News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
NEWSLETTER, MAY 2022
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.
HMRC BRIEFS
Brief 3 (2022) - postponed VAT accounting and businesses registered under the Flat Rate Scheme
Following the UK’s departure from the EU, businesses importing goods are allowed to account for the import VAT in box 1 of the VAT return.
Originally, businesses registered under the flat rate scheme were asked to include the value of the imported goods in their flat rate turnover. However, for accounting periods starting on or after 1 June 2022, this is revised so that the full amount of import VAT is included in box 1. So the flat rate calculation will no longer include the value of imported goods.
Brief 4 (2022) - End-customer claim refunds of VAT wrongly charged
If a person has been wrongly charged VAT, a claim cannot normally be made from HMRC. The only person who can normally make a claim is the person who wrongly charged VAT. The Supreme Court’s decision in the case Investment Trust Companies (in liquidation) was that, if it were impossible or excessively difficult to bring a claim against the supplier, a claim against HMRC might be possible. This might apply if the supplier were insolvent and therefore any claim by the customer against the supplier would fail. Brief 4 (2017) was issued by HMRC.
This decision was based on the general principles of EU law. Part of the Supreme Court’s judgement ran: “There is a well-established principle of EU law that a member state is in principle required to repay taxes levied in breach of EU law.” Following the UK’s departure from the EU, this no longer applies, and Brief 4 (2017) is withdrawn. The customer’s only recourse is to bring a claim for wrongly charged VAT against the supplier.
Brief 5 (2022) - Revised guidance on dealing with VAT grouping registration
Businesses which have submitted an application to form, disband, join, leave, or alter the members of a VAT group must now treat the application as provisionally accepted on the date when it was submitted online. If it was submitted by post, it should be treated as provisionally accepted on the date when it would normally have been received by HMRC
Brief 8 (2022) - Single DIY Claim — First-tier Tribunal Andrew Ellis and Jane Bromley
The building of a new dwelling house is normally zero-rated. The DIY scheme puts housebuilders who buy materials to build their own house in the same position as those who use the services of a contractor. Under the scheme, VAT incurred on the building materials is refundable. Claims must be made within three months of completion. In the Tribunal case Andrew Ellis and Jane Bromley, a claim was submitted and was supported by a valuation for council tax purposes. A second claim was submitted, supported this time by the grant of planning permission, but HMRC ruled that this was out of time because a claim had already been made. The Tribunal found that the first claim was invalid as the evidence of completion should not have been accepted, and therefore the second claim was not out of time. The Brief says that, where a claim has been paid in error, HMRC will accept a subsequent claim with evidence that the claim has been made within three months of completion.
VAT – COURT AND TRIBUNAL DECISIONS
Zipvit – claims for input tax failed through lack of invoice (ECJ)
Royal Mail supplied postal services to Zipvit, who sold vitamins and minerals by mailing them to customers. Royal Mail considered the services exempt, although this was later found to be incorrect following the decision in TNT. Zipvit attempted to recover the VAT as input tax, because it was “due or paid” in accordance with Art 168 (a) of the EU VAT Directive. It might have succeeded in its claim had it held a VAT invoice, but it did not. The AG’s opinion was that Zipvit must hold a document showing the amount of VAT, and as it did not, no input tax recovery was possible.
WHY IT MATTERS: VAT Notice 700 states that input tax can be claimed only when a valid
VAT invoice is held.
Radio Popular – incidental financial services do not include insurance (ECJ)
A Portuguese retailer of domestic appliances sold warranties, which were exempt, on behalf of an insurer and thereby earned commission. It excluded the commission from its partial exemption calculation, but Art 174 (2)(b) excludes only incidental real estate and financial transactions from the partial exemption fraction. Insurance was not a type of financial service.
WHY IT MATTERS: For UK partially exempt businesses, certain supplies are excluded from the partial exemption fraction. These include supplies of capital goods, financial transactions and real estate transactions. The last two are excluded only if they are incidental to a business activity. Some years back I advised a trust which owned historic houses and sold one. The sale was exempt and would have adversely affected the trust’s partial exemption fraction, but the trust argued that the sale was incidental to its core activities and could therefore be excluded. This case is a reminder that the exclusion does not automatically apply to any incidental supply
DSAB Stockholm – multi-purpose voucher (ECJ)
Multi-purpose vouchers are taxed under EU law when the underlying goods or services are provided. The taxable amount is the amount paid for the voucher. A multi-purpose voucher is one which is not a single purpose voucher; a single purpose voucher is one where the place of supply of the underlying goods or services, and the VAT due on those goods or services, are known at the time of issue of the voucher. “Voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services and where the goods or services to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation.
DSAB sold city cards to tourists which gave the tourists access to museums, cathedrals, castles and boat trips, and also public transport. The AG found that this was a voucher, and furthermore it was a multi-purpose voucher as the amount of VAT on the services was not known at the time of issue. VAT should be accounted for by the attractions at the appropriate rate; and any amounts retained by DSAB should be recognised as consideration for promotion services.
WHY IT MATTERS: This is a reminder that the UK Government revised the definition of single-purpose and multi-purpose vouchers in 2019, as it was required to do under EU law. The definition of a single purpose voucher is as stated above, whereas previously a single purpose voucher was one which represented the right to receive goods or services of one type which were subject to one rate of VAT.
Hippodrome Casino – floor space based partial exemption method appropriate
Hippodrome Casino found that only 5% of its theatregoers used its casinos. Admission to the theatre was taxable, while the casinos were exempt. The casino activities generated more turnover than the theatre but occupied much less space. The FTT decided that the Hippodrome was entitled to apply the standard method override and recover residual input tax based on a floor space method.
WHY IT MATTERS: HMRC are notoriously reluctant to allow floor space based partial exemption methods, but they may do so if the majority of residual costs are property-related, as they were here
First Alternative Medical Staffing – nursing agencies concession
The nursing agencies concession is outlined in para 6.6 of VAT Notice 701/57 and allows agencies to exempt the supply of nursing staff if they are in the register of qualified nurses or are unregistered nursing auxiliaries directly supervised by someone in the register or supplied to a hospital, hospice or care home. The staff must be directly involved in nursing care, and they must be supplied to an NHS body, local authority or charity.
There was some doubt as to whether HMRC had accepted that the appellant met the conditions of the concession between 2013 and 2016. The CA decided that they did not.
WHY IT MATTERS: The nursing agencies concession is informal and extra-statutory, and it is unlikely that it can be relied on retrospectively.
Kühne & Nagel – break clause validly exercised
KN paid £112,500 to Ventgrove to exercise a break clause on a 10-year commercial lease in February 2021. The clause said that the amount payable was £112,500 plus VAT “properly due thereon”. Because KN had not paid VAT, Ventgrove said that the break clause had not been validly exercised.
HMRC’s policy at the time was that VAT was not payable on early termination payments. The Court of Session therefore held that, despite the non-payment of VAT, the break clause had been validly exercised.
WHY IT MATTERS: In December 2020, HMRC issued Brief 12 (2020) which said that early termination fees are generally a supply for VAT purposes, contrary to previous practice. However, this policy change was put on hold in January 2021. Brief 2 (2022) has now been issued and states that, from 1 April 2022, most termination payments will be regarded as further consideration for the underlying supply. This is in line with the Vodafone case heard by the ECJ. In the KN case, the payment was made after the original Brief 12 (2020) was suspended, and so no VAT was due on the payment
VAT – VISITS TO YOUR COMPANY AND TRAINING
Could you or your staff benefit from a visit to review any VAT issues, or a day’s VAT training? I have 18 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
17 May, 2022