it is not possible to opt to tax a property, for example when that property is designed or adapted for use as a dwelling, or where anti-avoidance rules are triggered (these are complex but may apply where the property is let to a connected person who makes exempt supplies).
Brief 1 has overhauled the procedures for notifying HMRC that a property has been opted to tax. Previously, when a taxpayer notified HMRC of an option to tax, HMRC would send a letter confirming that a notification had been received; but from 1 February 2023 no kind of acknowledgement is issued unless the option has been notified to HMRC by e-mail, in which case HMRC simply send an e-mail acknowledgement – or so the Brief says. In practice these auto-acknowledgements appear not always to work properly, and not everyone gets one. If you do not receive an auto-acknowledgement, you should e-mail HMRC, and they should then send a manual acknowledgement.
If a taxpayer is unsure whether a property is subject to an option to tax and writes to HMRC asking for confirmation, HMRC will only respond if the option is likely to have been made more than six years ago, or if the requester has been appointed as a Land and Property Act receiver or an insolvency practitioner to administer the property in question.
New rules have been introduced for VAT periods starting on or after 1 January 2023.
Businesses receive one late submission penalty point for each late submission. Once the relevant penalty threshold is reached for that business, the business receives a fixed £200 penalty. The threshold is 4 for businesses submitting quarterly returns, and 5 for those submitting monthly returns. Penalties apply to nil or repayment returns.
While at the penalty threshold, subsequent late submissions incur a further £200 penalty, rather than additional penalty points.
Penalty points for businesses which have reached the threshold can be removed if no further returns are late for twelve months (or six months for businesses submitting monthly returns). Points for businesses which have not reached the threshold expire automatically.
If payment is made late by 1-15 days, there is no late payment penalty. For payments made 16-30 days late, there is a penalty of 2%, although during 2023 there is no late payment penalty for payments up to 30 days late. For payments made over 30 days late, there is a penalty of 2% on the amount owing at day 15, and a penalty of 2% on the amount owing at day 30. There is a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full.
HMRC also charge late payment interest from the date the amount is payable to the date the amount is paid. Late payment interest is calculated at the Bank of England base rate plus 2.5%.
The European Commission has announced proposed changes to supplies of short-term accommodation and passenger transport via intermediaries. This would affect anyone in the supply chain, even non-EU businesses, and would take effect from 1 January 2025. The intermediary would become the deemed supplier and would be responsible for the collection and remittance of VAT. It could apply, for example, when a French guest house is itself exempted from VAT registration because it is a small business, but the accommodation is arranged through an intermediary.
Innovative Bites Ltd – oversized marshmallows are not confectionery
Although food is zero-rated, confectionery is standard-rated. Confectionery is defined in VAT Act 1994 Sch 8 Gp 1 Note (5) as “chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”. Innovative Bites supplied a “mega marshmallow” which was intended to be roasted over a campfire or barbecue and then eaten or used as an ingredient in what is called a “s’more”. A s’more is a traditional American night-time campfire treat, consisting of a roasted marshmallow and a layer of chocolate between two digestive biscuits.
The FTT found that this was not confectionery and was zero-rated. Confectionery would not normally be used as an ingredient for another product, but this was an ingredient for the s’more. Additionally, the mega marshmallow was clearly intended for roasting, as evidenced by the packaging, the size and its positioning in the barbecue section of the supermarket.
WHY IT MATTERS: This does not necessarily mean that all marshmallows are zero-rated. It will always depend on the facts of the case and whether the marshmallow is intended to be roasted. HMRC have commented: “VAT treatment would be determined by all relevant factors including where they were placed (such as in the baking section of a supermarket aisle) and the way in which they were held out for sale, and that would include the marketing of the product and how it is labelled and packaged.”
Mainpay Ltd - temporary medical staff do not qualify for exemption
Mainpay provided medical staff to Accident and Emergency Agency Ltd which in turn supplied the staff to the NHS who used the staff in hospitals. Mainpay argued that it was making a supply of medical care which was exempt from VAT under VAT Act 1994 Sch 9 Gp 7 (health and welfare).
The Court of Appeal said that the key question was whether “the consultants come under the control, direction and supervision of the NHS Trusts. If so, that would be a supply of staff by Mainpay. If not, then it would be a supply of medical care by Mainpay.” The reality was that the staff were supplied by Mainpay to Accident and Emergency Agency Ltd and by them to NHS trusts, who used the doctors to provide medical care to their patients. Mainpay was making supplies of staff and not of medical care. The supply was taxable.
WHY IT MATTERS: The question of control was looked at in the Moher case in which the UT held that temporary staff supplied to a dentist were under the control of the dentist, and it was difficult to see how one could conclude that the taxpayer was making supplies of anything other than staff, which was taxable. If Mainpay had been able to show that it retained control over the medical staff, it might have succeeded in its argument that it was making exempt supplies of medical care.
Borough Council of King’s Lynn and West Norfolk – parking overpayments are consideration for a taxable supply
In 2012 the FTT ruled that overpayments received by King’s Lynn and West Norfolk Borough Council were not consideration for a supply, on the basis that “the fact that a person has overpaid does not make the overpaid amount consideration”. In this latest case, heard in 2022, the display board showing the tariffs said that overpayments were accepted and that no change was given. This was considered to be an offer to provide parking for a payment of at least the given amount, and this offer was accepted by the customer. If the customer overpaid, this overpayment was consideration for a supply.
WHY IT MATTERS: Despite the 2012 ruling that overpayments were not consideration for a supply, the Court of Appeal in National Car Parks held that an overpayment to a private sector provider was consideration for a supply, and the UT in the case expressed the opinion that the 2012 case had been wrongly decided. The Court of Appeal in NCP declined to express an opinion on whether the 2012 case was wrongly decided because it was not in possession of the full facts. The question before the Tribunal in this latest King’s Lynn case was whether the 2012 case was correctly decided, and the answer was that it was, as the UT in the NCP case thought, wrongly decided.
Could you or your staff benefit from a visit to review any VAT issues, or a day’s VAT training? I have 19 years’ experience of presenting VAT courses, and some of the courses I have delivered are as follows:
I have presented VAT courses in numerous countries including the Netherlands, Malta, Switzerland and Ireland, as well as delivering online training.
My courses are interactive, and I encourage participants to ask questions relating to situations they have encountered in their work.
I qualified as a Chartered Accountant in 1997 with Malthouse & Company, a practice in Liverpool City Centre, and moved on in 1999 to work in property management. In January 2004 I started my own practice, initially in Birkenhead but then in York from 2008.
Many of my clients have been with me since the mid-2000s and value the personal and prompt service I offer, whether they need in house VAT training, a visit to discuss VAT issues or ad hoc advice over the telephone or by email. Any telephone advice I give is followed up within a short time by an emailed summary.
I am a member of the VAT and Duties Subcommittee of the ICAEW Tax Faculty, and I am one of the ICAEW’s representatives on HMRC’s Land and Property Liaison Group
Peter Hughes, M.A., F.C.A.
11 Sails Drive,
Heslington,
York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
5 February 2023